VEON VEON Ltd

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	VEON LTD.
	(Registrant)
Date: May 7, 2019
	By:	/s/ Scott Dresser
	Name:	Scott Dresser
	Title:	Group General Counsel

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is based on, and should be read in conjunction with, our unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2019 and 2018, and the related notes, attached hereto.

References to “VEON” as well as references to “our company,” “the company,” “our group,” “the group,” “we,” “us,” “our” and similar pronouns, are references to VEON Ltd. an exempted company limited by shares registered in Bermuda, and its consolidated subsidiaries. References to VEON Ltd. are to VEON Ltd. alone. The unaudited interim condensed consolidated financial statements as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 attached hereto have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and presented in U.S. dollars. VEON Ltd. adopted IFRS as of January 1, 2009.

The discussion of our business and the telecommunications industry included herein contains references to certain terms specific to our business, including numerous technical and industry terms. Such terms are defined in Exhibit 99.1 to our Annual Report on Form 20-F for the year ended December 31, 2018 (our "2018 Annual Report"). For a comprehensive discussion of our critical accounting estimates and assumptions, please refer to Note 3 to our audited consolidated financial statements included in our 2018 Annual Report.

Certain amounts and percentages that appear in this document have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including in tables, may not be exact arithmetic aggregations of the figures that precede or follow them.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains estimates and forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. All statements other than statements of historical fact are forward-looking statements. The words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” and similar words are intended to identify estimates and forward-looking statements. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties and are made in light of information currently available to us. Many important factors, in addition to the factors described in this document, may adversely affect our results as indicated in forward-looking statements. You should read this document completely and with the understanding that our actual future results may be materially different and worse from what we expect.

Our estimates and forward-looking statements may be influenced by various factors, including without limitation:

•	our ability to implement and execute our strategic priorities successfully and to achieve the expected benefits from our existing and future transactions;

•	our targets and strategic initiatives in the various countries in which we operate;

•	our ability to develop new revenue streams and achieve portfolio and asset optimizations, improve customer experience and optimize our capital structure;

•	our ability to generate sufficient cash flow to meet our debt service obligations, our expectations regarding working capital and the repayment of our debt and our projected capital requirements;

•	our plans regarding our dividend payments and policies, as well as our ability to receive dividends, distributions, loans, transfers or other payments or guarantees from our subsidiaries;

•	our expectations regarding our capital and operational expenditures in and after 2019

•	our goals regarding value, experience and service for our customers, as well as our ability to retain and attract customers and to maintain and expand our market share positions;

•	our plans to develop, provide and expand our products and services, including operational and network development, optimization and investment, such as expectations regarding the expansion or roll-out and benefits of 3G, 4G/LTE and 5G networks or other networks, broadband services and integrated products and services, such as fixed-mobile convergence;

•	our expectations as to pricing for our products and services in the future, improving our ARPU and our future costs and operating results;

•	our ability to meet license requirements, to obtain, maintain, renew or extend licenses, frequency allocations and frequency channels and to obtain related regulatory approvals;

•	our plans regarding marketing and distribution of our products and services, including customer loyalty programs;

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•	our expectations regarding our competitive strengths, customer demands, market trends and future developments in the industry and markets in which we operate;

•	our expectations regarding management changes;

•

possible adverse consequences resulting from our agreements announced on February 18, 2016 with the U.S. Securities and Exchange Commission (“SEC”), the U.S. Department of Justice (“DOJ”), and the Dutch Public Prosecution Service (Openbaar Ministerie) (“OM”), as well as any litigation or additional investigations related to or resulting from the agreements, any changes in company policy or procedure resulting from the review by the independent compliance monitor, the duration of the independent compliance monitor’s review, and VEON Ltd.’s compliance with the terms of its resolutions with the DOJ, SEC, and OM; and

•	other statements regarding matters that are not historical facts.

These statements are management’s best assessment of our strategic and financial position and of future market conditions, trends and other potential developments. While they are based on sources believed to be reliable and on our management’s current knowledge and best belief, they are merely estimates or predictions and cannot be relied upon. We cannot assure you that future results will be achieved. The risks and uncertainties that may cause our actual results to differ materially from the results indicated, expressed or implied in the forward-looking statements used in this document include:

•

risks relating to changes in political, economic and social conditions in each of the countries in which we operate and where laws are applicable to us (including as a result of armed conflict) such as any harm, reputational or otherwise, that may arise due to changing social norms, our business involvement in a particular jurisdiction or an otherwise unforeseen development in science or technology;

•

in each of the countries in which we operate and where laws are applicable to us, risks relating to legislation, regulation, taxation and currency, including costs of compliance, currency and exchange controls, currency fluctuations, and abrupt changes to laws, regulations, decrees and decisions governing the telecommunications industry and the taxation thereof, laws on foreign investment, anti-corruption and anti-terror laws, economic sanctions and their official interpretation by governmental and other regulatory bodies and courts;

•

risks related to the impact of export and re-export restrictions on our and our suppliers' ability to procure products, technology, or software necessary for the service, production and satisfactory delivery of supplies, support services, software, and equipment that we source from them - for example, in April 2018, the U.S. Department of Commerce issued, under the Export Administration Regulations, a Denial Order to ZTE Corporation (“ZTE”), an important third-party supplier, which prohibited, among other things, exports and re-exports of U.S. products, technology and software to and from ZTE and restricted our ability to receive certain services from ZTE, each of which could have led to service degradation and disruptions in certain markets, and in January 2019, the U.S. Department of Justice brought criminal charges against Huawei, another third-party supplier, alleging theft of trade secrets, violations of U.S. sanctions on Iran, and related bank and wire fraud;

•	risks relating to a failure to meet expectations regarding various strategic initiatives, including, but not limited to, changes to our portfolio;

•	risks related to solvency and other cash flow issues, including our ability to raise the necessary additional capital and incur additional indebtedness, the ability of our subsidiaries to make dividend payments, our ability to develop additional sources of revenue and unforeseen disruptions in our revenue streams;

•	risks that the adjudications by the various regulatory agencies or other parties with whom we are involved in legal challenges, tax disputes or appeals may not result in a final resolution in our favor or that we are unsuccessful in our defense of material litigation claims or are unable to settle such claims;

•

risks relating to our company and its operations in each of the countries in which we operate and where laws are applicable to us, including demand for and market acceptance of our products and services, regulatory uncertainty regarding our licenses, frequency allocations and numbering capacity, constraints on our spectrum capacity, availability of line capacity, intellectual property rights protection, labor issues, interconnection agreements, equipment failures and competitive product and pricing pressures;

•	risks related to developments from competition, unforeseen or otherwise, in each of the countries in which we operate and where laws are applicable to us including our ability to keep pace with technological change and evolving industry standards;

•

risks associated with developments in the investigations by, and the agreements with, the DOJ, SEC and OM and any additional investigations or litigation that may be initiated relating to or arising out of any of the foregoing, and the costs associated therewith, including relating to remediation efforts and enhancements to our compliance programs, and the review by the independent compliance monitor;

•	risks related to the activities of our strategic shareholders, lenders, employees, joint venture partners, representatives, agents, suppliers, customers and other third parties;

•	risks associated with our existing and future transactions, including with respect to realizing the expected synergies of closed transactions, satisfying closing conditions for new transactions, obtaining regulatory approvals and implementing remedies;

•	risks associated with data protection, cyber-attacks or systems and network disruptions, or the perception of such attacks or failures in each of the countries in which we operate, including the costs associated with such events and the reputational harm that could arise therefrom;

•	risks related to the ownership of our American Depositary Receipts, including those associated with VEON Ltd.’s status as a Bermuda company and a foreign private issuer; and

•	other risks and uncertainties, including those set forth in Item 3—Key Information—D. Risk Factors in our 2018 Annual Report.

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These factors and the other risk factors described in our 2018 Annual Report are not necessarily all of the factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our future results. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Under no circumstances should the inclusion of such forward-looking statements in this document be regarded as a representation or warranty by us or any other person with respect to the achievement of results set out in such statements or that the underlying assumptions used will in fact be the case. Therefore, you are cautioned not to place undue reliance on these forward-looking statements.

The forward-looking statements included in this document are made only as of the date of the filing of this document. We cannot assure you that any projected results or events will be achieved. Except to the extent required by law, we disclaim any obligation to update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should refer to our periodic and current reports filed or furnished, as applicable, with the SEC for specific risks which could cause actual results to be significantly different from those expressed or implied by these forward-looking statements.

OVERVIEW

VEON is a leading global provider of connectivity and internet services. Present in some of the world’s most dynamic markets, VEON provides more than 210 million customers with voice, fixed broadband, data and digital services. VEON currently offers services to customers in 10 countries: Russia, Pakistan, Algeria, Uzbekistan, Ukraine, Bangladesh, Kazakhstan, Kyrgyzstan, Armenia and Georgia. We provide services under the “Beeline,” “Kyivstar,” “banglalink,” “Jazz” and “Djezzy” brands.

BASIS OF PRESENTATION OF FINANCIAL RESULTS

Our unaudited interim condensed consolidated financial statements attached hereto have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group’s audited annual consolidated financial statements as of and for the year ended December 31, 2018.

REPORTABLE SEGMENTS

VEON Ltd. is the holding company for a number of operating subsidiaries and holding companies in various jurisdictions. We currently operate and manage VEON on a geographical basis. These segments are based on the different economic environments and varied stages of development across the geographical markets we serve, each of which requires different investment and marketing strategies. Our reportable segments currently consist of the following seven segments: Russia; Pakistan; Algeria; Bangladesh; Ukraine; Uzbekistan; and HQ (transactions related to management activities within the group in Amsterdam and London). “Others” represents our operations in Kazakhstan, Kyrgyzstan, Armenia, and Georgia as well as intercompany eliminations and costs relating to centrally managed operations monitored outside of VEON’s headquarters.

For further details please see Note 2 to our unaudited interim condensed consolidated financial statements attached hereto.

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KEY DEVELOPMENTS DURING THE FIRST QUARTER OF 2019

Q1 2019 REVENUE AND EBITDA ORGANIC ¹ GROWTH IN LINE WITH FY 2019 FINANCIAL GUIDANCE; REPORTED REVENUE DECLINE IMPACTED BY CURRENCY WEAKNESS

Organic revenue growth of 7.4% and organic EBITDA growth of 10.3% year on year were mainly attributable to operational strength in Pakistan and Ukraine, and organic EBITDA margin improvement of 1.0 percentage points year on year was attributable to lower costs. Q1 2019 operational performance was consistent with FY 2019 guidance of low single-digit organic revenue growth and for low to mid-single digit organic EBITDA growth. Reported revenue continued to be impacted by currency weakness and decreased by 5.6% to US$2,124 million due to currency headwinds of US$291 million.

COST INTENSITY IMPROVED BY 1.9 PERCENTAGE POINTS DURING Q1 2019

Cost intensity improved by 1.9 percentage points year on year during Q1 2019, attributable to lower service costs in Russia and Ukraine and the early impact of other cost reduction initiatives across the Group’s operating companies. VEON announced with its 2018 results its commitment to reduce the cost intensity ratio by at least 1 percentage point organically ¹ per annum between 2019 and 2021, from 61.8% as reported in FY 2018. Efficiency initiatives are focused on service costs and technology, commercial, general and administrative expenses and are expected to be visible starting from the second half of 2019. At the Group level, the main contributor to cost intensity improvement for 2019 is still expected to be further reduction in VEON’s corporate costs. Cost intensity is defined as service costs plus selling, general and administrative costs less other revenue divided by total service revenue .

EBITDA WAS BOOSTED BY EXCEPTIONAL INCOME OF US$350 MILLION IN Q1 2019

VEON announced in February 2018 a revised arrangement with Ericsson to upgrade its core IT systems in several countries in the coming years and to release Ericsson from the development and delivery of the Full Stack Revenue Manager Solution. As a result of this arrangement, VEON recorded exceptional income of US$350 million from Ericsson as EBITDA in Q1 2019. US$175 million was received in Q1 2019 and the remaining half is expected to be received in Q2 2019.

This revised arrangement enables VEON to continue upgrading its IT infrastructure with new digital business support systems (DBSS) using existing software from Ericsson which is already deployed in certain operating companies within VEON. This upgrade is expected to support the creation of a more personalized, richer experience of VEON’s services for customers and, over time, reduce overall operating costs.

IFRS 16 IMPACT

IFRS 16 replaced the IAS 17 Leases and became effective on January 1, 2019. The new lease standard requires assets leased by the Company to be recognized on the statement of financial position of the Company with a corresponding lease liability. The opening balance of the lease asset and lease liability amounted to US$1.9 billion with no material impact on opening equity (i.e. an equal increase in assets and liabilities). The amount was recorded in January 2019. As a rule, lease expenses are no longer recorded in the income statement from January 1, 2019. Instead, new depreciation and interest expenses are recorded stemming from the newly recognized lease assets and lease liabilities. In addition, leasing expenses are no longer presented as operating cash outflows in the statement of cash flows, but instead are included as part of the financing cash outflow. Interest expenses from the newly recognized lease liability are presented in the cash flow from operating activities.

The IFRS 16 impact in Q1 2019 is presented throughout this document.

FINAL 2018 DIVIDEND OF US 17 CENTS PER SHARE PAID ON MARCH 20, 2019

On March 20, 2019, VEON paid a final dividend in respect of the 2018 financial year of US 17 cents per share, bringing total 2018 dividends to US 29 cents per share.

VEON’S FREE FLOAT INCREASED TO 34.9% AFTER TELENOR’S SALE OF VEON SHARES

VEON’s free float increased further to 34.9% after Telenor East Holding II AS (“Telenor”) sold 100,000,000 common shares in the form of American Depositary Shares (“ADSs”) listed on the NASDAQ Global Select Market at a public offering price of US$2.16 (approximately Euro 1.92) per ADS. The offering, which represents 5.7% of VEON's total outstanding equity, followed prior offerings by Telenor in September 2016, April 2017 and September 2017. The transaction settled on March 29, 2019 and Telenor now holds approximately 8.9% of VEON’s total outstanding equity.

VEON did not receive any proceeds from Telenor’s sale of VEON shares and the sale did not result in any dilution of VEON´s issued and outstanding shares.

¹ Organic change is a non-IFRS measure and reflects changes in revenue, EBITDA and cost intensity ratio. Organic change excludes the effect of foreign currency movements, the impact of the introduction of IFRS 16, exceptional income of USD 350 million in respect of revised partnership with Ericsson and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations

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VEON SUBMITTED MANDATORY TENDER OFFER IN RELATION TO GLOBAL TELECOM HOLDING (“GTH”)

On February 10, 2019, VEON submitted a public mandatory cash tender offer (“MTO”) with the Egyptian Financial Regulatory Authority for the purchase of up to 1,997,639,608 shares, representing 42.31% of GTH’s issued shares, at a price of EGP 5.30 per share. The proposed offer price represents a 45.8% premium over GTH’s average three months share price and 50.5% premium over GTH’s average six months share price, respectively, to February 7, 2019. As previously announced, VEON intends to take GTH private following the MTO.

THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2018

	Three months ended March 31,
In millions of U.S. dollars	2019		2018*
Consolidated income statements data:
Service revenue	2,005		2,156
Sale of equipment and accessories	89		61
Other revenue	30		33
Total operating revenue	2,124		2,250
Service costs	(368	)	(438	)
Cost of equipment and accessories	(90	)	(59	)
Selling, general and administrative expenses	(718	)	(899	)
Other operating gains / (losses)	350		—
Depreciation	(403	)	(354	)
Amortization	(94	)	(126	)
Impairment (loss) / reversal	(6	)	(3	)
Gain / (loss) on disposals of non-current assets	(7	)	(17	)
Operating profit	788		354
Finance costs	(211	)	(217	)
Finance income	14		19
Other non-operating losses	4		(9	)
Net foreign exchange gain	14		12
Profit / (loss) before tax	609		159
Income tax expense	(79	)	(117	)
Profit / (loss) from continuing operations	530		42
Profit / (loss) after tax from discontinued operations	—		(130	)
Profit / (loss) for the period	530		(88	)
Attributable to:
The owners of the parent (continuing operations)	495		18
The owners of the parent (discontinued operations)	—		(130	)
Non-controlling interest	35		24
	530		(88	)

* * Prior year comparatives are restated following the disposal of Italy Joint Venture and retrospective reversal of reclassification of Deodar assets and liabilities as held for sale and retrospective recognition of depreciation and amortization charges in respect of Deodar in.

The tables below show for the periods indicated selected information about the results of operations in each of our reportable segments. For more information regarding our segments, see Note 2 to our unaudited interim condensed consolidated financial statements attached hereto.

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TOTAL OPERATING REVENUE

	Three months ended March 31,
In millions of U.S. dollars, includes intersegment revenue	2019		2018
Russia	1,048		1,166
Pakistan	362		368
Algeria	192		203
Bangladesh	134		129
Ukraine	188		156
Uzbekistan	64		76
Other	136		152
Total operating revenue	2,124		2,250

Our consolidated total operating revenue decreased by 6% year-on-year, primarily due to a decrease of total operating revenue in Russia due to the devaluation of the Russian ruble.

ADJUSTED EBITDA

	Three months ended March 31,
In millions of U.S. dollars	2018		2017
Russia	468		443
Pakistan	183		175
Algeria	89		91
Bangladesh	60		47
Ukraine	118		89
Uzbekistan	32		34
HQ	292		(80	)
Others	56		55
Total Adjusted EBITDA	1,298		854

Our consolidated Adjusted EBITDA increased by 52% year-on-year, primarily due to the recognition of a one-off gain from vendor of US$350 million and US$126 million associated with the adoption of IFRS 16 as described in Notes 1, 2 and 14 to our interim condensed consolidated financial statements attached hereto.

OPERATING PROFIT

Our consolidated operating profit increased to US$788 million in the three months ended March 31, 2019 compared to US$354 million in the three months ended March 31, 2018, primarily due to the recognition of a one-off gain from a vendor of US$350 million and US$126 million associated with the adoption of IFRS 16 as described in Notes 1, 2 and 14 to our interim condensed consolidated financial statements attached hereto. The increase was partially offset by an increased depreciation charge of right-of-use assets associated with the adoption of IFRS 16.

NON-OPERATING PROFITS AND LOSSES

FINANCE COSTS

Our consolidated finance costs decreased by 3% year-on-year, primarily due to significantly lower average debt levels, which was partially offset by the impact of the introduction of IFRS16 and higher average interest rates on our debt resulting from an increased share of Russian ruble in our debt currency mix.

FINANCE INCOME

Our consolidated finance income decreased primarily due to lower interest rates on our deposits and, on average, a lower amount of deposits.

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OTHER NON-OPERATING LOSSES

Year-on year there were no material changes of other non-operating losses.

NET FOREIGN EXCHANGE GAIN/(LOSS)

Year-on year there were no material changes of net foreign exchange gain/(loss).

INCOME TAX EXPENSE AND PROFIT / (LOSS)

INCOME TAX EXPENSE

Our consolidated income tax expense decreased by 32% to US$79 million in the three months ended March 31, 2019 compared to US$117 million in the three months ended March 31, 2018.

For more information regarding income tax expenses, please refer to Note 3 of our unaudited interim condensed consolidated financial statements attached hereto.

PROFIT / (LOSS) AFTER TAX FROM DISCONTINUED OPERATIONS

During the three months ended March 31,2018, we recorded a loss of US$130 million, which was attributable to the operations of the Italy Joint Venture. We exited the Italy Joint Venture in September 2018.

PROFIT / (LOSS) FOR THE PERIOD ATTRIBUTABLE TO THE OWNERS OF THE PARENT FROM CONTINUING OPERATIONS

The year-on-year change of our profit / (loss) for the period attributable to the owners of the parent from continuing operations was mainly due to increased operating profit as discussed above.

PROFIT / (LOSS) FOR THE PERIOD ATTRIBUTABLE TO NON CONTROLLING INTEREST

The year-on-year change of profit / (loss) for the period attributable to non controlling interest was mainly driven by higher net profit recognized by GTH during the three months ended March 31, 2019.

RUSSIA

RESULTS OF OPERATIONS IN US$

	Three months ended March 31,
In millions of U.S. dollars (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	1,048		1,166		-10	%
Mobile service revenue	831		954		-13	%
- of which fixed-mobile convergence (“FMC”)	34		30		12	%
- of which mobile data	227		266		-15	%
Fixed-line service revenue	129		156		-17	%
Sales of equipment, accessories and other	88		56		56	%
Operating expenses	580		723		-20	%
Adjusted EBITDA	468		443		6	%
Adjusted EBITDA margin	44.7	%	38.0	%	6.7pp

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RESULTS OF OPERATIONS IN RUB

	Three months ended March 31,
In millions of RUB (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	69,247		66,351		4	%
Mobile service revenue	54,933		54,282		1	%
- of which FMC	2,223		1,709		30	%
- of which mobile data	15,021		15,138		-1	%
Fixed-line service revenue	8,502		8,867		-4	%
Sales of equipment, accessories and other	5,812		3,202		82	%
Operating expenses	38,313		41,147		-7	%
Adjusted EBITDA	30,934		25,204		23	%
Adjusted EBITDA margin	44.7	%	38.0	%	6.7pp

SELECTED PERFORMANCE INDICATORS

	Three months ended March 31,
	2019		2018		‘18-19 % change
Mobile
Customers in millions	54.2		56.3		-4	%
Mobile data customers in millions	35.1		36.7		-4	%
ARPU in US$	5.0		5.5		-9	%
ARPU in RUB	333		315		6	%

TOTAL OPERATING REVENUE

Our total operating revenue in Russia decreased by 10% year-on-year, primarily due to the devaluation of the Russian ruble. In functional currency terms, total operating revenue increased by 4% year-on-year due to the strong growth in sales of equipment and accessories, positive ARPU dynamics and increase in value added service revenue.

ADJUSTED EBITDA

Our Russia Adjusted EBITDA increased by 6% year-on-year to US$468 million, primarily due to the capitalization of lease costs upon adoption of IFRS 16 on January 1, 2019, which was partially offset by the devaluation of the Russian ruble.

In functional currency terms, our Russia Adjusted EBITDA increased by 23%.

SELECTED PERFORMANCE INDICATORS

The number of mobile customers and the number of mobile data customers in Russia decreased year-on-year in each case driven by a reduction in gross sales through alternative distribution channels after the expansion of Beeline monobrand stores during FY 2018.

Our mobile ARPU in Russia decreased by 9% year-on-year to US$5.0, mainly due to the devaluation of the Russian ruble. In functional currency terms, mobile ARPU in Russia increased by 6% year-on-year to RUB 333, mainly driven by increased ARPU of voice and data services.

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PAKISTAN

RESULTS OF OPERATIONS IN US$

	Three months ended March 31,
In millions of U.S. dollars (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	362		368		-2	%
Mobile service revenue	337		341		-1	%
- of which mobile data	97		63		55	%
Sales of equipment, accessories and other	25		27		-7	%
Operating expenses	179		193		-7	%
Adjusted EBITDA	183		175		5	%
Adjusted EBITDA margin	50.6	%	47.5	%	3.1pp

RESULTS OF OPERATIONS IN PKR    

	Three months ended March 31,
In millions of PKR (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	50,595		40,943		24	%
Mobile service revenue	47,118		37,960		24	%
- of which mobile data	13,599		7,003		94	%
Sales of equipment, accessories and other	3,476		2,982		17	%
Operating expenses	24,986		21,500		16	%
Adjusted EBITDA	25,609		19,442		32	%
Adjusted EBITDA margin	50.6	%	47.5	%	3.1pp

 

SELECTED PERFORMANCE INDICATORS

	Three months ended March 31,
	2019		2018		‘18-19 % change
Mobile
Customers in millions	58.3		55.1		6	%
Mobile data customers in millions	34.8		30.5		14	%
ARPU in US$	2.0		2.1		-6	%
ARPU in PKR	272		232		17	%

TOTAL OPERATING REVENUE

In the three months ended March 31, 2019, our Pakistan total operating revenue decreased by 2% year-on-year to US$362 million as a result of the devaluation of the local currency. In functional currency terms, our Pakistan total operating revenue increased by 24% as a result of strong underlying performance in data and financial services driven by higher customer base and higher usage along with suspension of taxes collected from customers by mobile operators, which continued in Q1 2019 and provided the whole market with additional revenue growth.

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ADJUSTED EBITDA

Our Pakistan Adjusted EBITDA increased by 5% year-on-year to US$183 million in the three months ended March 31, 2019, primarily driven by revenue growth in functional currency terms, one-off tax related costs and capitalization of lease costs upon adoption of IFRS 16 on January 1, 2019, partially offset by devaluation of the local currency. In functional currency terms, our Pakistan Adjusted EBITDA increased by 32% year-on-year.

SELECTED PERFORMANCE INDICATORS

As of March 31, 2019, we had 58.3 million customers in Pakistan, representing an increase of 6% year-on-year driven by data network expansion and growth in data subscribers. The number of mobile data customers increased by 14% year-on-year due to the factors discussed above for the number of customers.

In the three months ended March 31, 2019, our mobile ARPU in Pakistan decreased by 6% year-on-year to US$2.0 driven by a devaluation of the local currency. In functional currency terms, mobile ARPU in Pakistan increased by 17% year-on-year to PKR 272 driven mainly by one-off tax impact, increase in usage and several price monetization initiatives.

ALGERIA

RESULTS OF OPERATIONS IN US$

	Three months ended March 31,
In millions of U.S. dollars (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	192		203		-5	%
Mobile service revenue	192		201		-5	%
- of which mobile data	53		43		21	%
Sales of equipment, accessories and other	0		1		-59	%
Operating expenses	103		112		-8	%
Adjusted EBITDA	89		91		-2	%
Adjusted EBITDA margin	46.3	%	44.9	%	1.4pp

RESULTS OF OPERATIONS IN DZD

	Three months ended March 31,
In millions of DZD (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	22,803		23,115		-1	%
Mobile service revenue	22,747		22,983		-1	%
- of which mobile data	6,262		4,960		26	%
Sales of equipment, accessories and other	56		132		-57	%
Operating expenses	12,250		12,744		-4	%
Adjusted EBITDA	10,553		10,371		2	%
Adjusted EBITDA margin	46.3	%	44.9	%	1.4pp

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	10

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SELECTED PERFORMANCE INDICATORS

	Three months ended March 31,
	2019		2018		‘18-19 % change
Mobile
Customers in millions	16.0		15.3		4	%
Mobile data customers in millions	9.5		8.0		18	%
ARPU in US$	4.0		4.4		-9	%
ARPU in DZD	474		504		-6	%

TOTAL OPERATING REVENUE

Our Algeria total operating revenue decreased by 5% year-on-year primarily due to decreased mobile ARPU as a result of competitive pressure in the market and the devaluation of the local currency. Data revenue growth remained strong due to higher usage and an increase in data customers as a result of the rollout of 3G and 4G/LTE networks. In functional currency terms, total operating revenue in Algeria decreased by 1% year-on-year.

ADJUSTED EBITDA

Our Algeria Adjusted EBITDA decreased by 2% year-on-year primarily due to the decrease in total revenues, as discussed above, coupled with an increase of technology and commercial costs. In functional currency terms, our Algeria Adjusted EBITDA increased by 2% year-on-year.

SELECTED PERFORMANCE INDICATORS

Customer base in our Algeria segment increased by 4% year-on-year driven by the success of their new prepaid proposition. Our mobile data customers in Algeria increased by 18% year-on-year mainly due to the acceleration of 3G and 4G/LTE network deployment and increased smartphone penetration.

In the three months ended March 31, 2019, our mobile ARPU in Algeria decreased by 9% year-on-year to US$4.0 mainly due to continued price competition in both voice and data services and local currency devaluation. In functional currency terms, our mobile ARPU in Algeria decreased by 6% year-on-year.

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	11

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BANGLADESH

RESULTS OF OPERATIONS IN US$

	Three months ended March 31,
In millions of U.S. dollars (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	134		129		4	%
Mobile service revenue	131		125		4	%
- of which mobile data	27		20		35	%
Sales of equipment, accessories and other	3		4		-23	%
Operating expenses	74		83		-11	%
Adjusted EBITDA	60		47		29	%
Adjusted EBITDA margin	44.8	%	36.1	%	8.7pp

RESULTS OF OPERATIONS IN BDT

	Three months ended March 31,
In millions of BDT (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	11,213		10,730		4	%
Mobile service revenue	10,951		10,392		5	%
- of which mobile data	2,242		1,649		36	%
Sales of equipment, accessories and other	262		338		-22	%
Operating expenses	6,191		6,860		-10	%
Adjusted EBITDA	5,022		3,870		30	%
Adjusted EBITDA margin	44.8	%	36.1	%	8.7pp

SELECTED PERFORMANCE INDICATORS

	Three months ended March 31,
	2019		2018		‘18-19 % change
Mobile
Customers in millions	33.0		32.2		2	%
Mobile data customers in millions	20.4		18.1		12	%
ARPU in US$	1.3		1.3		2	%
ARPU in BDT	112		109		3	%

TOTAL OPERATING REVENUE

Our Bangladesh total operating revenue increased by 4% year-on-year primarily due to an acceleration of data revenue growth resulting from network improvements during the quarter, following spectrum acquisition in Q1 2018 and enhanced network availability, along with the continued expansion of Banglalink’s distribution footprint. In functional currency terms, total operating revenue in Bangladesh increased by 4% year-on-year.

ADJUSTED EBITDA

Our Bangladesh Adjusted EBITDA increased by 29% year-on-year due to higher revenue, lower service costs impact of IFRS 16 adoption as of January 1, 2019 and lower commercial costs. In functional currency terms, our Bangladesh Adjusted EBITDA increased by 30% year-on-year.

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	12

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SELECTED PERFORMANCE INDICATORS

Customers in our Bangladesh segment increased by 2% year-on-year to 33.0 million. The increase was mainly due to improved distribution and network availability. The number of mobile data customers increased by 12% year-on-year due to increased efforts to attract new customers, successful targeting of voice-only customers and network expansion with the acquisition of additional spectrum and 4G/LTE license in the first quarter of 2018.

Our mobile ARPU in Bangladesh increased by 2% year-on-year to US$1.3 mainly due increase data ARPU. In functional currency terms, mobile ARPU in Bangladesh increased by 3% year-on-year to BDT 112.

UKRAINE

RESULTS OF OPERATIONS IN US$

	Three months ended March 31,
In millions of U.S. dollars (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	188		156		20	%
Mobile service revenue	175		145		21	%
- of which mobile data	90		49		83	%
Fixed-line service revenue	12		11		11	%
Sales of equipment, accessories and other	1		1		75	%
Operating expenses	70		68		3	%
Adjusted EBITDA	118		89		33	%
Adjusted EBITDA margin	62.9	%	56.7	%	6.3pp

RESULTS OF OPERATIONS IN UAH

	Three months ended March 31,
In millions of UAH (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	5,125		4,263		20	%
Mobile service revenue	4,763		3,949		21	%
- of which mobile data	2,454		1,341		83	%
Fixed-line service revenue	329		295		11	%
Sales of equipment, accessories and other	33		19		74	%
Operating expenses	1,902		1,851		3	%
Adjusted EBITDA	3,223		2,412		34	%
Adjusted EBITDA margin	62.9	%	56.6	%	6.3pp

SELECTED PERFORMANCE INDICATORS

	Three months ended March 31,
	2019		2018		‘18-19 % change
Mobile
Customers in millions	26.3		26.5		-1	%
Mobile data customers in millions	15.4		12.9		19	%
ARPU in US$	2.2		1.8		23	%
ARPU in UAH	60		49		23	%

TOTAL OPERATING REVENUE

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	13

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Our Ukraine total operating revenue increased by 20% year-on-year to US$188 million in the three months ended March 31, 2019. The increase was primarily due to strong data revenue growth.

In functional currency terms, our Ukraine total operating revenue increased by 20% year-on-year.

ADJUSTED EBITDA

Our Ukraine Adjusted EBITDA increased by 33% year-on-year to US$118 million in the three months ended March 31, 2019, primarily due to higher revenues, as discussed above and lower service costs. In functional currency terms, our Ukraine Adjusted EBITDA increased by 34% year-on-year.

SELECTED PERFORMANCE INDICATORS

As of March 31, 2019, we had 26.3 million mobile customers in Ukraine representing a decrease of 1% year-on-year. The decrease was a result of underperformance of new tariff portfolio. The number of our mobile data customers in Ukraine increased by 19% year-on-year mainly due to an increased sales focus on new and voice-only customers.

In the three months ended March 31, 2019, our mobile ARPU in Ukraine increased by 23% year-on-year to US$2.2 due to the introduction of a new tariff portfolio. In functional currency terms, mobile ARPU in Ukraine increased by 23% to UAH 60.

UZBEKISTAN

RESULTS OF OPERATIONS IN US$

	Three months ended March 31,
In millions of U.S. dollars (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	64		76		-16	%
Mobile service revenue	63		75		-16	%
- of which mobile data	28		23		23	%
Fixed-line service revenue	0		1		-18	%
Sales of equipment, accessories and other	0		0		-53	%
Operating expenses	32		42		-23	%
Adjusted EBITDA	32		34		-6	%
Adjusted EBITDA margin	49.8	%	44.8	%	5.0pp

RESULTS OF OPERATIONS IN UZS

	Three months ended March 31,
In millions of UZS (except as indicated)	2019		2018		‘18-19 % change
Total operating revenue	534,673		616,683		-13	%
Mobile service revenue	530,825		611,822		-13	%
- of which mobile data	235,544		186,305		26	%
Fixed-line service revenue	3,538		4,216		-16	%
Sales of equipment, accessories and other	310		645		-52	%
Operating expenses	268,244		340,609		-21	%
Adjusted EBITDA	266,429		276,075		-3	%
Adjusted EBITDA margin	49.8	%	44.8	%	5.1pp

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	14

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SELECTED PERFORMANCE INDICATORS

	Three months ended March 31,
	2019		2018		‘18-19 % change
Mobile
Customers in millions	9.0		9.6		-6	%
Mobile data customers in millions	5.6		5.2		8	%
ARPU in US$	2.3		2.6		-11	%
ARPU in UZS	19,446		21,152		-8	%

TOTAL OPERATING REVENUE

Our Uzbekistan total operating revenue decreased by 16% year-on-year to US$64 million as a result of the negative impact from the reduction in mobile termination rates and the introduction of the 15% excise tax. In functional currency terms, our Uzbekistan total operating revenue decreased by 13% year-on-year.

ADJUSTED EBITDA

Our Uzbekistan Adjusted EBITDA decreased by 6% year-on-year to US$32 million in the three months ended March 31, 2019, primarily due to decreased total operating revenue discussed above partially offset by decreased lease costs upon adoption of IFRS 16 as of January 1, 2019. In functional currency terms, in the three months ended March 31, 2019, our Uzbekistan Adjusted EBITDA decreased by 3% year-on-year.

SELECTED PERFORMANCE INDICATORS

As of March 31, 2019, we had 9.0 million mobile customers in our Uzbekistan segment representing a decrease of 6% year-on-year. The decrease was mainly driven by scaled down acquisition activities. As of March 31, 2019, the number of our mobile data customers in Uzbekistan increased by 8% year-on-year to 5.6 million, primarily due to a strengthening of the data network which allowed increased penetration of smartphones and bundled offerings.

In the three months ended March 31, 2019, our mobile ARPU in Uzbekistan was US$2.3, representing a decrease of 11% year-on-year due to decreased voice ARPU partially offset by increased data ARPU. In functional currency terms, mobile ARPU in Uzbekistan decreased by 8% year-on-year.

HQ

Our HQ Adjusted EBITDA was US$292 million for the three months ended March 31, 2019, compared to negative US$80 million for the three months ended March 31, 2018, primarily attributable to a gain of US$350 million relating to a revised arrangement with Ericsson to upgrade core IT systems of VEON’s operating companies. For further details on the revised arrangement with Ericsson refer to Note 4 of the interim condensed consolidated financial statements attached hereto.

LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL

Working capital is defined as current assets less current liabilities.

As of March 31, 2019, we had negative working capital of US$1,505 million, compared to negative working capital of US$1,303 million as of December 31, 2018. The change was primarily due to increased financial liabilities upon adoption of IFRS 16 partially offset by increased trade and other receivables primarily relating to a gain of US$350 million as also discussed above.

Our working capital is monitored on a regular basis by our management. Our management expects to repay our debt as it becomes due from our operating cash flows or through additional borrowings. Although we have a negative working capital, our management believes that our cash balances and available credit facilities are sufficient to meet our short term and foreseeable long-term cash requirements.

CONSOLIDATED CASH FLOW SUMMARY

OPERATING ACTIVITIES

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	15

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During the three months ended March 31, 2019, net cash flows from operating activities increased to US$805 million from US$702 million during the three months ended March 31, 2018. The increase was mainly due to lower interest and tax paid during Q1 2019 compared to Q1 2018.

INVESTING ACTIVITIES

During the three months ended March 31, 2019, our total payments for the purchase of property, equipment and intangible assets amounted to US$389 million compared to US$676 million during the three months ended March 31, 2018. The decrease was primarily connected to different phasing in acquisitions of network equipment.

During the three months ended March 31, 2019, we paid US$640 million and we received US$1,011 million during the three months ended March 31,2018, both primarily relating to amounts pledged as collateral for the Mandatory Tender Offer (“MTO”) with respect to the acquisition of the non-controlling interest of GTH.

Acquisitions and Dispositions

For information regarding our acquisitions and dispositions, see Notes 5 and 6 to our unaudited interim condensed consolidated financial statements attached hereto.

FINANCING ACTIVITIES

During the three months ended March 31, 2019, net cash outflow for financing activities were US$389 million compared to net cash outflow of US$1,001 million during the three months ended March 31, 2018. The change of net cash flows from financing activities was mainly driven by the net repayment of borrowings during the three months ended March 31, 2018.

During the three months ended March 31, 2019, we repaid US$787 million relating mostly to the maturity of VEON Holdings BV bonds with a notional of US$571 million, and raised US$794 million net of fees paid for borrowings which related mostly to short-term drawings under the VEON Holdings BV Revolving Credit Facility.

INDEBTEDNESS

As of March 31, 2019, the principal amounts of our external indebtedness represented by bank loans and bonds amounted to US$7,465 million, compared to US$7,298 million as of December 31, 2018. As of March 31, 2019, our debt includes overdrawn bank accounts related to cash-pooling program of US$73 million.

As of March 31, 2019 VEON had the following principal amounts outstanding for interest-bearing loans and bonds as well as cash-pool overdrawn bank accounts:

Entity	Type of debt/ original lenders	Interest rate	Debt currency	Outstanding debt (mln)		Outstanding debt (USD mln)		Maturity date
VEON Holdings B.V.	Loan from Sberbank	10.0000%	RUB	95,000		1,468		19.05.2022
VEON Holdings B.V.	Loan from Alfa Bank	8.8000%	RUB	17,500		270		30.08.2022
VEON Holdings B.V.	Loan from VTB	8.7500%	RUB	30,000		463		30.08.2022
VEON Holdings B.V.	Notes	3.9500%	USD	600		600		16.06.2021
VEON Holdings B.V.	Notes	7.5043%	USD	417		417		01.03.2022
VEON Holdings B.V.	Notes	5.9500%	USD	529		529		13.02.2023
VEON Holdings B.V.	Notes	4.9500%	USD	533		533		17.06.2024
VEON Holdings B.V.	RCF utilisation	4.4928%	USD	310		310		11.04.2019
VEON Holdings B.V.	RCF utilisation	4.4818%	USD	300		300		18.04.2019
VEON Holdings B.V.	Cash-pool overdrawn accounts*					26
TOTAL VEON Holdings B.V.						4,916
GTH Finance B.V.	Notes	6.2500%	USD	500		500		26.04.2020
GTH Finance B.V.	Notes	7.2500%	USD	700		700		26.04.2023
TOTAL GTH Finance B.V.						1,200
PJSC VimpelCom	Loan from VIP Finance Ireland (funded by the issuance of loan participation notes by VIP Finance Ireland)	7.7480%	USD	262		262		02.02.2021
PJSC VimpelCom	Other PJSC VimpelCom					17

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	16

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TOTAL PJSC VimpelCom						279
Pakistan Mobile Communications Limited	Sukuk Certificates	3 months KIBOR + 0.88%	PKR	1,725		12		20.12.2019
Pakistan Mobile Communications Limited	Loan from Habib Bank Limited	6 months KIBOR + 0.90%	PKR	2,667		19		23.12.2020
Pakistan Mobile Communications Limited	Loan from ING Bank N.V.	6 month LIBOR plus 1.9%	USD	137		137		31.12.2020
Pakistan Mobile Communications Limited	Loan from MCB Bank Limited	6 months KIBOR + 0.8%	PKR	10,667		76		23.12.2020
Pakistan Mobile Communications Limited	Loan from Habib Bank Limited	6 months KIBOR + 0.35%	PKR	5,463		39		29.06.2022
Pakistan Mobile Communications Limited	Syndicated loan facility	6 months KIBOR	PKR	4,848		34		31.12.2023
Pakistan Mobile Communications Limited	Syndicated loan facility	6 months KIBOR	PKR	3,213		23		31.12.2023
Pakistan Mobile Communications Limited	Syndicated loan via MCB Bank Limited	6 months KIBOR + 0.35%	PKR	17,000		121		29.06.2022
Pakistan Mobile Communications Limited	Other Pakistan Mobile Communications Limited					60
TOTAL Pakistan Mobile Communications Limited						521
Banglalink Digital Communications Ltd.	Senior Notes	8.6250%	USD	300		300		06.05.2019
Banglalink Digital Communications Ltd.	Syndicated Loan Facility	Average bank deposit rate + 4.25%	BDT	8,853		106		24.12.2022
Banglalink Digital Communications Ltd.	Syndicated Loan Facility	Average bank deposit rate + 3.0%	BDT	2,791		33		24.12.2020
TOTAL Banglalink Digital Communications Ltd.						439
Optimum Telecom Algérie S.p.A.	Syndicated Loan Facility	Bank of Algeria Re-Discount Rate + 2.0% (floor 5.5%)	DZD	7,500		63		30.12.2019
TOTAL Optimum Telecom Algérie S.p.A.						63
Other entities	Cash-pool overdrawn accounts*					47
Total VEON consolidated						7,465

* As of March 31, 2019, some bank accounts forming part of a cash pooling program and being an integral part of VEON’s cash management remained overdrawn by US$73 million. Even though the total balance of the cash pool remained positive, VEON has no legally enforceable right to set-off and therefore the overdrawn accounts are presented as financial liabilities and form part of our debt.

For additional information on our outstanding indebtedness, please refer to Note 7 of our unaudited interim condensed consolidated financial statements attached hereto.

FUTURE LIQUIDITY AND CAPITAL REQUIREMENTS

During the three months ended March 31, 2019, our capital expenditures excluding licenses and excluding right-of-use assets were US$444 million compared to US$355 million in the three months ended March 31, 2018. The increase in capital expenditures excluding licenses and excluding right-of-use assets was primarily due to continued investments in network development in Russia.

We expect that our capital expenditures excluding licenses and excluding right-of-use assets in 2019 will mainly consist of investing in high-speed data networks to capture mobile data growth, including the continued roll-out of 4G/LTE networks in Russia, Algeria, Bangladesh, Pakistan and Ukraine. We expect that these expenditures will continue to be significant throughout the rest of 2019.

Management anticipates that the funds necessary to meet our current and expected capital requirements in the foreseeable future (including with respect to any possible acquisitions) will come from:

•	Cash we currently hold;

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	17

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•	Operating cash flows;

•	Export credit agency guaranteed financing;

•	Borrowings under bank financings, including credit lines currently available to us;

•	Syndicated loan facilities; and

•	Issuances of debt securities on local and international capital markets.

As of March 31, 2019, we had an undrawn amount of US$1,179 million under existing credit facilities.

Management expects that positive cash flows from our current operations will continue to provide us with internal sources of funds. The availability of external financing depends on many factors, including the success of our operations, contractual restrictions, availability of guarantees from export credit agencies, the financial position of international and local banks, the willingness of international banks to lend to our companies and the liquidity of international and local capital markets.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from adverse movements in foreign currency exchange rates and changes in interest rates on our obligations.

As of March 31, 2019, the largest currency exposure risks for our group were in relation to the Russian ruble, the Pakistani rupee, the Algerian dinar, the Bangladeshi taka, the Ukrainian hryvnia and the Uzbek som, because the majority of our cash flows from operating activities in Russia, Pakistan, Algeria, Bangladesh, Ukraine and Uzbekistan are denominated in each of these functional currencies, respectively, while our debt, if not incurred in or hedged to the aforementioned currencies, is primarily denominated in U.S. dollars.

We hold approximately 31% of our readily available cash and bank deposits in U.S. dollars in order to hedge against the risk of functional currency devaluation. We also hold part of our debt in Russian rubles and other currencies to manage this risk. Nonetheless, if the U.S. dollar value of the Russian ruble, Algerian dinar, Pakistani rupee, Bangladeshi taka, Ukrainian hryvnia or Uzbek som were to dramatically decline, it could negatively impact our ability to repay or refinance our U.S. dollar denominated indebtedness. Our treasury function has developed risk management policies that establish guidelines for limiting foreign currency exchange rate risk.

For more information on risks associated with currency exchange rates, see the section of our 2018 Annual Report entitled “Item 3—Key Information—D. Risk Factors— Market Risks —We are exposed to foreign currency exchange loss and currency fluctuation and translation risks.”

In accordance with our policies, we do not enter into any treasury transactions of a speculative nature.

As of March 31, 2019, the interest rate risk on the financing of our group was limited as 82% of our group’s total debt was fixed rate debt.

	VEON Ltd	Management's Discussion and analysis of Financial Condition and Results of Operations	18

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Unaudited interim condensed

consolidated financial statements

VEON Ltd.

As of and for the three-month period

ended March 31, 2019

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TABLE OF CONTENTS

Interim condensed consolidated income statement	21
Interim condensed consolidated statement of comprehensive income	22
Interim condensed consolidated statement of financial position	23
Interim condensed consolidated statement of changes in equity	24
Interim condensed consolidated statement of cash flows	25
General information about the Group	26
1. General information	26
Operating activities of the Group	27
2. Segment information	27
3. Income taxes	29
Investing activities of the Group	30
4. Significant transactions	30
5. Property and equipment	31
6. Intangible assets	31
Financing activities of the Group	32
7. Other Financial assets and liabilities	32
8. Cash and cash equivalents	34
9. Issued capital	35
10. Dividends paid and proposed	36
Additional information	37
11. Related parties	37
12. Risk, commitments, contingencies and uncertainties	37
13. Events after the reporting period	37
14. Basis of preparation of the interim condensed consolidated financial statements	38

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		20

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INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

for the three-month period ended March 31

(In millions of U.S. dollars, except per share amounts)	Note	2019			2018*
Service revenues		2,005			2,156
Sale of equipment and accessories		89			61
Other revenues / other income		30			33
Total operating revenues	2	2,124			2,250
Service costs		(368		)	(438		)
Cost of equipment and accessories		(90		)	(59		)
Selling, general and administrative expenses		(718		)	(899		)
Other operating gains / (losses)	4	350			—
Depreciation		(403		)	(354		)
Amortization		(94		)	(126		)
Impairment (loss) / reversal		(6		)	(3		)
Gain / (loss) on disposal of non-current assets		(7		)	(17		)
Operating profit		788			354
Finance costs		(211		)	(217		)
Finance income		14			19
Other non-operating gain / (loss), net		4			(9		)
Net foreign exchange gain / (loss)		14			12
Profit / (loss) before tax from continuing operations		609			159
Income tax expense	3	(79		)	(117		)
Profit / (loss) for the period from continuing operations		530			42
Profit / (loss) after tax from discontinued operations		—			(130		)
Profit / (loss) for the period from discontinued operations		—			(130		)
Profit / (loss) for the period		530			(88		)
Attributable to:
The owners of the parent (continuing operations)		495			18
The owners of the parent (discontinued operations)		—			(130		)
Non-controlling interest		35			24
		530			(88		)
Basic and diluted gain / (loss) per share attributable to ordinary equity holders of the parent:
From continuing operations			$0.28			$0.01
From discontinued operations			$0.00			($0.07	)
Total			$0.28			($0.06	)

* Prior year comparatives are restated following the disposal of Italy Joint Venture and retrospective reversal of reclassification of Deodar assets and liabilities as held for sale and retrospective recognition of depreciation and amortization charges in respect of Deodar in 2018

	The accompanying notes are an integral part of these interim condensed consolidated financial statements.
VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		21

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the three-month period ended March 31

(In millions of U.S. dollars)	Note	2019		2018*
Profit / (loss) for the period		530		(88	)
Items that may be reclassified to profit or loss
Net movement on cash flow hedges		—		(3	)
Share of other comprehensive income / (loss) of joint ventures		—		(12	)
Foreign currency translation		56		33
Other comprehensive income / (loss) for the period, net of tax		56		18
Total comprehensive income / (loss) for the period, net of tax		586		(70	)
Attributable to:
The owners of the parent		564		(84	)
Non-controlling interests		22		14
		586		(70	)

* Prior year comparatives are restated following the disposal of Italy Joint Venture and retrospective reversal of reclassification of Deodar assets and liabilities as held for sale and retrospective recognition of depreciation and amortization charges in respect of Deodar in 2018

	The accompanying notes are an integral part of these interim condensed consolidated financial statements.
VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		22

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of

(In millions of U.S. dollars)	Note	March 31, 2019		December 31, 2018
Assets
Non-current assets
Property and equipment	5	7,110		4,932
Intangible assets	6	1,820		1,854
Goodwill	6	3,951		3,816
Deferred tax assets		190		197
Other assets		151		193
Total non-current assets		13,222		10,992
Current assets
Inventories		166		141
Trade and other receivables		845		577
Other financial assets	7	729		88
Current income tax assets		114		112
Other assets		314		367
Cash and cash equivalents	8	1,265		1,808
Assets classified as held for sale		21		17
Total current assets		3,454		3,110
Total assets		16,676		14,102
Equity and liabilities
Equity
Equity attributable to equity owners of the parent		3,933		3,670
Non-controlling interests		(898	)	(891	)
Total equity		3,035		2,779
Non-current liabilities
Other financial liabilities	7	8,346		6,567
Provisions		123		110
Deferred tax liabilities		174		180
Other liabilities		39		53
Total non-current liabilities		8,682		6,910
Current liabilities
Trade and other payables		1,478		1,432
Other financial liabilities	7	1,782		1,289
Provisions		205		234
Current income tax payables		201		196
Other liabilities		1,284		1,258
Liabilities associated with assets held for sale		9		4
Total current liabilities		4,959		4,413
Total equity and liabilities		16,676		14,102

	The accompanying notes are an integral part of these interim condensed consolidated financial statements.
VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		23

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended March 31, 2019

				Attributable to equity owners of the parent
(In millions of U.S. dollars)	Note	Number of shares outstanding		Issued capital		Capital Surplus		Other capital reserves		Accumulated deficit		Foreign currency translation		Total		Non-controlling interests		Total equity
As of December 31, 2018*		1,749,127,404		2		12,753		743		(1,415	)	(8,416	)	3,667		(892	)	2,775
Profit / (loss) for the period		—		—		—		—		495		—		495		35		530
Other comprehensive income / (loss)		—		—		—		—		2		67		69		(13	)	56
Total comprehensive income / (loss)		—		—		—		—		497		67		564		22		586
Dividends declared	10	—		—		—		—		(297	)	—		(297	)	(24	)	(321	)
Other		—		—		—		1		(2	)	—		(1	)	(4	)	(5	)
As of March 31, 2019		1,749,127,404		2		12,753		744		(1,217	)	(8,349	)	3,933		(898	)	3,035

for the three-month period ended March 31, 2018

				Attributable to equity owners of the parent
(In millions of U.S. dollars)	Note	Number of shares outstanding		Issued capital		Capital Surplus		Other capital reserves		Accumulated deficit		Foreign currency translation		Total		Non-controlling interests		Total equity
As of December 31, 2017**		1,749,127,404		2		12,753		729		(1,486	)	(7,667	)	4,331		(441	)	3,890
Adjustments arising due to IFRS 9 and IFRS 15		—		—		—		—		46		—		46		11		57
As of January 1, 2018		1,749,127,404		2		12,753		729		(1,440	)	(7,667	)	4,377		(430	)	3,947
Profit / (loss) for the period		—		—		—		—		(112	)	—		(112	)	24		(88	)
Other comprehensive income / (loss)		—		—		—		(17	)	—		45		28		(10	)	18
Total comprehensive income / (loss)		—		—		—		(17	)	(112	)	45		(84	)	14		(70	)
Dividends declared	10	—		—		—		—		(299	)	—		(299	)	—		(299	)
Legal reserves				—		—		1		(1	)	—		—		—		—
As of March 31, 2018		1,749,127,404		2		12,753		713		(1,852	)	(7,622	)	3,994		(416	)	3,578

* Opening balance 2018 are restated following the adoption of IFRS 16 (see Note 14 )

** Prior year comparatives are restated following retrospective reversal of reclassification of Deodar assets and liabilities as held for sale and retrospective recognition of depreciation and amortization charges in respect of Deodar in 2018.

	The accompanying notes are an integral part of these interim condensed consolidated financial statements.
VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		24

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In millions of U.S. dollars)	Note	2019		2018*
Operating activities
Profit / (loss) before tax from continuing operations		609		159
Non-cash adjustments to reconcile profit before tax to net cash flows
Depreciation, amortization and impairment loss / (reversal)		503		483
Gain / (loss) on disposal of non-current assets		7		17
Finance income		(14	)	(19	)
Finance costs		211		217
Other non-operating losses		(4	)	9
Net foreign exchange gain		(14	)	(12	)
Changes in trade and other receivables and prepayments		(289	)	45
Changes in inventories		(20	)	(50	)
Changes in trade and other payables		27		101
Changes in provisions and pensions		15		32
Interest paid		(147	)	(194	)
Interest received		16		18
Income tax paid		(95	)	(104	)
Net cash flows from operating activities		805		702
Investing activities
Purchase of property, plant and equipment and intangible assets		(389	)	(676	)
Receipts from / (payment on) deposits		(640	)	1,011
Receipts from / (investment in) financial assets		—		21
Other proceeds from investing activities, net		3		12
Net cash flows from / (used in) investing activities		(1,026	)	368
Financing activities
Acquisition of non-controlling interest		(5	)	—
Proceeds from borrowings, net of fees paid **	7	794		390
Repayment of borrowings		(787	)	(1,105	)
Repayment of lease liabilities (principal element of lease payments)		(77	)	—
Dividends paid to owners of the parent		(284	)	(286	)
Dividends paid to non-controlling interests		(30	)	—
Net cash flows from / (used in) financing activities		(389	)	(1,001	)
Net (decrease) / increase in cash and cash equivalents		(610	)	69
Net foreign exchange difference		11		10
Cash and cash equivalents at beginning of period		1,791		1,314
Cash and cash equivalents at end of period, net of overdraft ***	8	1,192		1,393

* Prior year comparatives are restated following the disposal of Italy Joint Venture and retrospective reversal of reclassification of Deodar assets and liabilities as held for sale and retrospective recognition of depreciation and amortization charges in 2018.

** Fees paid for borrowings were US$6 (2018: US$5)

*** Overdrawn amount was US$73 (2018: US$ nil)

	The accompanying notes are an integral part of these interim condensed consolidated financial statements.
VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		25

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

GENERAL INFORMATION ABOUT THE GROUP

1	GENERAL INFORMATION

VEON Ltd. ( “VEON” , the “Company” and together with its consolidated subsidiaries, the “Group” or “we” ) was incorporated in Bermuda on June 5, 2009. The registered office of VEON is Victoria Place, 31 Victoria Street, Hamilton HM 10, Bermuda. VEON’s headquarters and the principal place of business is located at Claude Debussylaan 88, 1082 MD Amsterdam, the Netherlands.

VEON earns revenues by providing voice and data telecommunication services through a range of mobile and fixed-line technologies. As of March 31, 2019, the Company operated telecommunications services in Russia, Pakistan, Algeria, Bangladesh, Ukraine, Uzbekistan, Kazakhstan, Armenia, Georgia and Kyrgyzstan.

The interim condensed consolidated financial statements are presented in United States dollars ( “U.S. dollar” or “US$ ”). In these notes, U.S. dollar amounts are presented in millions, except for share and per share (or American Depository Shares ( “ADS” )) amounts and as otherwise indicated.

VEON’s ADSs are listed on the NASDAQ Global Select Market ( “NASDAQ” ) and VEON’s common shares are listed on Euronext Amsterdam, the regulated market of Euronext Amsterdam N.V. (“ Euronext Amsterdam ”).

In the notes to these interim condensed consolidated financial statements, prior year comparatives are restated following the retrospective reversal of reclassification of Deodar assets and liabilities as held for sale and retrospective recognition of depreciation charges in respect of Deodar assets. In addition, the Italy Joint Venture was classified as a discontinued operation during 2018, resulting in the reclassification of share of profit / (loss) of the Italy Joint Venture to ‘Profit / (loss) after tax from discontinued operations’ for the comparative periods (for more details, please refer to Note 10 of the Group’s audited annual consolidated financial statements as of and for the year ended December 31, 2018).

Major developments in Q1 2019

On January 1, 2019, the Company has adopted a new accounting standard – IFRS 16 Leases – using the modified retrospective approach. This means that the cumulative impact of the adoption was recognized in retained earnings as of January 1, 2019 and that comparatives were not restated. For more details please refer to Note 14.

On February 10, 2019, VEON submitted an application to the Egyptian Financial Regulatory Authority (the “ FRA ”) to approve a mandatory tender offer (“ MTO ”) by VEON Holdings B.V. for any and all of the outstanding shares of Global Telecom Holding S.A.E. (“ GTH ”) which are not owned by VEON. For more details please refer to Note 4.

In February 2019 the Company announced a revised arrangement with Ericsson to upgrade its core IT systems in several countries in the coming years. The parties have signed binding terms to vary the existing agreements and as a result VEON will receive US$350 during the first half of 2019. Please see Note 4 for more details.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		26

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

OPERATING ACTIVITIES OF THE GROUP

2	SEGMENT INFORMATION

Management analyzes the Company’s operating segments separately because of different economic environments and stages of development in different geographical areas, requiring different investment and marketing strategies. Management does not analyze assets or liabilities by reportable segments.

Management evaluates the performance of the Company’s segments on a regular basis, primarily based on earnings before interest, tax, depreciation, amortization, impairment, gain / loss on disposals of non-current assets and other non-operating gains / losses ( “Adjusted EBITDA” ) along with assessing the capital expenditures excluding certain costs such as those for telecommunication licenses ( “Capital expenditures” ).

As of January 1, 2019, the Company adopted a new accounting standard IFRS 16 Leases. Accordingly, operating lease expenses are no longer recorded in the income statement but instead are considered in recording a lease liability in the statement of financial position. The Company applied a modified retrospective approach, which means that the comparatives were not restated. Refer to Note 14 for more details. As a result, Adjusted EBITDA in 2019 is not comparable to Adjusted EBITDA 2018. The impact on Adjusted EBITDA 2019 stemming from IFRS 16 is set out in the table below.

Financial information by reportable segment for the three-month period ended March 31 is presented in the following tables.

		External customers				Inter-segment				Total revenue				Of which:
														Mobile				Fixed
	Revenue	2019		2018		2019		2018		2019		2018		2019		2018		2019		2018
	Russia	1,042		1,162		6		4		1,048		1,166		919		1,010		129		156
	Pakistan	352		367		10		1		362		368		362		368		—		—
	Algeria	192		201		—		2		192		203		192		203		—		—
	Bangladesh	134		129		—		—		134		129		134		129		—		—
	Ukraine	180		151		8		5		188		156		175		145		13		11
	Uzbekistan	64		76		—		—		64		76		63		75		1		1
	HQ	—		—		—		—		—		—		—		—		—		—
	Other	160		164		(24	)	(12	)	136		152		99		132		37		20
	Total segments	2,124		2,250		—		—		2,124		2,250		1,944		2,062		180		188

	Adjusted EBITDA				Capital expenditures excluding licenses*
Other disclosures	2019		2018**		2019		2018***
Russia	468		443		226		158
Pakistan	183		175		51		66
Algeria	89		91		18		14
Bangladesh	60		47		14		55
Ukraine	118		89		29		26
Uzbekistan	32		34		25		9
HQ	296		(80	)	—		3
Other	52		55		26		24
Total segments	1,298		854		389		355

* Excluding right-of-use assets recognized upon adoption of IFRS 16

** Impact from IFRS 16 is not included in the 2018 comparative numbers following a modified retrospective approach.

*** Prior period comparatives have been restated to exclude certain costs, such as cost to acquire telecommunication licenses.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		27

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

The following table provides the reconciliation of consolidated Adjusted EBITDA to Profit / (loss) before tax for the three-month period ended March 31:

	2019		2018
Total Segments Adjusted EBITDA	1,298		854
Depreciation	(403	)	(354	)
Amortization	(94	)	(126	)
Impairment (loss) / reversal	(6	)	(3	)
Gain / (loss) on disposal of non-current assets	(7	)	(17	)
Finance costs	(211	)	(217	)
Finance income	14		19
Other non-operating gain / (loss), net	4		(9	)
Net foreign exchange gain	14		12
Profit / (loss) before tax	609		159

The following table provides the details that the adoption of IFRS 16 had on Adjusted EBITDA for the three-month period ended March 31, 2019 for each operating segment:

		Adjusted EBITDA pre-IFRS 16		Impact of IFRS 16		Adjusted EBITDA post-IFRS 16
	Russia	386		82		468
	Pakistan	170		13		183
	Algeria	81		8		89
	Bangladesh	50		10		60
	Ukraine	113		5		118
	Uzbekistan	31		1		32
	HQ	292		—		292
	Other	49		7		56
	Total segments	1,172		126		1,298

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		28

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

3	INCOME TAXES

Current income tax is the expected tax expense, payable or receivable on taxable income or loss for the period, using tax rates enacted or substantively enacted at reporting date, and any adjustment to tax payable or receivable in respect of previous years.

Income tax expense consisted of the following for the three-month period ended March 31:

	2019		2018*
Current income taxes	87		132
Deferred income taxes	(8	)	(15	)
Income tax expense	79		117
Effective tax rate	12.9	%	73.6	%

* Effective tax rate for prior year has been recalculated based on restated profit / (loss) before tax from continuing operations, arising from classification of the Italy Joint Venture as a disposal group held for sale and its subsequent sale in 2018.

The difference between the statutory tax rate in the Netherlands (25.0%) and the effective corporate income tax rate for the Group in the three-month period ended March 31, 2019 (12.9%) was mainly driven by income within holding entities in the Netherlands offset by previous years unrecognized losses.

In the first quarter of 2018, the difference between the statutory tax rate in the Netherlands (25.0%) and the effective corporate income tax rate for the Group (73.6%) was mainly driven by profitability in countries with a higher nominal rate and income tax losses, primarily within holding entities in the Netherlands, for which no deferred tax-asset has been recognized.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		29

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

INVESTING ACTIVITIES OF THE GROUP

4	SIGNIFICANT TRANSACTIONS

Mandatory tender offer application in relation to Global Telecom Holding S.A.E.

On February 10, 2019, VEON submitted an application to the Egyptian Financial Regulatory Authority (the “ FRA ”) to approve a mandatory tender offer (“ MTO ”) by VEON Holdings B.V. for any and all of the outstanding shares of GTH which are not owned by VEON (up to 1,997,639,608 shares, representing approximately 42.31% of GTH’s issued shares). The MTO will be funded by cash on hand and/or the utilization of undrawn credit facilities. The proposed offer price under the MTO is EGP 5.30 per share. The MTO is currently being reviewed by the FRA and will commence when FRA approval is granted. Any increase of the Company’s interest in GTH will be accounted for directly in equity upon closing of the transaction. Following the submission of the MTO application, the Company deposited US$645, which is recorded as other financial asset on the statement of financial position and represents a cash outflow from investing activities in the statement of cash flows.

Revised technology infrastructure partnership with Ericsson

On February 25, 2019, the Company announced a revised arrangement with Ericsson to upgrade its core IT systems in several countries in the coming years and to release Ericsson from the development and delivery of the Full Stack Revenue Manager Solution. This revised arrangement enables VEON to continue upgrading IT infrastructure with new digital business support systems (DBSS) using existing software from Ericsson which is already deployed in certain operating companies within VEON. The parties have signed binding terms to vary the existing agreements and as a result VEON will receive US$350 during the first half of 2019. The settlement amount was recorded in the income statement within ‘Other operating gains / (losses)’.

In March 2019, the Company collected US$175, shown as an operating cash flow within the statement of cash flows, with a remaining balance to be received in June 2019.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		30

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

5	PROPERTY AND EQUIPMENT

The movement in property and equipment for the three-month period ended March 31 included the following:

	2019		2018
Right-of-use assets upon adoption of IFRS 16 (Note 14)	2,023		—
Cost of acquired assets	392		314
Net book value of assets disposed	19		24

Right-of-use assets arising from lease contract primarily relate to land for network sites, network infrastructure and equipment and buildings.

6      INTANGIBLE ASSETS

There were no material changes to intangible assets during the three-month period ended March 31, 2019.

GOODWILL

The movement in goodwill for the Group, per cash generating unit ( “CGU” ), consisted of the following for the three-month period ended March 31, 2019:

CGU	March 31, 2019		Currency translation		December 31, 2018
Russia	2,166		148		2,018
Algeria	1,163		(13	)	1,176
Pakistan	369		(2	)	371
Kazakhstan	155		2		153
Kyrgyzstan	54		—		54
Uzbekistan	44		—		44
Total	3,951		135		3,816

Goodwill is tested for impairment annually (at October 1) or when circumstances indicate the carrying value may be impaired. The Company’s impairment test for goodwill is primarily based on fair value less cost of disposal calculations that use a discounted cash flow model. The key assumptions used to determine the recoverable amount for the different CGU’s were disclosed in the annual consolidated financial statements as of and for the year ended December 31, 2018.

The Company considers the relationship between its market capitalization and its book value, as well as weighted average cost of capital and the quarterly financial performances of each CGU when reviewing for indicators of impairment in interim periods.

There was no goodwill impairment recorded in the first quarter of 2019 or 2018.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		31

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

FINANCING ACTIVITIES OF THE GROUP

7	OTHER FINANCIAL ASSETS AND LIABILITIES

The other financial assets and financial liabilities consisted of the following as of each reporting date:

Financial assets	March 31, 2019		December 31, 2018
Financial assets at fair value through profit or loss
Derivatives not designated as hedges	7		14
Derivatives designated as net investment hedges	—		45
Investments in debt instruments *	34		36
Other	5		3
	46		98
Financial assets at amortized cost
Cash pledged as collateral (see Note 4)	664		31
Other investments	30		17
	694		48
Total financial assets	740		146
Non-current	10		58
Current	730		88

* Investments in debt instruments relate primarily to government bonds and are measured at fair value through other comprehensive income (with recycling).

Financial Liabilities	2019		2018
Financial liabilities at fair value through profit or loss
Derivatives not designated as hedges	57		65
Derivatives designated as net investment hedges	45		—
Contingent consideration	40		40
Other	—		2
	142		107
Financial liabilities at amortized cost
Bank loans and bonds, including interest accrued	7,553		7,366
Lease liabilities	2,066		—
Put-option liability over non-controlling interest	317		306
Other financial liabilities	50		77
	9,986		7,749
Total financial liabilities	10,128		7,856
Non-current	8,346		6,567
Current	1,782		1,289

There were no significant changes in financial assets and liabilities in the three-month period ended March 31, 2019, except for the scheduled repayments of debt, new borrowing related to MTO (see Note 4) and adoption of IFRS 16

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		32

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

Leases . Furthermore, there were no changes in risks and risk management policies as disclosed in the Group’s annual consolidated financial statements as of and for the year ended December 31, 2018.

As mentioned in Note 2 of these interim condensed consolidated financial statements, upon transition to IFRS 16, the Company has recognized the lease liability measured upon initial recognition at the present value of the future lease and related fixed services payments over the lease term, discounted with the country specific incremental borrowing rate. See also Note 14 for more details.

The fair value of financial assets and liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. The fair values were estimated based on quoted market prices for our bonds, derived from market prices or by discounting contractual cash flows at the rate applicable for the instruments with similar maturity and risk profile.

As of March 31, 2019, the fair values of all financial assets and liabilities are equal to or approximate their respective carrying amounts as shown in the table above, with the exception of Bank loans and bonds, including interest accrued, for which fair value is equal to US$7,714 (2018: US$7,430) and lease liabilities, for which fair value has not been determined.

The fair value of derivative financial instruments is determined using the discounted cash flows technique. Observable inputs (Level 2) used in the valuation techniques include LIBOR, EURIBOR, swap curves, basis swap spreads, foreign exchange rates and credit default spreads.

Fair value hierarchy

As of March 31, 2019, and December 31, 2018, the Group recognized financial instruments at fair value in the statement of financial position.

The fair value hierarchy ranks fair value measurements based on the type of inputs used in the valuation; it does not depend on the type of valuation techniques used:

•	Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

•	Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

•	Level 3: unobservable inputs are used for the asset or liability

As of March 31, 2019, and December 31, 2018, all financial assets or financial liabilities carried at fair value were measured based on Level 2 inputs, except for Contingent consideration, for which fair value is classified as Level 3.

Transfers into and out of fair value hierarchy levels are recognized at the end of the reporting period (or the date of the event or change in circumstances that caused the transfer). On a quarterly basis, the Company reviews if there are any indicators for a possible transfer between Level 2 and Level 3. This depends on how the Company is able to obtain the underlying input parameters when assessing the fair valuations.

During the three-month period ended March 31, 2019, there were no transfers between Level 1, Level 2 and Level 3 fair value measurements.

The reconciliation of movements relating to financial instruments classified in Level 3 of the fair value hierarchy:

Financial liabilities at fair value through profit or loss	Contingent consideration
As of December 31, 2018	40
As of March 31, 2019	40

All impairment losses and changes in fair values of financial instruments are unrealized and are recorded in “Other non-operating losses” in the consolidated income statement.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		33

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

8	CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following items:

	March 31, 2019		December 31, 2018
Cash and cash equivalents at banks and on hand	843		756
Short-term deposits with original maturity of less than three months	422		1,052
Cash and cash equivalents	1,265		1,808
Less overdrafts	(73	)	(17	)
Cash and cash equivalents, net of overdrafts, as presented in the consolidated statement of cash flows	1,192		1,791

As of March 31, 2019, and December 31, 2018, there were no restricted cash and cash equivalent balances. Cash balances as of March 31, 2019 include investments in money market funds of US$169 (December 31, 2018: US$349).

As of March 31, 2019, some bank accounts forming part of a cash pooling program and being an integral part of the Company’s cash management remained overdrawn by US$73 (2018: US$17). Even though the total balance of the cash pool remained positive, the Company has no legally enforceable right of set-off and therefore the overdrawn accounts are presented as financial liabilities within the statement of financial position. At the same time, because the overdrawn accounts are an integral part of the Company’s cash management, they were included as cash and cash equivalents within the statement of cash flows.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		34

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

9	ISSUED CAPITAL

As of March 31, 2019, the Company’s largest shareholders and remaining free float are as follows:

Shareholder	Common shares	% of common and voting shares
L1T VIP Holdings S.à r.l. (“ LetterOne ”)	840,625,001	47.9	%
Telenor East Holding II AS (“ Telenor ”)	156,703,840	8.9	%
Stichting Administratiekantoor Mobile Telecommunications Investor *	145,947,562	8.3	%
Free Float, including 7,603,731 shares held by a subsidiary of the Company	613,454,732	34.9	%
Total outstanding common shares	1,756,731,135	100.0	%

* LetterOne is the holder of the depositary receipts issued by Stichting and is therefore entitled to the economic benefits (dividend payments, other distributions and sale proceeds) of such depositary receipts. According to the conditions of administration entered into between Stichting and LetterOne, Stichting has the power to vote and direct the voting of, and the power to dispose and direct the disposition of, the ADSs, in its sole discretion.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		35

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

10	DIVIDENDS PAID AND PROPOSED

On February 25, 2019, the Company announced that the VEON’s Board of Directors approved a final dividend of US 17 cents per share, bringing total 2018 dividends to US 29 cents per share. The record date for the Company’s shareholders entitled to receive the final dividend payment has been set for March 8, 2019. The final dividend was paid on March 20, 2019. The Company made appropriate tax withholdings of up to 15% when the dividend is paid to the Company’s share depositary, The Bank of New York Mellon. For ordinary shareholders via Euronext Amsterdam, the final dividend of US 17 cents was paid in euro.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
		36

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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

ADDITIONAL INFORMATION

11	RELATED PARTIES

For the three-month period ended March 31, 2019, there were no material transactions and there were no material balances recognized with related parties as of this date.

COMPENSATION TO DIRECTORS AND SENIOR MANAGERS OF THE COMPANY

Value growth cash-based long-term incentive plans

The carrying value of obligations under the Value-growth cash based long-term incentive plan (the “LTI Plan” ) as of March 31, 2019 and December 31, 2018, respectively, was equal to US$27 and US$35. Included within ‘Selling, general and administrative expenses’ for the three-month periods ended March 31, 2019 is a gain of US$8 (2018: gain of US$47) relating to share-based payment expense under the LTI Plan.

12	RISKS, COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES

There were no material risks, commitments, contingencies and uncertainties that occurred during the three-month period ended March 31, 2019, and there were no material changes during the same period to the risks, commitments, contingencies and uncertainties as disclosed in the Note 8 and Note 9 in the Group’s annual consolidated financial statements as of and for the year ended December 31, 2018.

As a result of the adoption of IFRS 16 all lease commitments were included into lease liabilities recognized in the interim condensed consolidated statement of financial position as of January 1, 2019. For reconciliation of the Company’s operating lease commitments as of December 31, 2018, to the lease liabilities recognized on January 1, 2019 please refer to Note 14.

13	EVENTS AFTER THE REPORTING PERIOD

Banglalink Digital Communications Limited announced new syndicated term facility agreement

On April 25, 2019, the Company announced that its subsidiary, Banglalink Digital Communications Limited (“Banglalink”), has entered into a new US$300 syndicated term facility agreement with several international banks. The facility is guaranteed by VEON Holdings B.V. for nil consideration. The facility has a tenor of 12 months with extension option for another 24 months upon agreement with the lenders, and will be used to refinance the principal amount of Banglalink’s US$300 bond that matures on May 6, 2019. The Ordinary General Assembly meeting that is scheduled for June 26, 2019 related to the rights issue remains unchanged.

Dispute concerning sale of Telecel Globe Limited

GTH and Niel Natural Resources Investments S.A. ("Niel") entered into a Share Purchase Agreement on 28 March 2013, as amended from time to time (the “SPA”) in relation to the proposed purchase by Niel of GTH's majority stake in Telecel Globe Limited ("Telecel") and telecommunications operations in the Central African Republic and Burundi. The parties subsequently entered into three amendments to the original SPA between April and August 2013 due to Niel’s failure to timely close the intended transaction. Pursuant to the terms of the amendments, the parties extended the Longstop Date each time in exchange for payments of deposits by Niel. As Niel ultimately failed to close the intended transaction, the deposits paid to GTH were not refunded (US$50), which was in accordance with the terms of the SPA which is no longer in force. GTH completed the sale of Telecel in October 2014 to another purchaser for consideration less than had been agreed with Niel. In 2019, Niel commenced an LCIA arbitration in relation to the deposit monies retained by GTH and, in the Dutch courts, obtained an ex parte order freezing GTH’s bank accounts in The Netherlands and other pre-award security. GTH plans to vigorously contest Niel’s arbitration claims and otherwise defend against all proceedings and actions.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

14	BASIS OF PREPARATION OF THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PREPARATION

The interim condensed consolidated financial statements for the three-month period ended March 31, 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting .

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group’s audited annual consolidated financial statements as of and for the year ended December 31, 2018.

The preparation of these interim condensed consolidated financial statements has required management to apply accounting policies and methodologies based on complex and subjective judgments, estimates based on past experience and assumptions determined to be reasonable and realistic based on the related circumstances. The use of these judgements, estimates and assumptions affects the amounts reported in the statement of financial position, income statement, statement of cash flows, statement of changes in equity, as well as the notes. The final amounts for items for which estimates and assumptions were made in the consolidated financial statements may differ from those reported in these statements due to the uncertainties that characterize the assumptions and conditions on which the estimates are based.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements as of and for the year ended December 31, 2018.

A number of new and amended standards became effective as of January 1, 2019, the impact of which is described below. The Group has not early adopted any other standards, interpretations or amendments that have been issued but have not yet become effective.

IFRIC 23 ‘Uncertainty over income tax treatments’

The Interpretation clarifies the application of recognition and measurement requirements in IAS 12 ‘Income Taxes’ when there is uncertainty over income tax treatments. The Group has assessed the impact of IFRIC 23, which was not material to the financial statements of the Group upon adoption in 2019.

IFRS 16 ‘Leases’

IFRS 16 replaced IAS 17 Leases , the former lease accounting standard and became effective on January 1, 2019. Under the new lease standard assets leased by the Company are being recognized on the statement of financial position of the Company with a corresponding liability.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

In 2018, the Group has performed a detailed impact assessment of IFRS 16 and the impact on its adoption was as follows:

	December 31, 2018		Impact of IFRS 16		January 1, 2019
Assets
Non-current assets
Property and equipment
Property and equipment	4,932		(71	)	4,861
Right-of-use assets	—		2,023		2,023
Intangible assets	1,854		(15	)	1,839
Goodwill	3,816		—		3,816
Deferred tax assets	197		—		197
Other financial assets	193		(1	)	192
Total non-current assets	10,992		1,936		12,928
Current assets
Trade and other receivables	577		—		577
Other current assets	2,516		(61	)	2,455
Total current assets	3,093		(61	)	3,032
Assets classified as held for sale	17		4		21
Total assets	14,102		1,879		15,981
Equity
Equity attributable to equity owners of the parent	3,670		(3	)	3,667
Non-controlling interests	(891	)	(1	)	(892	)
Total equity	2,779		(4	)	2,775
Non-current liabilities
Financial liabilities	6,567		(45	)	6,522
Provisions	110		—		110
Lease liabilities	—		1,638		1,638
Deferred tax liabilities	180		—		180
Other liabilities	53		(9	)	44
Total non-current liabilities	6,910		1,584		8,494
Current liabilities
Trade and other payables	1,432		(54	)	1,378
Other financial liabilities	1,289		(6	)	1,283
Lease liabilities	—		361		361
Provisions	398		(3	)	395
Other liabilities	1,290		(3	)	1,287
	4,409		295		4,704
Liabilities associated with assets held for sale	4		4		8
Total equity and liabilities	14,102		1,879		15,981

The Company, as a lessee, recognizes a right-of-use asset and a lease liability on the lease commencement date.

Upon initial recognition the right-of-use asset is measured as the amount equal to initially measured lease liability adjusted for lease prepayments, initial direct cost, lease incentives and the discounted estimated asset retirement obligation. Subsequently, the right-of-use asset is measured at cost net of any accumulated depreciation and

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

accumulated impairment losses. Depreciation is calculated on a straight-line basis over the shorter estimated useful lives of the right-of-use assets or the lease term.

The lease liability was measured upon initial recognition at the present value of the future lease and related fixed services payments over the lease term, discounted with the country specific incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Subsequently lease liabilities are measured at amortized cost using the effective interest rate method.

Right-of-use assets and lease liabilities will be remeasured subsequently if one of the following events occurs:

•	Change in lease price due to indexation or rate which has become effective in reporting period

•	Modifications to the lease contract

•	Reassessment of the lease term

Leases of non-core assets and not related to the main operating activities of the Group, which are short-term in nature (less than 12 months including extension options) and leases of low-value items are expensed in the Income Statement as incurred.

Transition

The Company adopted IFRS 16 on the date the standard became effective, January 1, 2019. The Group adopted the standard using the modified retrospective approach. This means that the cumulative impact of the adoption was recognized in retained earnings as of January 1, 2019 and that comparatives were not restated.

The Group used the following practical expedients when adopting IFRS 16 on its effective date:

•	IFRS 16 applied only to contracts that were previously assessed as leases in accordance with the previous IFRS standards (IAS 17 Leases and IFRIC 4 Determining whether and Arrangement contains a Lease );

•	a single discount rate applied to a portfolio of leases with reasonably similar characteristics as permitted by IFRS 16;

•	initial direct cost was excluded from the measurement of the right-of-use asset as at January 1, 2019;

•	the Group’s onerous contract provision process used as the impairment assessment of right-of-use assets upon transition.

The weighted-average incremental rate applied to lease liabilities recognized on January 1, 2019 was 9.62%.

Carrying values of property and equipment and financial liabilities related to finance leases as of December 31, 2018 were reclassified to right-of-use assets and lease liabilities, respectively on January 1, 2019. These carrying values related to finance leases were not remeasured at the transition date.

Significant judgements upon adoption IFRS 16

IFRS 16 requires the Company to assess the lease term as the non-cancelable lease term in line with the lease contract together with the period for which the Company has extension options which the Company is reasonably certain to exercise and the periods for which the Company has termination options for which the Company is not reasonably certain to exercise those termination options.

A significant portion of the lease contracts included within Company’s lease portfolio includes lease contracts which are extendable through mutual agreement between VEON and the lessor or lease contracts which are cancelable by the Company on immediately or on short notice. In assessing the lease term for the adoption of IFRS 16, the Company concluded that these cancelable future lease periods should be included within the lease term, which represents an increase to the future lease payments used in determining the lease liability upon initial recognition. The reasonably certain period used to determine the lease term is based on facts and circumstances related to the underlying leased asset and lease contracts.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
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Notes to the interim condensed consolidated financial statements

(in millions of U.S. dollars unless otherwise stated)

The following table reconciles the Company’s operating lease commitments as of December 31, 2018, to the lease liabilities recognized upon initial application of IFRS 16 on January 1, 2019.

	US$
Operating lease commitments as of December 31, 2018	632
Increase in lease commitments of cancelable leases included in reasonably certain lease term	1,846
Use of IFRS 16 practical expedients (old lease accounting continues for exceptions)	(4	)
Leases commencing subsequent to transition date committed to as of December 31, 2018	(47	)
Accruals included in the lease liability calculation	59
Other	22
Total undiscounted lease payments which are reasonably certain	2,508
Discounting effect using incremental borrowing rate	(559	)
IAS 17 finance lease liabilities recognized on balance sheet as of December 31, 2018 (discounted)	54
IFRS 16 Lease liability recognized on balance sheet as of January 1, 2019	2,003
IFRS 16 lease liability presented as:
Non-current	1,638
Current	361
Liabilities associated with assets held for sale	4
	2,003

Amsterdam, May 2, 2019

VEON Ltd.

VEON Ltd	Unaudited interim condensed consolidated financial statements as of and for the period ended March 31, 2019
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