54

PERFORMANCE SUMMARY

Performance Summary 2019 Financial Review 56 Our Cornerstone, Russia 60 Our Growth Engines 62 Our Frontier Markets 68 Talent Management 70 Managing Our Risks 74

VEON Integrated Annual Report 2019 PERFORMANCE CORPORATE FINANCIAL ADDITIONAL INTRODUCTION VALUE CREATION 55 SUMMARY GOVERNANCE INFORMATION INFORMATION VEON Integrated Annual Report 2019 56 2019 FINANCIAL REVIEW

2019 FINANCIAL REVIEW

Another year of solid Group performance

2019 was another year of solid growth for the Group. Our performance either matched or exceeded the financial goals we set ourselves at the start of the year and was achieved alongside important milestones in compliance, governance and social responsibility.

Our growth is dominated by the Taken together, the diversification considerable opportunity we enjoy benefits of ten operating markets, in data revenue given relatively low each varied in nature but together levels of smartphone adoption in the sharing exciting demographics and markets we serve. This is evident in strong demand for data and digital the Group’s revenue performance in services, were again evident in 2019 2019, which on an organic basis grew as we met our financial guidance by 3.4% year-on-year to USD 8.9 billion despite significant challenges in our in 2019 and was underpinned by largest market. $8.9bn growth in data revenues, which rose Reported revenue by over one-fifth (+21.2% organic) We were similarly encouraged by the to USD 2.4 billion. growing contribution to our revenues of new services, which our strategy Our profitability continued to framework has identified as a clear improve during the financial year, value opportunity over the long term. led by strong organic revenue Enabled by our investment in 4G performances from our Growth networks and new digital business Engine markets of Pakistan, Ukraine support systems (DBSS) in a number and Kazakhstan. Coupled with of markets, we are developing local successful cost control across our ecosystems of digitally enabled $4.2bn business, the Group delivered 9.6% services, which over time have the Reported EBITDA EBITDA organic growth for the year potential to lift average revenue per and reported an EBITDA margin user (ARPU) and reduce customer of 47.6%. churn as we configure resources and services that match the evolving As with any portfolio of businesses, needs of our customers. performance across the Group is rarely uniform and 2019 was no Our digital financial services franchise exception. Our Russian business, in Pakistan, JazzCash, is a strong case Beeline, faced a number of in point. Serving one of the world’s operational challenges which most unbanked nations in terms of impacted its financial performance basic financial services access, $1.4bn as the year progressed. We have JazzCash has grown quickly and Equity free cash flow1 set out these challenges in some established a market-leading position detail in the following pages and in Pakistan and now accounts for are confident that we now have around 6% of our local revenues. an effective turnaround strategy in place with the aim of returning Controlling our costs Beeline to growth. Reducing costs remained a core focus In the meantime, we were pleased for management in 2019. This was to see strong performance from our evident in our Headquarters, where Growth Engines offset weakness in we reduced overhead by 23% from $2.4bn Russia, while our Frontier Markets its FY 2018 level to USD 277 million, continued to post solid results in broadly in line with our goal of Data revenue challenging market conditions. reducing corporate costs during the year by one-quarter. 1. Equity free cash flow excluding licences. For full definition see the Glossary on p.111.

VEON Integrated Annual Report 2019 57 INTRODUCTION

Cost discipline also extended ratio rose as a consequence, from disputed licence renewal fee in order throughout our operating companies, 15.6% in 2018 to 19.6% in 2019 on a to maintain its appeal regarding the where we successfully reduced the pre-IFRS 16 basis (or 23.1% reported). PTA’s underlying decision on the

Group’s cost intensity ratio by over licence renewal. There were no VALUE CREATION five percentage points on an organic Russia was a prime recipient of specific terms and conditions attached basis during the course of 2019, additional investment since we to the deposit. The deposit is recorded principally reflecting lower costs have encountered network quality as a financial asset in our statement of of our operations in Russia, issues that require an accelerated financial position. Ukraine and Uzbekistan. network deployment programme. Our network investments in Russia Simplifying our structure rose considerably as a consequence

Reinvesting cash for SUMMARY PERFORMANCE (+35% year-on-year pre-IFRS 16) and Historically, VEON has been a complex long-term growth resulted in Beeline deploying more Group organisationally, which reflects Our business is cash-generative, base stations in 2019 than any other the series of acquisitions and divestitures which is reflected in the equity free operator. This investment programme that took the company, formerly cash flow excluding licences (EFCF) remains underway and we believe we known as Vimpelcom, from its roots we were able to generate during the are on track to close Beeline’s network as a predominantly Russia and CIS- year. This amounted to USD 1.362 quality gap versus its competitors. focused operator to today’s portfolio of ten geographically diverse markets

billion, or a little over USD 1.0 billion GOVERNANCE CORPORATE on a pre-IFRS 16 basis, which was In Pakistan, we faced the renewal (see ‘milestones’ timeline on pages in line with our financial guidance of one of our licences in May 2019 14-15 for details of these). for 2019. These amounts include a relating to spectrum formerly owned one-off payment of USD 350 million by Warid, a mobile operator acquired Simplifying our organisational received from Ericsson (details below by the Group in 2015. This renewal structure has been a long- on page 58). remains subject to a legal appeal in the standing ambition of VEON’s Board Islamabad High Court with respect of Directors. Our exit from Italy in Elsewhere, 2019 saw the Group increase to the price required by the Pakistan the third quarter of 2018 through INFORMATION FINANCIAL investments in 3G and 4G networks Telecommunications Authority (PTA). the sale of our share in Wind Tre significantly to match strong demand for to our joint-venture partner, CK data and secure the network capacity In September 2019, our operating Hutchison, was an important step to deliver new services. Our capex company Jazz deposited approximately in this process and served to (excluding licences) to revenue US$225 million in relation to the increase our Group’s emerging markets focus considerably. INFORMATION ADDITIONAL

Integrated Annual Report 2019 VEON 58 2019 FINANCIAL REVIEW CONTINUED

Similar in significance was our The result of these activities saw our FY 2019 Revenue breakdown mandatory tender offer in July 2019 weighted average cost of debt fall (USD million) for the 42.31% of minority-owned slightly year-on-year to 7.4% at shares in our subsidiary Global the end of 2019 against 7.5% at Telecom Holding S.A.E. (GTH). The the end of 2018. This was achieved successful outcome of this tender despite a mix shift towards ruble- offer, along with the subsequent denominated paper which naturally transfer process of GTH’s assets attracts a higher coupon as we target to VEON following the company’s a currency mix of debt that reflects delisting from the Egyptian Exchange that of our revenues. in September 2019, enabled us to further consolidate the ownership In parallel, we succeeded in of our operating companies in maintaining broadly stable net Pakistan (Jazz), Algeria (Djezzy) and debt and leverage trends across Bangladesh (Banglalink) and served, the financial year, exiting 2019 with in turn, to bind VEON shareholders our Group leverage ratio (net debt/ Russia Uzbekistan Pakistan Algeria closer to the attractive long-term EBITDA) steady at 1.7x on a pre-IFRS Ukraine Bangladesh fundamentals of these early- 16 basis (or 1.9x excluding the Kazakhstan Other stage markets. USD 350million payment received from Ericsson, outlined below). FY 2019 EBITDA breakdown By the end of 2019, VEON had This leverage ratio was below our completed the intra-group transfers tolerance of 2.0x (pre-IFRS 16) (USD million) of Jazz, Banglalink and Med Cable. despite a rise in cash capex towards The intra-group transfers for the the end of the financial year relating remainder of GTH’s operating to increased network investment, assets, including Djezzy and Mobilink particularly in Russia. (Pakistan), are continuing. Since the operating assets of GTH had Revised partnership agreement previously been, and will continue to be, fully consolidated within the with Ericsson balance sheet of the VEON Group, In February 2019, VEON announced there is no material impact on a revised arrangement with Ericsson the selected financial information to upgrade its core IT systems in presented in this report stemming several countries in the coming from these asset transfers. years and to release Ericsson from Russia Uzbekistan the development and delivery Pakistan Algeria The restructuring of GTH was of Ericsson’s Full Stack Revenue Ukraine Bangladesh achieved alongside an agreement Manager Solution. Both parties Kazakhstan Other1 reached with the Egyptian Tax signed binding terms to vary the Authority to settle all outstanding tax existing agreements and as a result 1. Other includes interconnect, VEON received a payment of USD 350 roaming and intercompany liabilities of GTH and its subsidiaries eliminations and excludes million from Ericsson during the first for the tax years 2000 through 2018 corporate costs. for a total amount of USD 136 million, half of 2019. which was settled by VEON in two FY 2019 Operating The revised arrangement enables payments during the course of Cash Flow (EBITDA-CAPEX) H2 2019. VEON to continue upgrading its IT infrastructure with new digital of VEON’s markets business support systems (DBSS) (USD million) Strengthening our using existing software from Ericsson capital position which is already deployed in certain The fourth quarter of 2019 saw operating companies within VEON. us optimise our Group borrowings These upgrades are expected to through an offering of USD 700 million support the creation of a more in senior unsecured notes, the proceeds personalised, richer experience of which we subsequently used to of VEON’s services for customers and, over time, reduce our overall repay our revolving credit facility, which had been drawn upon operating costs. to fund the GTH transaction, as well as to refinance or settle a number of existing bonds and upcoming maturities. Russia Uzbekistan Pakistan Algeria Ukraine Bangladesh Kazakhstan Other

VEON Integrated Annual Report 2019 59 INTRODUCTION

Announcing a new dividend policy In September 2019, VEON announced a new dividend policy designed to VALUE CREATION provide us with greater flexibility in setting our investment priorities.

The new policy targets paying at least 50% of prior year equity free cash flow after licences in dividends

to shareholders. SUMMARY PERFORMANCE

We believe this formula provides greater clarity around the link between our financial performance and shareholder returns while providing us with the appropriate financial flexibility to invest for long-term growth. In this respect, dividend GOVERNANCE CORPORATE payments will remain subject to review by VEON’s Board of Directors, which will take into consideration our medium-term investment opportunities and the Group’s capital structure, where our aim remains to keep net debt/

EBITDA around 2.0x (2.4x post-IFRS 16). INFORMATION FINANCIAL

In line with the new policy, VEON’s Board of Directors approved the distribution of a final gross dividend of US 15 cents per share for FY 2019. Together with the USD 13 cents per share interim dividend declared, this brought the total dividend payment INFORMATION ADDITIONAL for FY 2019 to US 28 cents per share, which corresponds to approximately 70% of 2019 equity free cash flow after licences.

Setting 2019’s distribution above the 50% minimum threshold is a clear demonstration of our commitment to return excess cash to shareholders while managing an appropriate level of balance sheet leverage at the Group level.

Adoption of IFRS 16 standards VEON adopted IFRS-16 (Leases) for its statutory reporting from January 1 2019. In our internal management reporting and for comparative purposes in our presentation materials, we have continued to adjust for the benefit to EBITDA and EFCF from the capitalisation of operating leases that IFRS 16 brings about. Where we have made this adjustment, we have clearly stated so. From 2020, we shall no longer make this adjustment given that 2019 numbers will capture IFRS 16 treatment, eliminating comparison VEON Group’s Amsterdam Headquarters distortions as a consequence.

Integrated Annual Report 2019 VEON 60 2019 FINANCIAL REVIEW CONTINUED

OUR CORNERSTONE, RUSSIA

Our largest market, Russia is the Cornerstone of our business, contributing 43% of Group EBITDA1 in 2019. Our operating business, Beeline, serves 55 million customers through a growing range of services, from traditional voice, data and broadband through to streamed media content (Beeline TV) and mobile financial services. A mature market with four main providers, Russia saw continued price competition in 2019 through the promotion of unlimited data tariff plans.

Beeline experienced a challenging New services year in 2019 as aggressive competition Russia is a sophisticated, competitive Key economic indicators2 in the market exacerbated our market with a proven customer ​ relative weakness in network and appetite for the growing range 146m 4.7% distribution, resulting in a year-on- of services Beeline can offer. This Population Inflation rate year decline in our revenues of 0.6% customer journey often starts with ​ ​ ​ on an organic basis. our self-care application, MyBeeline, ​ a personalised portal through which -0.1% 1.3% Mobile service revenues led this we can interact with our customers Population Real GDP decline, falling by 2.0% year-on- and configure a range of services growth growth year on an organic basis as ARPUs that match their needs based on softened in response to continued their preferences and other data price competition in unlimited data they share with us. By applying Market characteristics tariffs. This was compounded by algorithmic analysis to these data, ​ a decline in our customer base we are demonstrating higher levels 159% 60% which partly reflected the restructuring of ARPU and customer retention Market 4G market of our store distribution network rates through the more tailored penetration share under our Beeline brand, service choices we are able to offer. completed in 2018. This refocused ​ ​ ​ ​ our distribution strategy around MyBeeline had 10.1 million monthly 76% 50% higher-value customers and resulted active users (MAUs) at the end of Prepaid share 4G smartphone in some customers leaving our 2019 and had helped to secure penetration network as a consequence. 2.2 million MAUs for BeelineTV, our online streaming service that 1 Weaker mobile service revenues configures movie and other video FY 2019 EBITDA contribution more than offset the progress we content to individual subscriber (Percentages) achieved in growing our fixed mobile profiles, and Beeline’s growing range convergence (FMC) products during of mobile financial services which 2019, which contributed to a 5.8% recorded 4.9 million MAUs at the increase in our broadband revenues end of 2019. and offset lower fixed line sales as we pivot away from voice-only business. Although Russia’s total mobile Success here was enabled through penetration rate rivals many effective tariff structures and efficient developed markets (159% in 2019), sales strategies as well as the growth 4G smartphone penetration still of new revenue contributions in our accounts for only half of the B2B business. market’s subscriber base, suggesting a strong future for the Despite the dip in revenues, good growth of new, 4G-enabled services. Cornerstone Other cost control enabled Beeline to This is reflected in the headroom expand its organic EBITDA margin by we see for Beeline to expand its 4G 0.3% and deliver a similar amount of footprint, which stood at 38% of our organic EBITDA in 2019 as in the year total customer base at the end of prior on a pre-IFRS 16 basis. 2019, and to deliver new services 1. EBITDA excluding corporate costs to match the capabilities 4G offers. 2. Key economic indicators sourced from IMF database

VEON Integrated Annual Report 2019 61 INTRODUCTION

Challenges and opportunities Pricing The number of mobile customers Beeline’s operational challenges in Pricing, similarly, has been an and data customers in Russia 2019 stem from a combination of industry-wide issue, with strong decreased in 2019 year-on-year, company-specific issues and wider competition around unlimited data in each case driven by a reduction in VALUE CREATION industry problems. bundles. Beeline’s strategy here sales through alternative distribution has been to restore pricing power channels following the expansion of through an expanded customer Beeline monobrand stores. Network offer of digital applications and The network perception issues Beeline bundled products, including FMC has experienced reflect a degree of Mobile ARPU decreased by 2% services, which by the end of 2019 underinvestment in our networks in year-on-year to US$5.3, mainly were being taken by half of our driven by devaluation of the Russian recent years that we are now correcting. SUMMARY PERFORMANCE broadband customers (1.3 million ruble. In local currency terms, ARPU FMC subscribers in total). increased by 1%. Beeline increased network investment by 35% in 2019, and by Taken together, we are confident the end of Q4 2019 had 38% more that these measures to address 4G base stations than a year before. our network perception issues, This investment has boosted our 4G our distribution strategy and our coverage considerably, with 86% of

approach to pricing will be successful GOVERNANCE CORPORATE our customers with access to our in reversing the revenue trends of 4G network at the end of 2019, up recent quarters. from 74% at the close of 2018. That is important for revenues, since based on 2019 numbers a Beeline Placing the customer at the centre Revenue 4G subscriber generates, on average, of each of these will be a vital aspect (RUB billion) close to three times the ARPU of a of our success. Here, the creation of a new role within Beeline – our

2G subscriber. INFORMATION FINANCIAL Chief Customer Experience Officer +6.2% – underscores our commitment to The impact of this active putting the customer at the top 291. 289.9 deployment strategy has since 23.0 2.9 table and engaging each through been evident in March 2020 products and services that will earn statistics from the Federal Service their loyalty. for Supervision of Communications, Information Technology and Mass Media Distribution, which show 2019 Performance INFORMATION ADDITIONAL Beeline moving from 3rd place, On a reported basis, total operating from 4th, in terms of total number revenue in Russia decreased in 2019 of base stations. by 4% year-on-year, mainly due to the devaluation of the Russian Distribution ruble. In local currency terms, total Distribution efficiency is an industry- operating revenue declined by 0.6% FY16 FY1 FY18 FY wide problem rather than a year-on-year compared to 2018. challenge for Beeline alone. The EBITDA Pre-IFRS 161 Russian market is overserved by 1 Adjusted EBITDA increased (RUB billion) retail stores, which places an undue in 2019 by 16% year-on-year to financial burden on its operators. US$1.96 billion, primarily due to the adoption of IFRS 16. The rise +0.2%1 Beeline has taken major strides was impacted by savings in structural towards addressing its own operating expenses, including savings 104.8 104.3 104. 10.0 distribution footprint, which in commercial costs, lower spectrum underwent a significant restructuring costs and the reversal of certain in 2018 when it consolidated retail provisions, which was partially offset stores formerly owned by Euroset by the devaluation of the Russian under the Beeline brand. It closed ruble. In local currency terms, around 200 of these stores in the our adjusted EBITDA increased second half of 2019 and plans to by 21% year-on-year and by 0.3% close a further 400 in 2020. on a pre-IFRS 16 basis.

At the same time, Beeline has been deepening digital routes to market by developing its online sales channels, FY16 FY1 FY18 FY leveraging the growing presence of our MyBeeline self-care application 1. Adjusted EBITDA is a non-IFRS financial within our customer base to drive measure. See Glossary on page 111 for 1. Growth excludes IFRS 16 impact engagement and customer retention. a full definition. in FY 2019

Integrated Annual Report 2019 VEON 62 2019 FINANCIAL REVIEW CONTINUED

OUR GROWTH ENGINES

Comprising the four growth markets of Pakistan, Ukraine, Uzbekistan and Kazakhstan, our Growth Engines are markets in the sweet spot of rapid services adoption. Collectively contributing 37% of Group EBITDA1 in 2019, these markets are typified by strong demand for data growth and relatively low levels of smartphone adoption, suggesting significant scope for future growth.

Once again, our Growth Engine to be used. Given that more than markets enjoyed levels of revenue 90m handsets in Pakistan are still 2G, Key economic indicators2 growth well above the Group’s an operating system like KaiOS and ​ average in 2019, although in two affordable handsets like Jazz Digit 216m 10.2% instances (Pakistan and Uzbekistan) have a huge adoption opportunity. Population Inflation rate underlying growth was masked by the accounting treatment of tax This goes hand-in-hand with ​ ​ ​ regime changes. stronger engagement of our digital ​ wallet users through the launch of 1.9% 3.3% Population Real GDP Pakistan key remittance services for freelance workers, as well as the linking of growth growth With over 60 million subscribers, bank cards as a funding mechanism Pakistan is the largest of our and the overall enrichment of our Market characteristics Growth Engines. Here, our growing USSD and app-based ​ operating company, Jazz, enjoys financial services. market leadership and the fastest 77% 37% 4G network. Jazz’s growth is being Market 4G market propelled by strong subscriber 2019 Performance penetration share demand for data, revenues for which Total operating revenue ​ ​ ​ grew by 45% year-on-year in 2019 decreased by 12% year-on-year ​ on an organic basis. Jazz continues to to US$1,321 million as a result of 97% 27% match this growth opportunity with a devaluation of the local currency. Prepaid share 4G smartphone 4G network expansion, which helped In local currency terms, total penetration support a 7.6% year-on-year growth operating revenue increased by in our customer base in 2019. 8.7% as a result of continuing mobile FY-2019 EBITDA contribution1 data revenue growth of 45% year- (Percentages) Our ambition for Jazz is to strengthen on-year. The growth in data revenue our market leadership through was driven by the growth in data growing an ecosystem of services customers and increased data usage matched to the particular needs due to higher bundle penetration and and preferences of the local market. continued data network expansion. These start with self-care and include a range of e-commerce and content Adjusted EBITDA decreased platforms like Jazz TV, extending to by 6% year-on-year, driven by the nation’s largest mobile health devaluation of the Pakistani rupee initiative BIMA and our market- and partially offset by the impact of leading digital financial services the introduction of IFRS 16. In local application, JazzCash. currency terms, Pakistan Adjusted EBITDA growth was 15% mainly To help accelerate the adoption of due to the positive development Growth Other Engines our new services, we have launched in total revenues as well as savings an affordable phone, Jazz Digit, that in structural operating expenses converts a traditional feature 4G on year-on-year basis. On a pre-IFRS phone into a smartphone by using 16 basis, Adjusted EBITDA increased the KaiOS operating system, allowing by 7.3% in local currency terms. 1. EBITDA excluding corporate costs commonly used applications like 2. Key economic indicators sourced from IMF database Facebook, WhatsApp and YouTube

VEON Integrated Annual Report 2019 63 INTRODUCTION

As of December 31, 2019, we had 60.5 million customers in Pakistan, representing an increase of 7.6%

year-on-year driven primarily VALUE CREATION by a continued growth in mobile data customers, which grew 17.6% year-on-year due to bundled tariff plans and 4G expansion coupled with increase in customer acquisition, lower churn as a result of simplifying prices and more efficient distribution channel management. SUMMARY PERFORMANCE

Our mobile ARPU in Pakistan decreased by 16.6% year-on-year Jazz TV Revenue to US$1.7 driven by devaluation of (PKR billion) the local currency. In local currency In Jazz TV, we own the leading terms, mobile ARPU in Pakistan paid-for streaming app in Pakistan. Jazz TV offers 65-plus channels increased by 3% year-on-year to +30.2% GOVERNANCE CORPORATE PKR 261 driven by a one-off tax that provide our customers with impact, an increase in usage and interactive access to over 5,000 hours 19.6 several price monetisation initiatives. of on-demand content, including 181. live sports, entertainment channels 160. and major cricketing events. Jazz TV 11.8 has seen encouraging traction within our subscriber base, with

over 4 million downloads, a current INFORMATION FINANCIAL monthly active user base of over 1 million and growing levels of engagement.

BIMA Health & Life Insurance Jazz dominates the market for FY16 FY1 FY18 FY mobile-based healthcare through INFORMATION ADDITIONAL its partnership with BIMA, one EBITDA Pre-IFRS 16 of Pakistan’s leading insurance (PKR billion) providers. Our BIMA service offers Jazz’s customers access to a wealth 1 of healthcare services, including +63.9% a 24-hour teledoctor consultation 93.1 4.0M+ service, home delivery of medicines 86.8 at discounted prices and sample Downloads test collection from home at 4.1 discounted prices. Customer uptake has been positive since its launch in 6.8 late-2018. As at the end of 2019, the service had over 1.7 million active users and over 2.6 million monthly active policies.

1.0M+ JazzCash JazzCash is Pakistan’s leading digital FY16 FY1 FY18 FY MAUs financial services platform, with 7.3 million digital wallets as of Q4 2019. JazzCash provides access to a host of financial services to customers, many of whom lack basic access to banking in what, according to World Bank data, is one of the world’s most unbanked nations. JazzCash has grown rapidly 80.6% and now comprises around 6% of 1. Growth excludes IFRS 16 impact Q4 19 YoY growth Jazz’s total revenues. in FY 2019

Integrated Annual Report 2019 VEON 64 2019 FINANCIAL REVIEW CONTINUED

Ukraine As of December 31, 2019, we had Ukraine is another growth market 26.2 million mobile customers in where we enjoy market leadership. Ukraine representing a decrease of Here, our Kyivstar franchise has 1% year-on-year. The decrease was been one of our fastest-growing a result of demographic trends in businesses in recent years, with Ukraine and the reduction in multi revenues rising close to 50% SIM users. The number of our mobile between 2016 and 2019. data customers increased by 15% year-on-year mainly due to increased 4G user penetration. In Kyivstar we have scope to grow both our connectivity and new services in tandem and progressively In 2019, our mobile ARPU in modernise our tariff plans to match Ukraine increased by 28% to growing demand for data. This is US$2.6 compared to 2018. In enabling double-digit growth in local currency terms, mobile ARPU Kyivstar’s fixed line business as we in Ukraine increased in the year expand our FTTB and FMC subscriber by 21% to UAH 66 compared to bases. At the same time, our focus UAH 54 in 2018, driven by on 4G network investment is driving increased 4G penetration. strong growth in our 4G subscriber base – up 121% year-on-year – with nearly three-quarters of the population under our 4G coverage Revenue by the end of 2019. Here, the (UAH billion) strategic opportunity to expand our product offering is considerable as we leverage our big data capabilities +49.3% to a host of new services, from 22.4 mobile and fixed line TV through to our strategic partnership with 18. Microsoft, announced in December 2019, to leverage the power of IoT, 16. 1.0 big data, AI and Cloud Computing to our business customers.

The combination of strong revenue growth and prudent cost control has driven impressive margin expansion at Kyivstar, which at 65.6% in 2019 is the highest in our Group. Key economic indicators1 FY16 FY1 FY18 FY ​ 2019 Performance 44m 7.9% Total operating revenue increased by EBITDA Pre-IFRS 16 Population Inflation rate 26% year-on-year to US$870 million (UAH billion) in 2019. The increase was primarily ​ ​ ​ ​ due to continued strong growth in +80.2%2 mobile service revenue, driven by -0.4% 3.2% Population Real GDP successful commercial activities 14.1 stimulated by the continued 4G growth growth roll-out and increased penetration of data-centric tariffs. In local currency Market characteristics 10. terms, our total operating revenue in ​ 9.2 Ukraine increased by 20% year-on-year. 133% 29% .8 Market 4G market Adjusted EBITDA increased by penetration share 48% year-on-year to US$572 million, primarily due to higher revenues and ​ ​ ​ lower service costs and the impact ​ of IFRS 16 adoption. In local currency 87% 27% terms, adjusted EBITDA increased Prepaid share 4G smartphone FY16 FY1 FY18 FY by 39% year-on-year and by 34% penetration on a pre-IFRS 16 basis. 1. Key economic indicators sourced from 2. Growth excludes IFRS 16 impact IMF database in FY 2019

VEON Integrated Annual Report 2019 65 INTRODUCTION

Uzbekistan Increasing mobile data penetration remains the key growth driver of our business in Uzbekistan, where VEON VALUE CREATION operates under the Beeline brand. Beeline enjoys a leading market position here and has secured success through a focus on securing the loyalty of quality customers where ARPU opportunities are greater. SUMMARY PERFORMANCE Uzbekistan is a market where 4G penetration remains in its infancy, with less than a quarter of total mobile users owning a smartphone. This offers Beeline considerable opportunity to grow data and pioneer new digital services, which it is pursuing through similar content and mobile financial GOVERNANCE CORPORATE services-related offers as Beeline Russia, including BeelineTV which is showing encouraging signs of early adoption amongst our 5.2 million Key economic indicators1 Revenue data subscribers in the local market. ​ (UZS billion) Enabling this is a concerted investment 33m 14.5% programme to broaden our 4G network Population Inflation rate INFORMATION FINANCIAL across Uzbekistan, which led to a +1.% ​ ​ ​ 182% increase in 4G base stations 2,3.8 in 2019 following a 44% increase in ​ 2,341.8 network capex. 1.4% 5.6% 2,2.3 Population Real GDP 1,96.0 growth growth 2019 Performance

Total revenue decreased by 18% Market characteristics INFORMATION ADDITIONAL year-on-year in 2019, and by 10% in local currency terms, primarily as a ​ result of the negative impact from the 69% 20% reduction in mobile termination rates Market 4G market and the introduction of the 15% excise penetration share tax. Adjusted EBITDA was broadly ​ ​ ​ stable with 2018. In local currency ​ FY16 FY1 FY18 FY terms, adjusted EBITDA increased by 97% 24% 10%, primarily due to IFRS 16 impact Prepaid share 4G smartphone EBITDA Pre-IFRS 16 and structurally lower operating penetration (UZS billion) expenditures. On a pre-IFRS 16 basis, Adjusted EBITDA rose by 6% in local currency terms. -0.%2

1,13.3 1,160.1 1,16.0 As of December 31, 2019, the 1,09.9 number of mobile customers in our Uzbekistan segment decreased by 11% to 8.1 million. The decrease was the result of our strategic focus on profitable customers.

In 2019, our mobile ARPU in Uzbekistan was US$2.4 compared to US$2.8 in 2018, a decrease year-on-year due to the impact of excise duty and decreased voice ARPU, partially offset by increased data ARPU. In FY16 FY1 FY18 FY local currency terms, mobile ARPU in Uzbekistan decreased by 4% 1. Key economic indicators sourced from 2. Growth excludes IFRS 16 impact year-on-year. IMF database in FY 2019

Integrated Annual Report 2019 VEON 66 2019 FINANCIAL REVIEW CONTINUED

Kazakhstan As of December 31, 2019, we had Until recently one of our smaller 10.2 million mobile customers markets, Kazakhstan has grown in Kazakhstan representing an rapidly in recent years and in increase of 3% year-on-year. 2019 accounted for 6.3% of Group The increase was a result of the reported EBITDA compared with improvements in the quality of 4.9% in 2016. Our business here, also sales and Beeline Kazakhstan’s operated under the Beeline brand, value proposition in the market. has been one of the Group’s most The number of our mobile data successful in growing its data customers in Kazakhstan increased subscriber base, which as at the end by 10% year-on-year mainly due to of 2019 comprised over two-thirds an increase in 4G user penetration. of our total subscribers, helped by a year-on-year expansion in our 4G In 2019, our mobile ARPU in subscriber base of 49%. Kazakhstan increased by 2% year-on-year to US$3.1. In local Beyond 4G, Beeline Kazakhstan currency terms, mobile ARPU in has been a pioneer in 5G, having Kazakhstan increased by 14% to conducted one of the largest 5G KZT 1,192 driven by an increase trials in Central Asia to date in in 4G user penetration. early Q4 over an area of 13 square kilometres, which demonstrated data downlink speeds of up to 1.0G per Revenue second. Kazakhstan is also a leading (KZT billion) market for the Group in the pace of adoption of new services. These include stand-alone products such +49.6% as mobile financial services, where 186.0 our revenues grew 31% year-on-year in 2019, and on a converged basis, where our bundled fixed and mobile 11.8 offers grew 76% in 2019, helping us 13.6 124.3 to raise our ARPU in the process.

2019 Performance Total operating revenue increased by 10% year-on-year to US$486 million in 2019, primarily due to growth in mobile data revenue and higher 1 ARPU during the year, partially Key economic indicators FY16 FY1 FY18 FY offset by a devaluation of the local ​ currency. In local currency terms, 19m 5.2% EBITDA Pre-IFRS 16 our total operating revenue in Population Inflation rate (KZT billion) Kazakhstan increased by 23%. ​ ​ ​

​ 2 Adjusted EBITDA increased by 1.3% 4.5% +.0% 31% year-on-year to US$270 million, Population Real GDP 9.0 primarily due to higher revenues growth growth and the impact of IFRS 16 adoption. In local currency terms, adjusted EBITDA increased by 46% year- Market characteristics 1.1 on-year and by 36% on a ​ 8. pre-IFRS 16 basis. 127% 35% 4.8 Market 4G market penetration share ​ ​ ​ 90% ​ 55% Prepaid share 4G smartphone FY16 FY1 FY18 FY penetration

1. Key economic indicators sourced from 2. Growth excludes IFRS 16 impact IMF database in FY 2019

VEON Integrated Annual Report 2019 67 INTRODUCTION VALUE CREATION SUMMARY PERFORMANCE GOVERNANCE CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL

Introducing our 5G trial in Shymkent, Kazakhstan, in October 2019

Integrated Annual Report 2019 VEON 68 2019 FINANCIAL REVIEW CONTINUED

OUR FRONTIER MARKETS

Dominated in size by Algeria and Bangladesh, our five Frontier Markets (which also include Armenia, Georgia and Kyrgyzstan) are defined by the long-term growth optionality they provide the Group rather than the financial contribution they are currently making. Collectively contributing 20% of Group EBITDA1 in 2019, these markets possess strong demographics with young, rapidly urbanising populations that provide us with the opportunity to meet data demand through expanding our 3G and 4G networks and, over time, introduce new services.

Algeria In the meantime, Djezzy is focusing Algeria is a challenging market but is one on digitising its core and on deepening Revenue in which our operating company, Djezzy, its customer relationships and (DZD billion) has outperformed its competitors, engagement through its new, highly successfully gaining revenue share of ranked self-care app Djezzy, which was -18.6% a market that has experienced a enabled by last year’s DBSS upgrade. significant contraction in total revenue 113. over the past four years. Despite a 2019 Performance difficult regulatory context (particularly 101. Total operating revenue decreased 94.8 92. the recent asymmetric and arbitrary in 2019 by 5% year-on-year primarily 29% reduction in mobile termination due to decreased mobile ARPU rates), fierce price competition and as a result of price competition tough macroeconomic conditions, in both voice and data service Djezzy stabilised its top line and regained and the devaluation of the local the top Net Promoter Score (NPS) spot in currency. Data revenue growth the market in 2019. To mitigate revenue remained strong due to higher erosion, Djezzy has modernised its usage and an increase in data operating model, focusing on its core customers as a result of the rollout productive functions and optimising of the 4G network. In local currency resources allocation thanks to big data. FY16 FY1 FY18 FY terms, total operating revenue These efforts resulted in the company decreased by 2% year-on-year. 1 securing a significantly higher EBITDA EBITDA Pre-IFRS 16 share over its competitors in 2019 (DZD billion) compared to the previous years; 2 a commendable achievement in Key economic indicators -36.1%3 these circumstances. ​ 43m 2.0% 9.8 Revenue performance was delivered Population Inflation rate through solid growth in mobile data ​ ​ ​ 4.2 revenues (+26% YoY in 2019) and a ​ 42.4 successful segmented approach to 2.0% 0.7% 38.2 customers. This strategy has put Population Real GDP Djezzy in a strong position to seize growth growth the considerable mid- to long-term opportunities in data and digital service revenues that Algeria has Market characteristics to offer. Djezzy has been growing ​ its share of 4G users strongly over 120% 54% the past year and aspires to secure Market 4G market FY16 FY1 FY18 FY the highest share of data market penetration share opportunities by further expanding ​ ​ ​ its 3G and 4G networks. Progress here is demonstrated in Djezzy’s ​ 1. EBITDA excluding corporate costs 95% 54% 2. Key economic indicators sourced subscriber mix: out of Djezzy’s 15 from IMF database million customers, 9 million are data Prepaid share 4G smartphone penetration 3. Growth excludes IFRS 16 impact users and 25% of them are using 4G. in FY 2019

VEON Integrated Annual Report 2019 69 INTRODUCTION

Adjusted EBITDA decreased by Banglalink to strengthen its market adjusted EBITDA increased by 3% year-on-year primarily due to relevance with a growing customer 22% year-on-year and by 0.2% a decrease in total revenues, coupled base and achieve an impressive rate on a pre-IFRS 16 basis.

with an increase in technology of data customer acquisition. VALUE CREATION and commercial costs offset by the Total customers increased by 4% impact of IFRS 16 adoption. In local 2019 Performance year-on-year to 33.6 million. The currency terms, adjusted EBITDA increase was mainly due to improved decreased by 0.3% year-on-year Total operating revenue increased distribution and network quality. The and by 9.9% on a pre-IFRS 16 basis. by 3% year-on-year primarily due to number of mobile data customers an acceleration of service revenue increased by 10% year-on-year due In 2019, our customer base in Algeria growth following spectrum acquisition to increased efforts to attract new decreased by 8% to 14.6 million year- and enhanced network availability, customers, successful targeting SUMMARY PERFORMANCE on-year driven by higher churn rate along with the continued expansion of voice-only customers for data that also impacted the mobile data of Banglalink’s distribution footprint. services and network expansion. customers, resulting in the decrease In local currency terms, total operating of our mobile data customer base by revenue in Bangladesh increased In 2019, our mobile ARPU in Bangladesh 5% year-on-year. by 4% year-on-year. increased by 0.5% and remained broadly level year-on-year with 2018 Adjusted EBITDA increased by Mobile ARPU in Algeria decreased by 3% at US$1.3. In local currency terms, GOVERNANCE CORPORATE year-on-year to US$4.2 mainly due to 21% year-on-year due to increased mobile ARPU in Bangladesh increased continued and intense price competition revenue and the impact of IFRS 16 by 1% year-on-year to BDT 112. in both voice and data services and adoption. In local currency terms, local currency devaluation. In local currency terms, our mobile ARPU Revenue decreased by 1% year-on-year. (BDT billion) INFORMATION FINANCIAL

Bangladesh -6.9% Bangladesh is another market where 48. we enjoy a strong market presence 46. 4.3 through our operating company, 43. Banglalink. It is an early-stage market for digital services adoption but one where data demand is growing INFORMATION ADDITIONAL swiftly. At an industry level, this is currently being met largely through 3G networks, with 4G smartphone penetration still at comparatively low levels (around 10% at the end of 2019). This is a prime long-term opportunity for Banglalink, which 1 already in the course of 2020 has Key economic indicators FY16 FY1 FY18 FY seen the proportion of its data ​ traffic carried on its 4G networks 165m 5.7% EBITDA Pre-IFRS 16 rise to almost 50%. Population Inflation rate (BDT billion) ​ ​ ​ Bangladesh is an example of how ​ -26.%2 3G network expansion can provide 1.0% 7.9% abundant opportunities for growth in a Population Real GDP 21.0 nascent mobile services marketplace. growth growth Here, we have continued to optimise our 18.8 3G network footprint through continued investment, driving our population Market characteristics 1.3 1.4 coverage to 72% by the end of 2019. 97% ​ 18% At the same time, the rapid expansion Market 4G market of our 4G capacity is providing us with penetration share opportunities to actively engage our ​ ​ ​ customers with various bundled offers ​ and digital products, including the 97% 10% video streaming platform Toffee Prepaid share 4G smartphone FY16 FY1 FY18 FY and the recent launch of our new penetration MyBanglalink self-care app. Taken 1. Key economic indicators sourced from 2. Growth excludes IFRS 16 impact in together, these initiatives have enabled IMF database FY 2019

Integrated Annual Report 2019 VEON