VEON Ltd. Q1 FY2026 Earnings Call

Hello, and welcome to VEON's Q1 '26 Results Presentation. As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Anand Ramachandran, you may begin.

Thank you. Good morning and good afternoon to everyone joining us for VEON's first quarter results. My name is Anand Ramachandran, Chief Corporate Development Officer at VEON. Joining me today are our Group CEO, Mr. Kaan Terzioglu, and next to him, our Group CFO, Mr. Burak Ozer. As usual, Kaan will begin with our strategic and operational highlights, followed by Burak with a review of our financial performance, and we'll then open up the call for Q&A. Before we begin, please note that today's presentation contains forward-looking statements, which involve risks and uncertainties. Further details are available in all our SEC filings, including our Form 20-F. Our earnings release and presentation are available on our Investor Relations website. With that, let me hand it over to Kaan.

Thank you, Anand. VEON has entered 2026 with clear momentum. Double-digit growth, accelerating digital revenues, stronger cash generation and continued capital returns. Revenues in U.S. dollars grew 17% year-on-year. EBITDA increased 17.7%, and margins expanded by 20 basis points. Importantly, this growth translated into strong cash generation with equity free cash flow up 73.4% year-on-year to $246 million. This performance reflects the strength of our digital operating strategy, combining resilient connectivity, fast-scaling digital platforms and disciplined capital allocation. As a result, we are raising our 2026 revenue outlook, which I will return to later. Second, we are seeing strong acceleration across our Digital portfolio. Digital revenues grew 57.7% year-on-year and now represent over one quarter of our group revenues. Importantly, this growth is increasingly profitable with EBITDA margins of 34.6%. This quarter, we also refined our reporting by including enterprise identity and credentials management within digital enterprise. These are mature services that are increasingly shifting from traditional A2P messaging towards API-based platforms. On a comparable basis, excluding this reclassification, our digital revenues actually grew over 75%. Third, we continue to execute multiple growth levers within a disciplined asset-light framework. In Pakistan, we secured the largest spectrum allocation in the March spectrum auction strengthening capacity and supporting future growth. We are expanding our financial services footprint and our acquisitions of TPL Insurance and ApnaBank, with acquisitions to come, are on the right course. We are deepening our ecosystem through targeted acquisitions, such as OLX and Tabletki. These initiatives enhance engagement, expand monetization opportunities and reinforce our long-term growth platforms. Finally, we remain firmly focused on shareholder value. We continue to believe our shares do not reflect the value and cash generation of the business, and we are acting on that conviction through our buyback program. At the same time, we are reducing leverage and maintaining financial flexibility. Management ownership remains a key signal of alignment, reinforcing our confidence in the value we are building. Let us review our Q1 financial performance. Our strategy is translating into strong high-quality financial results. Both Telecom and Digital segments are contributing meaningfully to profitability and cash flow, demonstrating the strength of our integrated model. Telecom revenues grew steadily while Digital revenues increased significantly and now account for a quarter of total revenues. As highlighted earlier, we are encouraged by the strength of our cash generation this quarter and continued reduction in leverage. Our growth continues to outpace inflation across our markets, reflecting the strength of our operating model. On a like-for-like basis, which adjusts for the divestment of Pakistan towers, some business divestments and the acquisition of Uklon and other smaller assets, revenues grew 15.4% and EBITDA grew 15% year-on-year. This reflects our ability to execute fair value pricing supported by strong demand, high engagement and increasing customer reliance on both connectivity and digital services. Let us move to our Digital performance, which continues to scale in size and quality. Digital revenues reached $303 million for the quarter, now representing over one quarter of group revenues. The reclassification of enterprise identity and credentials management within digital enterprise, which I highlighted earlier, contributed $44 million for the quarter with prior periods reclassified for comparability. Growth remains broad-based, with financial services leading and strong contributions from entertainment, ride-hailing and health care. We also began consolidating Tabletki from February, further strengthening our health care vertical in Ukraine. Our digital platforms continue to benefit from structurally low customer acquisition costs and highly efficient distribution, creating a scalable competitive advantage across our markets. Importantly, Digital services are structurally lower in capital intensity, supporting strong cash generation capacity. Multiplay customers remain a key growth driver. These customers use connectivity with Digital services, and they deliver significantly higher value with ARPU now 3.9x that of voice-only customers. This fact also helped us raise overall ARPU to USD 2.3 for the quarter from $2 a year ago. Multiplay revenues grew almost 18% year-on-year and now represent 58% of consumer revenues. Let me now update you on the operational performance across our markets. We are seeing strong operational momentum across the board. Pakistan and Ukraine continue to lead, while Kazakhstan and Uzbekistan delivered steady growth. Bangladesh is continuing its growth for a second consecutive quarter. Digital momentum is consistent across all markets, supporting both growth and diversification. Our focus is clear: to sustain this momentum through disciplined execution and balancing revenue growth with profitability over the course of the year. Our financial services business in Pakistan continues to grow from strength to strength. JazzCash served over 29 million users during the quarter while our merchant base expanded to over 600,000 merchants. This is driving a powerful network effect. Transaction volumes remain robust, with last 12-month transaction value reaching USD 60 billion, or 15% of Pakistan's GDP, reflecting sustained growth in usage and engagement. We are also scaling lending at pace, with over 200,000 loans issued daily, while maintaining disciplined risk management. Asset quality remained strong and nonperforming loan ratios remain well contained. Mobilink Bank's loan portfolio has reached $289 million and is supporting the continued expansion of our Digital Financial Services ecosystem. Together, these capabilities position us well to support financial inclusion and capture long-term growth. We have refined our definition of digital customers to reflect active users in our ecosystem, providing a more comprehensive view of engagement across the quarter. Across our ecosystem, we now report 229 million digital customers, including over 72 million digital-only users. Our platforms are becoming go-to super apps in our markets. Transaction value reached $63 billion over the last 12 months, reflecting both scale and deepening engagement. This creates increasing opportunities in cross-sell, advertising and monetization. Our Consumer Digital platforms continue to scale across multiple networks. Financial services, entertainment, health care, ride-hailing and shipper apps now serve millions of users across our markets. Our premium digital brands are delivering a differentiated customer experience by seamlessly integrating connectivity with everyday lifestyle services such as health care, e-commerce and mobility. Together, these platforms deepen engagement and unlock multiple opportunities, providing people that are underserved with the service quality they deserve. We are also building strong momentum in digital enterprise. Our platforms in augmented intelligence, cloud and data analytics are scaling across our markets, supported by almost 2,000 engineers and data scientists. Our advertising platform reaches over 100 million screens, enabling increasingly sophisticated AI-driven targeting and monetization across our ecosystem. Within our Identity and Credentials management services, the focus is rapidly shifting towards secure real-time authentication as a primary defense against fraud and scams and for the protection of children. Augmented intelligence, or AI, is a core pillar of our value creation. For us, AI is not a stand-alone initiative. It's a productivity engine across networks, customer care, digital services and enterprise solutions. We are building sovereign local language AI capabilities. Our Ukrainian LLM, which was developed locally, was named by prominent citizens, showing its national importance and strategic value. Our ambition is to put AI to work in the real-time economy, helping doctors deliver better outcomes, teachers reach further and farmers produce more. This is practical augmented intelligence, delivering measurable impact in everyday life. We have over 1,000 prioritized use cases across the group. Over 1.4 million customers are using our AI products across our footprint. We are focused on turning AI from potential into performance. With that, Burak, I hand over to you.

Thank you, Kaan. We continue to deliver strong financial results in the first quarter. Group revenue reached $1.2 billion, growing 17% year-over-year in U.S. dollar terms, with broad-based contributions across our markets. Digital services grew 57.7%, reaching $303 million and representing over 25% of total revenue. This reflects strong execution across both Telecom and Digital businesses. EBITDA reached $517 million in Q1 '26, growing 17.7% year-on-year. Margins expanded by 20 basis points to 43%, reflecting operating leverage and continued cost discipline. This demonstrates our ability to grow profitability while maintaining a disciplined cost base. Now turning to the balance sheet. We ended the quarter with $1.75 billion in cash, including cash held at the group level. Gross debt remained stable at $4.9 billion. Net debt, excluding leases, stood at $1.76 billion, with leverage reduced further to 1.07x. This provides us with financial flexibility and a resilient capital structure. We are also proactively exploring strategies to manage our upcoming debt maturities. With that, I'll hand the call back to Kaan.

Thank you, Burak. Returning capital to shareholders remains a key priority. Our current $100 million buyback is underway with ADS buybacks continuing. We are committed to a minimum of $100 million in annual share repurchases subject to market conditions and liquidity. Following completion of the current program, share repurchases under future programs will be considered to support long-term shareholder value. We have a long track record of navigating frontier markets. Volatility is not new to us. We are proactively executing target reductions to mitigate the impact of recent energy price movements. Reflecting our strong first quarter performance and continued commercial momentum, we are raising our 2026 revenue growth outlook to 11% to 14%, while maintaining EBITDA growth guidance at 7% to 10%. We are making further investments in Pakistan, following the recent spectrum acquisition to support future growth. Capital intensity, excluding Ukraine, is expected to be in the range of 15% to 17%. To conclude, VEON has made a strong start to 2026. We are delivering solid digital growth, scaling digital revenues profitably, strengthening our credit profile and returning capital to shareholders. At the same time, we remain disciplined and mindful of external volatility. Our model is increasingly diversified, resilient and cash generative, and we are confident in the opportunities ahead. Thank you for your continued support. We will now open the line for questions.

Our first question comes from Max Findlay with Rothschild & Co Redburn.

The EBITDA guidance implies a downgrade for the business ex Kyivstar and margin contraction of about 1% following Kyivstar's EBITDA upgrade earlier today. Are you able to walk us through what's changed since we last spoke? Secondly, and linked to my first question, I was wondering if you could provide some color about what you're seeing in your markets now as a result of the Iran conflict, and what risk there is to further EBITDA margin compression? I obviously appreciate the high uncertainty around the situation. And finally, I asked at full year results, whether your CapEx guidance was a bit conservative following the Pakistan auction. And I guess I'd like to know what has changed regarding your network build plans there. Is this CapEx being brought forward, that was perhaps targeted for next year? Or is this new CapEx?

Thank you, Max, for the question. I think the second part of the question is kind of the answer to the first. We have reiterated our guidance as it is on the EBITDA side, and I would like to see the next three months to give a more clear picture about how the EBITDA growth will trend. If you ask me now, I do not think any margin compression will happen because we have strong control over our pricing. Our services are differentiated and the tolerance towards price elasticity is quite healthy in the markets that we operate in. Having said that, today there is heightened geopolitical uncertainty globally and I would like to see a little bit more clarity on the geopolitical landscape before making a change in our guidance on the EBITDA side. Now looking into the impact we see in our markets, especially about the oil prices: in South Asia, a barrel of oil can trade at very elevated prices and availability is an issue in some markets. It is not only about pricing but also the availability of fuel, which is important. I am very glad to see that Pakistan has been diversifying its energy capacity towards wind, solar and hydro. Hydrocarbons have been steadily declining in the energy mix. But in markets like Bangladesh, we have seen some availability issues over the last couple of weeks. I hope that market adjustments in oil pricing will resolve these availability issues over time. But I think it's important to understand that with the current weighted average inflation rate of 8.1% across our markets, we do expect to see continued inflationary pressure and that's something we are watching very carefully. With regard to investments in Pakistan, we have tripled our capacity on spectrum. Specifically, with 700 MHz spectrum added to our spectrum portfolio, we will accelerate our deployments. It will be our coverage layer for 5G and also for enhanced 4G services as well. That's why we decided to upgrade our revenue guidance slightly. Having said that, if you look at the profile of our revenues, Digital Services CapEx-to-sales ratio is in the higher single digits rather than the higher 20s. That's why we believe, over time, there will be a moderation of CapEx-to-revenue percentage. But for the remainder of the year, we will accelerate our deployments in Pakistan because the average data consumption in Pakistan today is around 7.5 gigabytes per month which is about one-third of what it should be. It's not that Pakistanis don't want to consume more; it's because capacity is limited. So we believe that putting more capacity in place will give us the chance to monetize that business more effectively.

Kaan, can I just follow up on the EBITDA margin point. I think from what I understood, you're suggesting there will be no margin contraction. But given the upgrade to revenues and EBITDA guidance staying the same, if you take the midpoint of both, that obviously implies margin contraction. Are you suggesting that we should instead be thinking about you ending up at the full year at the higher end of the EBITDA range, if margins are going to remain stable?

Max, I would suggest that we wait for Q2 to give more clarity on that. At this particular stage, we wanted to stick to the guidance that we have given on the EBITDA side. But I think our pricing control and inflationary pricing discipline will allow us to keep our margin levels the same.

Our next question comes from Nicholas Paton with Edison Group.

Thank you very much for the additional information on the Pakistan Financial Services business, which I thought was very interesting. It reminded me of the work that we did in our initiation. When I look back at that now, we were considering transactions with MTN fintech and Airtel Africa and looking at potential valuations for that business. It looks as though the business has grown something of the order of about 30% in EBITDA terms over the last year or so. At the time, we were looking for a valuation around about $1 billion for that business. I'm also aware that investors have been discussing a potential strategic investor for the business, maybe even an IPO. Have you any more thoughts about potential options to crystallize value in that business?

I'm extremely happy with the progress we have with our financial services business in Pakistan, specifically expanding our service lines into insurance and potentially into digital banking products that we do not cover today. I think there is huge potential serving a population of roughly 250 million in Pakistan and additional populations in nearby markets. There's a huge opportunity in this market, and I would like that growth to show itself a little bit more. What I'm even more excited about is applying the same business model in a market like Bangladesh, which has an additional population of around 180 million, and where we see opportunity for our footprint. I think our intentions at a certain point are to create an investment opportunity, but we will not hasten that path as growth rates are still allowing us to develop the business further.

And should I infer from that, that if you were to look for a crystallization of the value in those businesses, you might look to, for instance, merge the JazzCash business with businesses from other countries? Or would you try to look at options on a country-by-country basis?

We will keep an open mind in terms of how we see consolidation. Clearly, there are certain aspects of the business which later on actually turn into products such as digital assets, including stablecoins and remittances. These are global businesses. So some of these things could justify a global multi-brand strategy.

Our next question comes from Adrian Cundy with Emerging & Frontier Capital.

Congratulations, first of all, on beating our digital growth estimate this quarter. Last time we did the call, you said that you had a vision of getting to 30% plus of turnover by the end of next year, half from organic, half from potential M&A and 1% a quarter. You seem to be running ahead of that right now. Do you think on an organic basis you might even get to 30% earlier than planned given what's going on and particularly in Pakistan?

Well, I think the momentum we see is not only in financial services but entertainment, our premium digital products, health care marketplaces and more. I now see that the team looks to end of 2029 to achieve more than 50% of our revenues from digital services. With that in mind, I think half of that should come organically and the remainder will likely come with acquisitions in the markets we operate in. I'm very happy to see that we modeled our digital services growth as a 35% plus growth business, and it is proving to be almost twice as fast in this quarter. But I don't want to give a specific annual growth guidance for digital at this particular time.

Outside of Ukraine and Pakistan, and in terms of growth capital for digital wallets in Bangladesh and Uzbekistan, do you see potentially a need for more risk capital at the group level? Also, in relation to earlier discussions about listing parts of the business, particularly in Pakistan, is that still on the agenda given the current geopolitical situation?

I think it's important to look at this not only as crystallizing value but also as having the right partners and investors in place to develop resilience and strength. From that perspective, we are of course always looking at what strategic options are available.

Yes. Okay. And a final question on the debt: last call, you indicated that you'd like to refinance the notes coming due before they become current in the fourth quarter of this year or address it. For modeling purposes, do you have a target debt to capital ratio in mind? And given that cash flow continues to accrue at the group level, when you do move on the notes due in '27, do you need to refinance the whole amount? Or might there be a partial principal payment and an issuance of a smaller, longer-dated bond that would provide a further acceleration of free cash flow to equity?

Let me ask Burak to answer that since they have been quite busy on this front. Please, Burak.

Yes. The work has been ongoing, and we still plan to address the debt before it becomes current in November 2026. So we are working on that. All options are on the table. We will aim for a minimum benchmark size whenever we go to market. On top of that, we will decide based on the capital inflows and outflows that we are forecasting right now. Looking two to three years out, excluding leases, we don't want to cross the 1.5x net debt-to-EBITDA mark where we are targeting today. So that's where we see ourselves.

Our next question comes from Mustafa.

I have a question on Uzbekistan. Customers are nearly flat or declining, but ARPU keeps rising. How should we think about the growth strategy in this market?

Thanks a lot for the question. Our strategy is around the multiplay nature of our services. That means as customers move from being single-play customers—consuming primarily voice services—to consuming our digital services, the potential for ARPU expansion increases and churn goes down significantly. That's what we are observing in Uzbekistan. Our customer base may be stable, but the type of services we provide is getting richer and that allows family package models and other bundled offers to gain much higher traction and increase average revenue per user.

Our next question comes from Himanshu.

Congratulations for a strong set of results. Just to get some clarity with respect to your financial services business: how much of the Pakistan revenue comes from the financial services arm? And what are your plans for this division—do you plan to grow it outside of Pakistan in similar verticals?

Thanks a lot for the question. To give you an overall indication, our financial services business is about a $1 billion business, a significant portion—almost two-thirds—comes from Pakistan. It's a combination of digital payments, insurance business, lending business, as well as remittances. We are showing almost 29 million active customers, and we have a wide base of accounts. With that, we believe we are transacting a large share of digital transactions and are a well-established financial services player in Pakistan.

Sorry, I meant specifically the lending business—what proportion of revenues does lending contribute?

We don't disclose that level of detail publicly. But what we've indicated is that lending and interest income are slightly over half of the total revenues for the Pakistan business. That's what we've indicated in the past. Clearly, as the business grows, we understand investors will want more detail, and that's something we are evaluating. Over the next six to nine months, you'll see us provide more color around that. For now, it's fair to say lending and interest income are north of half of the total revenue base in Pakistan. Mobilink is issuing over 200,000 loans daily and has a substantial loan portfolio.

Should we start seeing you as more of an NBFC-type business? Are you moving in that direction?

You should perceive us as a financial services company as well—we serve from digital payments to lending to remittances to digital assets services in the country. From account and loan numbers, we are a major player in the market, and you will see us continue to take market share in financial services as a consumer-oriented financial services company.

Our next question comes from Jay with New Street Research.

Just one question. Mobile ARPU growth in general and especially in Ukraine was very impressive. Can you give more color on that? Is it really all from bundling and Multiplay customers?

If you look at our telecom growth, which is around 8%–9%, versus digital services growth at around 57%, there's an important segment that we call multiplay. Multiplay customers consume both telecom and digital services; while we often recognize revenue as telecom for data consumption, these customers drive much more data usage and engagement. That segment grew more than 17%. Even if total telecom subscriber numbers are stable year-over-year, our ability to generate more telecom revenues from the same customer base is increasing because the customers who also consume our entertainment services use more data, they stay longer with us, and churn is lower. Those three drivers allow us to create more ARPU from the same customer base.

Our next question comes from a caller regarding Microfinance Bank licensing.

I just have one question. Does the Microfinance Bank hold a different kind of license than Mobilink Microfinance Bank Limited? Can it unlock any regulatory capabilities for JazzCash and Mobilink Bank in the future?

We are taking an important role in the digitalization of the financial services landscape in Pakistan. As we grow our footprint, including insurance businesses and other services, we will increasingly operate with digital bank-like capabilities to provide the services our customers need in the marketplace.

We have no further questions at this time. I will now hand back to Anand Ramachandran for closing remarks.

Thank you very much for your interest in VEON and for supporting us. As always, the Investor Relations team and all of us are available for any follow-up questions. We look forward to staying in touch. Until then, it's goodbye from us until the next quarter on this call. Thank you for your time.

Thank you very much.