Ukraine: Strong underlying performance despite escalating conflict
Kyivstar's operational resilience remains a central element of VEON's investment proposition.
Despite the continuing conflict and associated infrastructure challenges, the business
has maintained strong revenue and EBITDA growth. In H126, total revenue increased
29.2% in local currency to UAH29.2bn ($667m), while EBITDA rose 23.6% to UAH15.9bn
($363m). The EBITDA margin declined 2.4pp to 54.5%, reflecting higher personnel, energy
and network-support costs.
Core telecommunications and infrastructure revenue increased 14.3% in local currency
to UAH23.0bn ($526m), supported by tariff increases, higher data consumption and continued
growth in business services. Telecom EBITDA rose 13.2% to UAH13.3bn ($303m), with
the margin declining modestly to 57.7% from 58.3%, demonstrating the resilience of
the underlying business despite continued infrastructure disruption.
Digital services were the principal growth driver, with H126 revenue increasing 151.1%
in local currency to UAH6.2bn ($141m), supported by acquisitions and organic expansion.
Digital EBITDA increased 133.0% to UAH2.6bn ($60m), although the margin declined to
42.4% from 45.7%. Digital revenues represented 21.2% of Kyivstar's total revenue,
compared with 10.9% in H125. Key contributors include Uklon (ride-hailing), Helsi
and Tabletki (digital healthcare) and Kyivstar TV. In Q326, we will look for evidence
of sustained organic growth, progress in integrating the acquired businesses and improving
profitability as these platforms scale.
Nevertheless, the recent escalation of hostilities presents additional risks to infrastructure,
service continuity and investment requirements. Kyivstar's recent share-price weakness
illustrates the sensitivity of investor sentiment to geopolitical developments, even
where underlying operating performance remains robust.
Kyivstar has postponed its separately planned capital markets day until 2027, reflecting
the challenging operating environment. However, the company is expected to feature
prominently at VEON's capital markets day on 16 November, providing investors with
an opportunity to assess its operational performance and strategic priorities.
Pakistan: Continued operational momentum, JazzCash continues to scale
Pakistan remains VEON's largest operating business in terms of both revenue and EBITDA
and a principal contributor to group growth, as well as leading the way in financial
services adoption. Performance was particularly strong in H126, with revenue increasing
23.0% in local currency to PKR269.5bn ($965m) and EBITDA rising 29.9% to PKR118.9bn
($426m), lifting the EBITDA margin by 2.4pp to 44.1%.
Core telecoms revenue increased 15.0%, supported by disciplined pricing, increasing
data consumption and continued 4G adoption, while telecom EBITDA rose 21.3%, reflecting
operating leverage and improved margins.
Digital revenue grew by 38.7%, with EBITDA increasing 62.0%, supported particularly
by the expansion of JazzCash, alongside other consumer and enterprise digital services.
Digital consequently accounted for 37.8% of Pakistan's H126 revenue, up from 33.5%
in H125.
JazzCash's success demonstrates the potential to leverage VEON's telecommunications
infrastructure and customer relationships to develop additional revenue streams. It
also provides a useful reference point for the group's ambitions to expand financial
services across other markets, although differences in regulation, consumer behaviour
and market structure suggest that replicating its success elsewhere may take time.
As we discuss later in this note, it is arguably one of the more likely candidates
for a future value-crystallisation event.
Kazakhstan: Looking for signs of margin pressure easing
Kazakhstan remains the principal area of concern within VEON's operating portfolio.
The increase in VAT from 12% to 16% in January has proved difficult to pass through
to customers, while competitive pressures have affected pricing and customer monetisation.
In H126, revenue increased 6.9% in local currency to KZT213.0bn ($438m), but EBITDA
declined 12.3% to KZT87.6bn ($180m), reducing the EBITDA margin by 9.0pp to 41.1%.
Performance was mixed across the business. Core telecoms revenue grew 4.1%, but EBITDA
declined 12.2%, reflecting pressure on pricing and operating costs. Digital revenue
grew more strongly, increasing 21.2%, although EBITDA fell 12.7%, indicating significant
margin compression. In Q226, mobile average revenue per user (ARPU) declined 8.2%
y-o-y despite a 13.4% increase in data consumption. Profitability has also been affected
by the growing penetration of smartphone-inclusive bundles, where equipment revenue
is recognised upfront, while higher-margin service revenue is recognised over the
contract term.
Management considers the margin pressures temporary, principally reflecting the VAT
increase and the accounting treatment of smartphone bundles. We expect a gradual recovery
during 2027 as pricing measures take effect, cost pressures moderate and the contribution
from higher-margin bundled service revenues increases. However, the timing and extent
of the recovery remain uncertain, and we do not anticipate an immediate return to
historical profitability levels.
Beeline Kazakhstan's proposed $75m acquisition of OLX Kazakhstan, a leading online
classifieds platform with c 10 million monthly active users, remains subject to regulatory
approval. We will be looking for greater clarity on regulatory approval, the expected
completion date and its potential contribution to digital revenues and profitability.
Bangladesh: Turning network investment into digital growth
The telecom operating environment was challenging in H126, with energy shortages,
higher power costs and pressure on consumer spending affecting demand and profitability.
These pressures appear to have persisted into Q3, while sequential progression in
Digital is likely to be suppressed due to the Q2 boost from the FIFA World Cup.
Banglalink is Bangladesh’s third-largest operator, with around 20% market share, but
has invested substantially in its network to strengthen coverage, quality and its
competitive position over the past few years. Capex has now normalised and the focus
is shifting towards greater network utilisation and customer monetisation, while supporting
wider digital and financial inclusion. Digital services are growing rapidly from a
low base, spanning entertainment and payments through Mukto Pay.
Nova Digital Bank, backed by VEON Digital Financial Group and Square Group, represents
a potentially significant next step. Bangladesh Bank issued a letter of intent on
24 September, providing initial regulatory approval; a full banking licence remains
subject to further regulatory and operational requirements. Securing this would enable
VEON to expand beyond Mukto Pay’s payment services into broader banking relationships
with underserved consumers and SMEs.
VEON’s recent Invest in Bangladesh event highlighted the potential for economic reform
and renewed investment to support recovery and digital adoption. The group is backing
this opportunity with an initial $250m commitment across connectivity, digital infrastructure,
financial services and AI. Our note, Invest in Bangladesh: Reconnecting to growth, examines the economic backdrop and how Banglalink is positioned to benefit.
Uzbekistan: Strengthening Beeline’s competitive position
While relatively small within the group, Uzbekistan continues to make a positive contribution
to revenue and earnings growth.
VEON’s agreed c $207m acquisition of Perfectum, including c $93m of assumed debt,
should strengthen this position. Perfectum brings 115MHz of spectrum across the 850MHz
and 3,800MHz bands and a Nokia 5G standalone network, increasing Beeline Uzbekistan’s
spectrum holdings by c 50% and supporting better coverage, additional capacity and
fixed wireless access.
As a result, it is not yet apparent how rapidly synergies can be realised. Perfectum’s
financial performance is undisclosed, while the regulator has also attached conditions
to the transaction. Perfectum must continue operating as a separate operator for at
least three years, existing 5G fixed-wireless tariffs must be maintained for 12 months,
average internet speeds must remain above 300Mbps and customers cannot be compelled
to use Beeline or VEON digital platforms. The regulator also requires further expansion
of Perfectum’s 5G standalone network.
The transaction reflects the greater capital flexibility following June’s $1.4bn bond
refinancing and VEON’s priority of reinforcing its existing market positions. See
Reinforcing Uzbekistan position with Perfectum acquisition for further detail.
