VEON Ltd. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an audited annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide clear Q4-only financial results. Amounts are in U.S. dollars unless noted. Financial statements use IFRS as issued by the IASB.
Business context and reporting period
VEON is a telecommunications and internet-services group operating in 10 countries, with seven reportable segments: Russia, Pakistan, Algeria, Bangladesh, Ukraine, Uzbekistan and Kazakhstan. It reported approximately 212 million customers and 46,492 employees. Revenue comes mainly from mobile and fixed-line voice, data and digital services, plus equipment sales.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total operating revenue | $8.863 billion | $9.086 billion | Down 2% |
| Service revenue | $8.240 billion | $8.526 billion | Down 3% |
| Operating profit | $2.019 billion | $554 million | Improved, partly reflecting unusual income and lower impairment |
| Profit from continuing operations | $683 million | Loss of $617 million | Returned to profit |
| Profit attributable to parent owners, continuing operations | $621 million | Loss of $397 million | Basic and diluted EPS: $0.36 vs. loss per share of $0.23 |
| Adjusted EBITDA | $4.215 billion | $3.273 billion | Up 29%; non-IFRS measure, materially affected by IFRS 16 and one-off income |
| Operating cash flow | $2.949 billion | $2.515 billion | Up $434 million |
| Capital expenditures, excluding licenses and right-of-use assets | $1.741 billion | $1.415 billion | Up $326 million |
| Cash and cash equivalents | $1.250 billion | $1.808 billion | Net of overdrafts, cash-flow statement reports $1.204 billion at year-end |
| External bank loans and bonds, principal | $7.519 billion | $7.298 billion | Excludes lease liabilities |
| Lease liabilities | $2.083 billion | Not separately reported under prior accounting | Recognized following IFRS 16 adoption |
| Working capital | Deficit of $3.269 billion | Deficit of $1.316 billion | Worsened, including debt reclassification and IFRS 16 effects |
Income tax expense was $498 million, producing a 42.2% effective tax rate. Finance costs were $892 million, up 9% year over year. Net foreign-exchange loss was $20 million. The filing does not state a consolidated IFRS profit margin; Adjusted EBITDA is a non-IFRS measure and should not be treated as a substitute for IFRS results.
Material changes versus the prior comparable period
- Revenue declined 2%, mainly due to lower U.S.-dollar reported revenue in Russia and Pakistan, including local-currency depreciation; Pakistan also faced regulatory impacts.
- Adjusted EBITDA increased 29%, but $511 million of the increase in the segment total reflected IFRS 16 lease accounting. The reported figure also included a one-off $350 million payment from Ericsson. Management said EBITDA excluding IFRS 16 was $3.704 billion.
- Operating profit improved substantially, supported by higher Adjusted EBITDA, the $350 million Ericsson gain and lower impairment losses than in 2018. The 2018 comparison included $858 million of impairment charges.
- Net investing cash flow shifted from an inflow of $1.997 billion in 2018 to an outflow of $1.888 billion in 2019. The 2018 period included $2.830 billion proceeds from the sale of VEON’s 50% interest in the Italy joint venture.
- VEON spent approximately $587 million to acquire additional GTH shares through a mandatory tender offer, raising its interest to approximately 99.54% by year-end. The purchase of non-controlling interests reduced parent equity through other capital reserves.
- IFRS 16 was adopted from January 1, 2019 using the modified retrospective approach; prior-year comparatives were not restated. It increased reported EBITDA by $511 million and resulted in recognition of lease liabilities.
Segment and operating highlights
- Russia: revenue of $4.481 billion, down 4%; Adjusted EBITDA of $1.957 billion, up 17%. Management attributed higher EBITDA mainly to IFRS 16 and cost savings; excluding IFRS 16, EBITDA would have declined 3%. Customers and U.S.-dollar ARPU decreased.
- Pakistan: revenue of $1.321 billion, down 12% in dollars but up 8% in local currency; Adjusted EBITDA of $669 million, down 6% in dollars but up 15% in local currency. Mobile customers grew 8%, while U.S.-dollar ARPU fell 17% to $1.70.
- Ukraine: revenue rose 26% to $870 million and Adjusted EBITDA rose 48% to $572 million, with growth supported by data and 4G/LTE adoption.
- Uzbekistan: revenue fell 18% to $258 million; management cited lower mobile termination rates and a new 15% excise tax. Customer count fell 11%.
- Algeria: revenue fell 5% to $775 million and Adjusted EBITDA fell 3%; management cited price competition, currency depreciation and customer churn.
- Bangladesh: revenue rose 3% to $537 million and Adjusted EBITDA rose 21% to $222 million; management said EBITDA would have declined 1% excluding IFRS 16.
- Kazakhstan: revenue rose 10% to $486 million and Adjusted EBITDA rose 31% to $270 million, supported by data growth and lower operating costs, including IFRS 16 effects.
Liquidity, debt and capital allocation
- Operating cash flow was $2.949 billion. Cash flow from investing activities was negative $1.888 billion and cash flow from financing activities was negative $1.639 billion; cash and cash equivalents, net of overdrafts, declined by $578 million.
- Contractual obligations included $8.812 billion of undiscounted bank-loan and bond payments and $2.649 billion of undiscounted lease payments. $2.100 billion of bank loans and bonds and $581 million of lease liabilities were due within one year.
- VEON reported $1.950 billion of undrawn credit facilities at year-end. Management said operating cash flows, cash on hand and external financing should fund foreseeable requirements, while acknowledging dependence on markets, currencies and subsidiary remittances.
- The group’s internal leverage target was Net Debt/Adjusted EBITDA of about 2.0x on a pre-IFRS 16 basis, equivalent to 2.4x post-IFRS 16. Debt covenants generally required the ratio to remain below 3.5x; VEON reported no covenant breaches in the periods presented.
- The 2019 dividend totaled $0.28 per share: $0.13 interim and $0.15 final, with the final payment made in March 2020. The new policy targets at least 50% of prior-year equity free cash flow after licenses, subject to board review. Management said the 2019 dividend represented about 70% of that measure.
Outlook, risks, contingencies and unusual items
- Management expected 2020 capital expenditures, excluding licenses, to remain significant, focused on high-speed networks and continued 3G/4G-LTE rollout. No specific consolidated revenue or earnings guidance is provided in the supplied filing text.
- Major risks include currency depreciation and translation exposure, inflation, competitive and pricing pressure, emerging-market political and regulatory uncertainty, sanctions and export controls, and the ability to refinance substantial debt and meet capital needs.
- Pakistan’s spectrum-license renewal is disputed. The regulator set an aggregate renewal price of approximately $450 million, excluding taxes; Jazz deposited approximately $225 million under protest to pursue its appeal. The deposit is recorded as a financial asset.
- VEON recorded a $90 million impairment for its Kyrgyzstan cash-generating unit and an additional $18 million network-related impairment. Goodwill associated with Algeria was $1.167 billion; the auditor identified the Algerian goodwill impairment assessment as a critical audit matter because of the significant assumptions involved.
- The group settled historic Egyptian tax liabilities for $136 million in 2019. The auditor also identified uncertain tax positions as a critical audit matter; the filing reports a $117 million gross provision related to uncertain tax positions.
- Contingencies include Banglalink tax disputes over replacement SIM cards, including an appeal rejected in February 2020, and arbitration and related Egyptian proceedings concerning the Telecel sale. VEON said the outcomes of legal matters are uncertain; some potential losses cannot be estimated.
- VEON’s U.S. DOJ deferred prosecution agreement and compliance monitorship concluded in 2019; the court dismissed the matter with prejudice in February 2020. The company reported audited financial statements and effective internal control over financial reporting; PwC issued unqualified opinions.
- Management described significant exposure to cyberattacks, data-protection requirements, supplier concentration and possible network disruption. It also disclosed geopolitical and sanctions risks affecting Russia and Ukraine, as well as export-control restrictions involving major network suppliers.
Most important facts for investors to verify
- How much of the reported EBITDA improvement is recurring after separating the $350 million Ericsson payment and IFRS 16 effects.
- The outcome, timing and possible additional cost of Pakistan’s disputed spectrum-license renewal and the recovery or application of the $225 million deposit.
- Near-term refinancing and liquidity capacity, particularly upcoming debt maturities, the working-capital deficit and the extent to which cash is accessible across subsidiaries.
- Whether customer, data-revenue and ARPU trends in Pakistan, Ukraine and other growth markets can offset declines or competitive pressure in Russia, Algeria and Uzbekistan.
- Assumptions and sensitivity behind Algeria goodwill valuation, and developments in material tax, regulatory and legal disputes.
- The terms and sustainability of dividend payments given the board’s discretion, debt obligations and restrictions on transferring funds from operating subsidiaries.