Good day, ladies and gentlemen, and welcome to the VEON Second Quarter 2020 Results Webcast and Conference. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to hand the call over to Nik Kershaw, Head of Investor Relations. Please go ahead, sir.

Hi. Good day, ladies and gentlemen. Welcome to VEON's second quarter results presentation. I'm Nik Kershaw, Group Head of Investor Relations. I'm pleased to be joined on the line today by Kaan and Sergi, our group co-CEOs, along with our group CFO, Serkan. Today's presentation will begin with an overview of our second quarter results from Serkan, followed by an operational review from Kaan and Sergi, who will cover how the COVID pandemic has affected our business during the last quarter. We'll then hand it back to Serkan to discuss our outlook and our new financial guidance for full year 2020. And as ever, there will be -- to ensure that there'll be ample time for your questions, but we'll ask you to save this for the end of the presentation. Just before getting started, I'd like to remind you that we may make forward-looking statements during today's presentation, which involves certain risks and uncertainties. These statements relate in part to the company's anticipated performance and guidance for 2020, particularly in light of the COVID pandemic, future market developments and trends, operational and network development and network investments and the company's ability to realize its targets and commercial and strategic initiatives, including both current and future transactions. Certain factors may cause our actual results to differ materially from those in the forward-looking statements including the risks detailed in the company's annual report on Form 20-F and other recent public filings made by the company with the SEC. The earnings release and the earnings presentation, each of which include reconciliations of non-IFRS financial measures presented today can be downloaded from our website. With that, let me hand over to Serkan.

Thanks, Nik, and good morning and good afternoon to all participants. Thank you for joining us for this presentation of our second quarter results. I hope you have all managed to stay safe and well during this unprecedented period for all of us. Q2 saw the full impact of the COVID-19 pandemic on activity across our operating markets as lockdowns intensified before some [indiscernible] easing towards the end of the quarter. Our financial performance was impacted as a consequence, although I'm pleased to say that, continued progress on cost control provided a degree offset. Let me go to go straight to the headline numbers, which are summarized here on Slide 5. Group revenue for the quarter declined by 6.9% in local currency terms year-on-year to $1.9 billion. On a reported basis, the year-on-year change in revenue was minus 16.3%, once the negative impact of currency movements amounting to $178 million are accounted for. Lockdowns across our markets explain the scale of this revenue decline, given the requirement to close stores, which significantly constraint top-ups and device sales. The loss of migrant revenues, particularly in Russia, and the sharp fall in roaming income due to travel restrictions also contributed. Together, this more than offset the positive impacts of increased demand for data and fixed line services, which we have seen across our markets since lockdowns were introduced. Despite these headwinds, we were pleased to deliver solid double-digit local currency growth in data revenues during the quarter, up 14.4% year-on-year or plus 5.2% on a reported basis. This reflects the underlying strength in data demand that characterizes our markets as well as the rapid uptake in digital services that lockdowns are encouraging. EBITDA declined by 7.7% in local currency terms to $809 million. On a reported basis, this corresponds to an 18.7%…

Thank you, Serkan, and thank you all for joining us on the line today. In early May, at the time of our first quarter results, many of us adjusting to remote working, which we thought at the time as a temporary measure while we awaited the peak of the pandemic to pass. Three months on, the majority of us are still facing at least some limitation on our ability to return to our places of work. This is one of many challenges, which are driving an ever greater dependency on telecommunication services and redefining the role of our industry in the daily lives of our customers and the markets we operate. However, adapting to this new normal has been tough in a number of days for our industry, just as it has been for the broader economy and for our customers. Let me summarize what it meant for our group in the last quarters and what it will mean going forward over the next 2 slides. Second quarter show the full impact of lockdowns on our operational performance. These trends, which intensified in April and May show signs of abating in June and July as restrictions on store closures and movement of people were eased. As a consequence, roaming revenues fell substantially to 0.4% of group revenue compared with 2.1% in financial year 2019. Store closures had a significant impact on our gross additions and airtime sales. While travel restrictions also meant a loss in migrant customers from our subscriber base, particularly in Russia. We also saw a migration in data traffic from mobile to fixed networks as well as a shift in network usage away from the urban centers to suburbs and rural areas. We saw the positive impact of this in our fixed networks where daily volumes peaked…

Thank you, Kaan. Let me first talk about Pakistan, then Ukraine and finally conclude with some observations and highlights from the rest of our markets. It was another solid quarter for Jazz. We managed to hold the top line broadly flat despite the disruption caused by lockdowns. Key to these results was our success in growing data revenues to expanding our 4G customer base. Underpinning this growth was further investment in our networks, which enabled us to expand the number of our 4G base stations by 17% and drive 4G penetration above 30% of our total subscribers. The growth rates were quite substantial. With data revenues growing close to 28% on the back of a 72% expansion of our 4G base and a strong uptake of our growing ecosystem of digital services. Jazz is the poster child of how rapid digital adoption is combining with an ecosystem of services to drive impressive growth rates in products like JazzCash, the market-leading digital financial services platform where our customer base passed the 8 million monthly active user mark during Q2. Similarly impressive has been the growth we secured in our self-care app where we now have over 6 million users, which is 4x the number we recorded this time last year. Moving to Slide 19. We're going to move now to numbers. The year-on-year revenue decline you see here reflect the impact of last year's tax regime changes, which distorts the operational comparisons. Adjusting for this and despite the lockdown, revenue grew -- was 0.5%, underpinning by the strong 27.6% rise in data revenue as well as a 5.6% expansion of our total customer base. EBITDA was also impacted by the tax changes. And also by a change in the accounting treatment of our ex Warid license, amortization expense from below EBITDA…

Thank you, Sergi. Let me now turn to financial guidance, which we have reintroduced for financial year 2020 following an assessment of the impact of COVID-19 on our performance. This is set out on Slide 25. We have been encouraged by a gradual recovery in revenues across the majority of our markets since the middle of Q2 as lockdowns were steadily eased. We expect this revenue trend will continue in the second half and will enable a steady recovery in group EBITDA as well. As a consequence, we now expect a low to mid-single-digit local currency decline in both group revenue and in EBITDA for the full year 2020. This compares with a 3.4% local currency decline in revenue and a 4.8% decline in the EBITDA at the interim state. As such our guidance implies, we expect to see the pace of EBITDA recovery accelerate at the group level in the second half as loss revenues return and our cost control measures continue to make a positive contribution to our margin. Our new guidance also illustrates the steady operational improvement we saw in May and June. Given that last quarter, we observed that April had seen a high single-digit decline in local currency revenue and the mid-teens fall in EBITDA year-over-year. I would caution that this new group guidance assumes a continued gradual lifting or lockdown restrictions across our markets. There remains some risk that we can see knockdown restrictions reinstated, which would have a negative impact on our outlook. I would also draw our attention to Russia where Q3 is likely to remain challenging given the underlying performance issues we are tackling. This assumption is, however, captured in our new 2020 group guidance. Investment in our network in Russia continues, and we expect that the results of this and…

[Operator Instructions]. And your first question comes from the line of Vyacheslav Degtyarev at Goldman Sachs.

A couple of questions. Firstly, can you elaborate on the dividend outlook for 2020? Basically, is the outlook for not to pay is more about higher than 2x net debt-to-EBITDA that you envisage by the end of the year or outlook for the leverage to potentially worsen further throughout 2021. Or any other potential uncertainties that you can elaborate on that you take into consideration? And secondly, can you share some thoughts on the level of the equity free cash flow for this year that you envisage for the company? Any thoughts potentially on the upside and on the downside going into the second half?

Serkan?

Okay. Thank you very much. Regarding your first question about the dividend, as I mentioned in the presentation, our dividend policy stays the same, which links the dividend payout to net debt to last 12 months EBITDA and also Q2 free cash flow. As also, we mentioned our current at the end of June, net debt-to-EBITDA is around 2x, which is quite at the age of the policy. In the coming quarters, second half of the year, the uncertainties that I was referring to was related to the COVID-19 and potential lockdowns in different jurisdictions and their potential impacts on our results, basically, EBITDA and the cash flow. And apart from that, of course, we are looking at certain M&A transactions as well. So the realization and the timing of those transactions also may impact the equity free cash flow, which will in that impact the dividend payout. That's the outlook that we can share at the moment. Regarding free cash flow, as I mentioned again, first of all, free cash flow is lower than last year, the same period. But however, we should also note that last year, first of all , we had a couple of positive one-offs. The main one was Ericsson payment of $350 million. But if you exclude the one-offs from both years, still, this year, our free cash flow in the first half is slightly lower than last year. Having said that, again, the uncertainties around the COVID-19, potential currency fluctuations in the emerging markets that we are operating in, these may impact our EBITDA and the cash flow in the second of the half year. So that's what I can say. And for the free cash flow, I think we don't give any guidance. So I think I should pause at this moment.

Okay. And let's say, if you -- by February next year, you have around 2x leverage, do you think that dividend payment is likely or not? If you can comment.

Of course, the final decision is to the Board, Board of Directors, but if we satisfy all the conditions as per the policy, I think that the Board of Directors will take this into consideration in their decision in February '21.

Your next question comes from the line of Ivan Kim, Xtellus Capital.

Two questions, please. Firstly, it's clear that this year's capital intensity will be high. So for how long do you think your CapEx will stay elevated? That's the first question. The second question on the Russian market. So in terms of the customer loss in the second quarter, can you split out what percentage of the customer loss were migrant workers? And in general, apart from the network investments, what are other measures in Russia that you'd take to turn the business around? How well your family tariffs are going? So any color around all that would be great.

Ivan, thank you very much. This is Kaan. In terms of capital intensity, we have to understand that we are still in the penetration increased phases of 4G in all of our markets. So we would see around 20% -- 18% to 20% capital intensity as we have an opportunity to reach minimum 70% of 4G penetration over the years to come. This may change from market to market, but we should expect this to continue for a while given the fact that we are still penetration level around 40%, and we have quite a long road to go. With regard to the Russian market, in Russia, especially the lockdowns and the store closures had almost 50% reduction in gross additions, new customer inflow to our business. Assuming that you would have normally 6 million new additions to this due to heavy migraine traffic in the country, this was almost a 3 million impact overall subscriber numbers. So this is an important portion to look at. Having said that, our 4G subscriber base has increased healthily in Russia as well from 32% to 42% penetration of total subscribers. So that's -- that has been the major drivers we have seen in the market.

Okay. And what about the family tariffs? So you launched them early in the year, do we see like better retention? Do you see upsell, downsell, how are they going?

Considering the COVID impact and the impact on gross additions as well as top up, I think it would be unfair to make a comment about the family tariffs and their performance. But overall, what I can tell you is our modernization of value propositions for the Russian marketplace are already being worked on for the second half of the year.

. [Operator Instructions]. The next question comes from the line of Ondrej Cabejšek at UBS. Ondrej Cabejšek: I've got two questions, please. One is on OpEx, if you could please give us a bit more context in terms of what part of the OpEx decline that you highlight was top-line driven? And what sort of percentage of that could potentially be structural? And if you could maybe put that into context with the program that the company had last year. I don't know if it still has that program under U.S. new management of declining the cost intensity by roughly 1 percentage point per year. And second question, please, just on distribution in Russia. Some of your peers have launched distribution partnerships and also made comments that, obviously, in this situation, the consumers are learning to sort of undergo digital customer journeys, and so there is clearly potential to sort of downsize the footprint of the stores further. So do you share this view on a short-term basis because clearly, losing market share is something -- or a situation in which you potentially don't want to do this too fast or too aggressively?

This is Kaan. Let me answer the second question on distribution, and I will leave the OpEx and the EBITDA impact to Serkan. In Russia, and overall, the COVID showed us actually that the future of distribution is all about digital and alternative channels. And with that in mind, we are significantly upgrading our customer self-care application capabilities, self-registration capabilities, and we are already seeing the impacts of those. Again, for the future, we see franchise base models and alternative distribution channels balancing out significantly the physical inefficient cost structure of the distribution network. We have already closed permanently 627 stores in Russia. And for the future, we will further optimize these numbers with franchise, alternative partnerships and alternative channels. Serkan, do you want to comment about the EBITDA and the top line impact of the EBITDA?

Thank you. Regarding OpEx, actually 2020 and specifically Q2, there are really specific periods regarding OpEx and the cost-saving initiatives. However, if you refer to Page 29 of our presentation, you can see where we focused and where we delivered during the quarter. If I just elaborate a little bit on that. In this quarter, obviously, we managed to reduce our G&A and HR and staff costs, which you may say that partly structural, partly short-term quick wins in our cost structure, but we have delivered, in total, $26 million year-over-year savings in the quarter. Apart from that, there is an ongoing program in the HQ, which was -- which started before the pandemic actually, to reduce the costs year-over-year. And we see that, that program is delivering good results, and it will continue for the rest of the year as well. So some significant cost reductions are coming from there as well. And in the same slide, you can see that compared to last year, the same quarter, we reduced the cost at HQ by $69 million, which is quite significant. If you look at the group's structural costs, which I believe, personally, more important because if we improve our structural cost, we can benefit from those cost savings in the long-term as well, not only temporary in the long-term as well. And if you compare Q2 to Q2 last year as a group perspective, our structural costs decreased by 15% in Q2. That's coming from many, many initiatives, and we will continue to focus on those as well. The only thing that is different from this trend is the network-related expenses, as discussed at the beginning of this presentation, actually. We continue to invest in our main 4G networks. So that is also very critical for us in the long-term sustainability of the growth and profitability of the group. So that increased investments in networks and we want to continue those investments, which is obvious from our CapEx intensity guidance as well. Currently, year-over-year, we don't have any network cost savings because we are growing the network. But in time, we believe that with the optimizations in the network as well, we will start to get some benefits from that area as well. So it's difficult to give you an absolute amount, absolute number how this will impact our cost intensity, as you mentioned in your question. From about the trend-wise perspective, we are reducing our OpEx in general. And also, we are also reducing our structural OpEx, which is more important, in my opinion, in the long term.

And Serkan, this is Kaan. Just to add to what Serkan just mentioned because Serkan mentioned already that there was a 300 basis point impact in Russia EBITDA, impacted by all these actions. And our new turnaround strategy and execution is focused on customer experience. To make sure that our customers are experiencing a world-class service, we are taking actions, as we speak, to deploy a 4G network for subway system. And as part of these exercises, we are providing free Wi-Fi access for all our customers on the subway and increasing our capacities on transmissions, which are having a direct impact to our operational costs. And I think these are all the investments that we are doing for the right ambitions and the right direction. Ondrej Cabejšek: I may have a follow-up question for each. Kaan, can you give a sort of trend for the next couple of years in terms of what -- directionally, in terms of store closures, is there a number, 5%, 10% per year that you think is realistic in terms of that? And Serkan, if you please comment on the OpEx program that the company had? Again, I'm not sure that actually, it's still valid. But can you just confirm that the percentage point per year OpEx intensity program is something that's still -- that the management targets currently?

Sure. If you remember, we have previously provided a guidance of 600 stores to be closed over time. We already are at 627. Frankly speaking, I wouldn't believe if somebody told me that 1,400 of our stores in Russia would be closed due to the COVID pandemic. That happened. And now we have a much better understanding of our potential with our digital interaction with our customers. But before giving a new number, I really would like to see a little bit more about how pandemic goes on and how the closures of our stores are impacted. But clearly, optimization in this area is further possible through franchises, partnerships, alternative channels and most importantly, the digital penetration increases.

If you allow me, I don't want to give any specific numbers for the OpEx improvement. But what I can say, this COVID pandemic changes lots of things. And then because of this, after the COVID pandemic returns back to the normal, we think that many things will not be normal as we define normal before the pandemic. So because of this reason, we look and deep dive each and every cost item. And we are trying to think outside the box, how we can improve the cost structure, not only with short-term wins, with long-term structural changes. So I believe that sometime beginning of next year, we will be in a better position to guide you what kind of impact, definitely a positive impact we can achieve in the OpEx structure.

Your next question comes from the line of Stella Cridge at Barclays.

I was wondering if I could ask a couple of questions. The first one is earlier on the call, you mentioned that M&A was a potential consideration for the rest of the year. I was just wondering if there's any more details you could provide on that, if you were referring to any specific geographies. And in particular, I'm aware that some key dates with regards to the shareholder agreement in Algeria come up in 2021. I was just wondering, had there been any further discussions with regards to the future of that business? The second question was just on the funding. So you've obviously been quite active with refinancing and addressing the cost of debt. But the average maturity is still below 3 years. So I was just wondering, what are your -- the main -- next steps that you're considering on the funding strategy? That would be great.

Thank you, Stella. And let me take first the M&A question, and then I'll defer to Serkan for the second part. So talking about Algeria, as you mentioned, we have a potential deadline on July 2021. So for the time being, no actions on that regard. We definitely seen a very good progress in the country, and the team did a good job deploying CapEx in a smart way. So we are fairly confident that things are in a good place there. When it comes to M&A, there's multiple fronts that we are continuing to evaluate, both on the traditional connectivity business, but also on the nonconnectivity side. There's no announcements at this point, but it is something that -- it's one of our priorities for the remainder of the year.

Thank you, Sergi. Regarding the funding strategy, I can explain it in 4 pillars. So the first pillar is decreasing the cost of debt. So we will continue to focus to decrease our blended cost of debt for the group. That will be the first pillar. Second pillar is increasing the tenor, increasing the maturities. We managed to increase the maturities, average maturity, from 2.3 years to 2.8 years. In our opinion, we should increase that further. So tenor should average -- they should increase further. The third pillar, we are operating in 10 different countries and most of them are emerging or frontier markets, and we are exposed to a potential currency depreciation. The third pillar -- because of this is to leverage the balance sheet in local currencies that we are operating in. That's your third. And the last pillar is diversification of sources. We want to diversify sources of funds from the DCM markets, from banks, from local markets. So that's the pillars -- those are the pillars of the strategy: decreasing the cost of debt; increasing tenor; increasing leverage in local currencies; and diversifying the sources of funds.

That's great. I was just wondering if I could follow up on a couple of points. Could you -- sorry, if this is just me. If you could explain a little bit more what you mean by a connectivity business and the nonconnectivity side? And just in terms of the currency mix, I mean, obviously, saw that you have been doing the hedging particularly on the $side, does this kind of naturally imply that you want to have a lower amount of Eurobonds in dollars outstanding in the future, kind of all else equal?

Sure. Happy to provide more color. What I was referring for nonconnectivity is the things that you mentioned like Algeria. Of course, Pakistan, as you know, there's a new situation where we can put call option there and acquisitions that we could do perhaps in the B2C or B2B area. When I say of nonconnectivity is the area that we've been calling ventures, and this refers to financial services, content and potentially some big data properties.

Regarding the currencies, as you know, slightly lower than 50% of our business is in Russia, so we were exposed to ruble depreciation or appreciation. So we always keep focus on to make natural hedge, if possible. If not possible, through derivatives, we want to keep the ruble exposure under control. Apart from that, of course, we will always have probably U.S. dollar debt as well. Because as you know, our U.S. dollar debt market is the deepest market between the currencies. And in some cases, we can leverage the balance sheet in U.S. dollar with a proper condition. So we will look at both. Whichever is beneficial for the company, we will leverage that. But having said that, we will always keep our eye on hedging because we don't want to get exposed to sudden currency fluctuations.

The final question comes from the line of Maria Sukhanova at BCS.

I have a follow up on dividends. If you could just a little bit clarify your message here. So are you saying that there is a risk if you can't meet your guidance for the full year, that then there will be [indiscernible] no dividend? Or what you are saying is that in the base case, if financial performance is in line with expectations and M&A plans are in line with expectations, this is when you would not still recommend dividend for the full year? Just to have more sense direction-wise.

Thank you. Again, I want to refer to our policy. Our policy says that we will distribute or we will consider to distribute dividend minimum of 50% of the free cash flow after certain items, and we will maintain our net debt-to-EBITDA around 2x. So as you know, our numbers are close to that guidance. We are -- our net debt-to-EBITDA is around 2x as of end of June. So as we discussed and as we all know, that the second half of the year, there are lots of uncertainties which may be realized, which may also impact our guidance as well. So that's why we said that when we look at the future, there are uncertainties around the operational results coming from the COVID lockdowns, currency depreciation, there are some elections. There are many, many things. Apart from that, as I said, we have an M&A transaction, which may be realized in this year or early next year as well. So a combination of all this, we think that a dividend payout early next year based on 2020 is unlikely. But of course, we have to see the final actual numbers, and that will be evaluated by the Board of VEON beginning of 2021.

And just a quick follow up. Could you please update us what's the current status of negotiations in spectrum payments in Pakistan? Is there any date they set or like any sense when we get final decision?

Sergi, do you want to take or I will take it?

Serkan, go ahead and I'll complement if needed.

Okay. As you know, the license payment, we have done 50% of the license payment in protest. And in Q2, we also paid $57.5 million as well, again in protest. And currently, because of the COVID lockdowns and most of the government authorities in Pakistan are closed, courts are closed, so because of all these reasons, the negotiations, I cannot say that they are ongoing as it should be. But after reopening all the authorities, the government agency, et cetera, I believe that again, the discussion with the government authorities will be a big start.

And the next comes from the line of Ondrej Cabejšek of UBS. Ondrej Cabejšek: It relates to the fixed business in Russia. So in that particular business, you're sort of doing very well. And I think you have one of the highest growth rates from the big operators. So if you could elaborate a bit, please, because this is quite a saturated market, I think, especially where you are sort of focused in the urban areas. If you could elaborate a bit on where that growth is really coming from and what potential to sustain these single-digit growth rates you see over the medium term? And connected to that, if you could please elaborate a bit on whether there has been any change to your fixed mobile conversion strategy?

Sure. Thanks for the question. As we mentioned, the customer behavior due to the lockdowns really pushed some of our customers to consume more fixed networks. Now of course, COVID's impact has been attributed to that. However, this is not the only trend. Actually, our strong B2B business is also a key driver of that as our customers work from their home locations. And we have to understand that fixed networks are normally much more sticky, and I do not expect these customers going back to only mobile. Mobile and fixed are not substitutes, so they will be consuming mobile as well as they keep their current fixed networks. The average tenure of a fixed customer is much longer than a mobile customer. So I think this search is a reflection of our strength in B2B business and our customers' preference to consume on networks and their choice of operators being Beeline. And I do expect that these customers to continue consuming this even after the COVID. And therefore, we will see, in addition to that, of course, then returning to mobile network utilization as well.

Your final question comes from the line of [indiscernible].

So the first one would be, could you please give us some color on whether you reached any decision on the acquisition of the remaining 15% in the Pakistan business from your partners? And the second one is, could you please update us on your current listing strategy, whether you're still looking for the secondary listing or not?

Happy to take the first one on Pakistan, and then maybe Serkan or Nik or Alex can comment. So we didn't make any decision. As you know, there's a [indiscernible] period on time to make this put call option. So we are evaluating the options, and we'll come back with updates when it's required.

Oksana [ph], just regarding the listing and alternative listings, this topic, as we mentioned last time, has been raised by a number of investors. And clearly, we obviously take investors' concerns to heart. And it has been -- it's being discussed internally, and we are evaluating this. And as soon as we're in a position to give feedback to the market, we will do so.

There are no further questions at this time. Please continue.

If there are no further questions, we'd just like to thank everyone for taking time to dial into our call. If you do have any further follow-up questions, please feel free to reach out to us. Take care, everyone, and we'll speak again soon. Thanks very much.

Thank you. Stay healthy.

That does conclude the conference for today. Thank you for participating. You may all disconnect.