Annual Report 2017
Total Page:16
File Type:pdf, Size:1020Kb
Annual Report 2017 VEON Ltd. Claude Debussylaan 88, 1082 MD Amsterdam The Financial Statements are approved by the Audit Committee on behalf of the Supervisory Board on March 15, 2018 TABLE OF CONTENTS Director’s Report ................................................................................................................................ 3 Information on the Company ..................................................................................................................... 4 Directors and Senior Management .......................................................................................................... 41 Major Shareholders and Related Party Transactions .............................................................................. 50 How we manage risks ............................................................................................................................. 54 Risk factors .............................................................................................................................................. 57 Operating and Financial Review and Prospects ...................................................................................... 90 Additional Information ............................................................................................................................ 123 Quantitative and Qualitative Disclosures about Market Risks ............................................................... 137 Declarations .......................................................................................................................................... 139 Consolidated financial statements ............................................................................................... 140 Company financial statements...................................................................................................... 232 Other information ........................................................................................................................... 245 Independent auditor’s report ......................................................................................................... 246 VEON Ltd | Annual Report 2017 2 Director’s Report VEON Ltd | Annual Report 2017 3 INFORMATION ON THE COMPANY OVERVIEW VEON is a leading global provider of connectivity and internet services. Present in some of the world’s most dynamic markets, VEON provides more than 240 million customers (including the Italy Joint Venture) with voice, fixed broadband, data and digital services. VEON currently offers services to customers in 12 countries: Russia, Italy (through our Italy Joint Venture), Pakistan, Algeria, Uzbekistan, Ukraine, Bangladesh, Kazakhstan, Kyrgyzstan, Tajikistan, Armenia and Georgia. Our business in Laos is currently classified as an asset held for sale. VEON’s reporting structure is divided into three business units – Major markets (Russia and the Italy Joint Venture), Emerging Markets (Pakistan, Algeria and Bangladesh) and Eurasia (Ukraine, Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, Armenia and Georgia). We provide services under the “Beeline,” “Kyivstar,” “banglalink,” “Jazz” and “Djezzy” brands. As of December 31, 2017, we had 39,938 employees. In addition, the Italy Joint Venture provides services to customers in Italy under the “WIND” and “3” brands and had 29.5 million customers and 7,090 employees as of December 31, 2017. In 2017, we rebranded from VimpelCom to VEON, and launched the VEON platform in Russia, Ukraine, Georgia and Pakistan, after launching in Italy in 2016, to reflect our strategy to move from being solely a telecommunications company to a company leveraging new technology platforms with an asset-light business model. Technology is continuing to revolutionize the way users communicate, travel, bank, shop, consume and are entertained. We are focused on digitalizing our core telecommunications business model to ensure that our customers can transact with us online on all dimensions, with the aim of ultimately leading to increased customer satisfaction and a potentially lower cost structure for our business. Furthermore, our new VEON platform leverages the re-engineering of our legacy systems and data architecture, and enables us to offer new, personalized and contextual services. In 2018, we are prioritizing two strategic objectives within the organization: developing new digital services, including what we believe to be an industry-first BSS transformation, an integrated messaging and marketplace platform, and digitalizing the customer experience in our core telecommunications business. As part of this initiative, we are working through all layers of our technology landscape to deploy a fully digital end- to-end solution to benefit our customers. The new digital IT stack and data management platform are becoming the core of our IT, while we believe our network is becoming increasingly more virtualized, software defined, intelligent and dynamic. We are continuously future proofing our networks to prepare them for data growth and for new technologies, such as 5G. In addition, we have launched a significant re-engineering of our internal administrative systems and back-office processes in order to make our operations more agile and transparent. The VEON platform is about bringing together messaging services, content and a marketplace to provide a new personal internet platform particularly in emerging markets. With zero-rating as a fundamental component, VEON users will be able to use the VEON platform to stay connected for free, even when their data plans are out of credit. We work with partners from the music, transport, banking, e-commerce and other businesses, all of which are integrated into a single personalized internet platform. We believe that these revenue-share relationships, particularly those with local businesses in each of the countries in which we operate, will help grow business in those regions. As part of our initiative to digitalize the core telecommunications business, we intend to continue focusing on increasing our capital investment efficiency, including with respect to our IT, network, and distribution costs. We have secured network sharing agreements and intend to maintain our focus on achieving an asset-light business model, where we own only the core assets needed to operate our business. We anticipate combined operational expenditure and capital expenditure of approximately US$100 million per annum over the next four years as part of the rollout of the VEON platform. We anticipate that we will finance the investments (or the VEON platform) with operational cash flow, cash on our balance sheet and external financing that we currently have in place. VEON Ltd | Annual Report 2017 4 VEON Ltd. is an exempted company limited by shares registered under the Companies Act 1981 of Bermuda, as amended (the “Companies Act”), on June 5, 2009, and our registered office is located at Victoria Place, 31 Victoria Street, Hamilton HM 10, Bermuda. Our headquarters are located at Claude Debussylaan 88, 1082 MD, Amsterdam, the Netherlands. Our telephone number is +31 20 797 7200. VEON Ltd. is registered with the Dutch Trade Register (registration number 34374835) as a company formally registered abroad (formeel buitenlandse kapitaalvennootschap), as this term is referred to in the Dutch Companies Formally Registered Abroad Act (Wet op de formeel buitenlandse vennootschappen), which means that we are deemed a Dutch resident company for tax purposes in accordance with applicable Dutch tax regulations. Our legal representative in the United States is Puglisi & Associates, 850 Library Ave, Suite 204, Newark, DE 19711 (+1 (30) 738 6680). Our agent for service of process in the United States is CT Corporation, 11 Eighth Avenue, New York, NY 10011 (+1 (212) 894 8400). History Our predecessor PJSC VimpelCom (formerly OJSC “Vimpel-Communications”) was founded in 1992. In November 1996, PJSC VimpelCom became the first Russian company since 1903 to list shares on the New York Stock Exchange, where we remained listed until 2013 when we switched our listing to the NASDAQ Global Select Market. In the early 2000s, we began our expansion into the CIS by acquiring local operators or entering into joint ventures with local partners in Kazakhstan (2004), Ukraine (2005), Tajikistan (2005), Uzbekistan (2006), Georgia (2006) and Armenia (2006). In 2009 and 2010, PJSC VimpelCom and Ukrainian mobile operator, Kyivstar, combined to create a new company, VimpelCom Ltd, and established its headquarters in Amsterdam. More recently, our expansion efforts have included transactions involving operations outside of CIS. In 2011, we completed the acquisition of Wind Telecom S.p.A., an international provider of mobile and fixed-line telecommunications and internet services with operations in a number of countries including Italy, Algeria, Bangladesh and Pakistan. On July 1, 2016, Pakistan Mobile Communications Limited (“PMCL”) merged with Warid Telecom Pakistan LLC (“Warid”), which resulted in the merger of our telecommunications businesses in Pakistan (a transaction we refer to as the “Pakistan Merger” in this Annual Report). On November 5, 2016, we formed the Italy Joint Venture with Hutchison, through which we jointly own and operate our Historical WIND Business and H3G S.p.A. in Italy. See Notes 5, 14 and 25 to our audited consolidated financial statements). On February 27, 2017, we announced our new name “VEON,” which was approved by our shareholders