VEON Ltd (VEON) 2015 Q3 法說會逐字稿

Good day and welcome to the VimpelCom third-quarter 2015 investor and analyst conference call. This conference is being recorded. At this time I would like to turn the conference over to Bart Morselt. Please go ahead.

Yes. Thank you. Good afternoon, ladies and gentlemen. Also welcome from my side. For those of you that I've not met yet with, my name is Bart Morselt, and I joined VimpelCom as Head of Investor Relations at the start of September.

Today I'm pleased to be joined at this call -- on this call by Jean-Yves Charlier, our Chief Executive Officer, and Andrew Davies, our Chief Financial Officer.

Before getting started I would like to draw your attention to the disclaimer. Forward-looking statements made during this presentation involve certain risks and uncertainties.

These statements relate in part to the Company's anticipated performance for 2015, future market developments and trends; and anticipated investments in our networks.

Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risks detailed in the Company's Annual Report on Form 20F, and other recent public filings made by the Company with the SEC, including today's earnings release.

The earnings release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented today can be downloaded from our website.

Let's turn to page 3 for the agenda. For today's agenda, our Group CEO, Jean-Yves Charlier, will run you through the Group highlights. Our Group CFO, Andrew Davies, will then talk you through the country and Group results in more detail, to close his presentation with the key targets for the year.

Following that, both Jean-Yves and Andrew will be available to take any questions you may have.

I will now hand over to Jean-Yves to talk you through the third-quarter highlights. Jean-Yves?

Thank you, Bart. And good afternoon ladies and gentlemen.

Before focusing on the third-quarter results that demonstrate good operating momentum I want to first comment on the Uzbekistan investigation. We announced on Tuesday a provision of $900 million in our third-quarter financial statements in connection with the investigations being conducted by the US and Dutch authorities relating primarily to VimpelCom's business in Uzbekistan and prior dealings with Takilant.

We have been and are fully cooperating with the authorities to explore a resolution of our potential liabilities. As disclosed, the investigations and our discussions with the US and Dutch authorities are ongoing and therefore it would be inappropriate to comment further beyond the press release at this time during this presentation, and I'm sure you can understand this.

Moving on to the next slide and highlights of the third quarter. The good operating momentum that we have seen throughout the beginning of 2015 has continued into the third quarter, with the Company generating an organic year-on-year increase in service revenues and a double-digit growth in mobile data.

On an underlying basis net income was $191 million which reflects the good operational performance and continued improvements in most of VimpelCom's OpCos. At the same time, however, reported revenue and EBITDA continue to be impacted by adverse currency movements. In addition, the Group also recorded a net loss of approximately $1 billion this quarter, which reflects exceptional cost of approximately $1.2 billion, the principal component of which is a provision of $900 million in connection with the investigation by the SEC, DOJ and OM, relating primarily to VimpelCom's business in Uzbekistan.

In August, we also announced a transformational joint venture in Italy with Hutchison. Under the agreement VimpelCom will merge Wind with three 3 Italia to create a leading convergent operator in Europe's fourth largest market. The combined business is expected to generate cost synergies with a net present value in excess of EUR5 billion. The regulatory review process is underway and we expect that this will take approximately 12 months from signing as we had indicated previously.

Furthermore, our new transformation program is already showing progress and continues to be implemented across our operations with focus. As a result of this and our third quarter operating performance I am pleased to confirm our key financial targets for 2015.

Finally, this quarter, the Board has also recommended a dividend of $0.035 per ADS which will be paid in December 2015.

Let me now say a few words on the financial highlights and the key metrics on slide 6. You can see our key financial KPIs for the quarter are in line or ahead of our expectations. As we have seen since the beginning of 2015, reported results have continued to be impacted by currency devaluations in many of the countries where we operate. However, if we strip out this impact service revenues increased by 1% organically year on year, primarily driven by the good operational performance in most of our operating companies.

Our investments in high-speed data networks have been successful and our mobile data revenue continues to grow double-digit, 22% year over year this quarter. Underlying EBITDA was broadly stable year on year with EBITDA margin remaining solid, in line with our 2015 targets. The underlying net income significantly increased year on year and amounted to $191 million for the quarter.

With this I will now pass on to Andrew who will run you through the country and Group financials in more detail.

Thank you, Jean-Yves. And a welcome from me as well.

Before I do get into the detail, let me note that these Group results now reflect Italy as an asset held for sale on the balance sheet and as discontinued operation within both the income statement and cash flow statement and that all, on a Group basis all prior-period numbers on growth rates have been restated accordingly.

I start with Russia on slide 8. We see continued operational improvements [and the business focuses on] (technical difficulty) a more customer-centric organization. As a result, the Company has now reported improvements in churn during the last seven quarters, leading to customer growth of 3% year on year.

In local currency mobile service revenue was up 1% year on year, driven by strong 16% mobile data revenue growth. EBITDA decreased 5% year on year due to the negative impact on costs from the weakening of the ruble against the US dollar with an EBITDA margin of 39.3%, down 1.5 percentage points year over year.

However, excluding these currency headwinds EBITDA would have been stable and EBITDA margin would have improved by 160 basis points year over year.

The CapEx revenue ratio has decreased 18% from 24% in the same quarter last year due to ongoing efficiency programs and savings from our network sharing agreement with MTS.

Algeria, on slide 9, is in the midst of a fundamental transformation program and organizational restructuring, it's still early but results have been positive with the year on year trend improvements in revenue, EBITDA, on-net promoter score.

In this quarter, we've also made progress on one of the regulatory issues that has affected the business being the significant asymmetry on termination rates. With effect from July, the degree of asymmetry has been halved through both an increase in the rate at which we generate income and revenue and a reduction in the rates that we pay to other operators.

Underlying mobile service revenue declined by 4%, excluding the positive impact of the change in termination rates, which was an improvement from the 7% decline we saw in the second quarter. EBITDA increased by 1% year on year due to the favorable change in termination rates and savings in structural OpEx and the EBITDA margin increased to 54.8%.

CapEx decreased year on year because of the high spending in 2014 due to the start of the 3G rollout. We expect the transformation program to take another 9 to 12 months to complete. I mean, we'll continue to invest in our 3G network rollout and in modernizing our 2G sites in order to more effectively compete in the marketplace.

In Pakistan, Mobilink has retained its market position while also recording service revenue growth of 6%, so the first year on year revenue growth for 2 years. This was driven by mobile data revenue growth of 78% year on year and higher MFS revenue, which is up 61% year on year.

The customer base decreased by 9% year on year due to the same reverification program, but this did not affect revenue as the reverification program secured 99% of the revenue base. Quarter on quarter the customer base increased by 5%, driven by a stronger segment-focused approach, bringing greater price simplicity and transparency for customers and a revised channel commission structure. Cost efficiency initiatives mainly in procurement and utilities have driven the growth in EBITDA margin which increased by 6 percentage points year on year to 41%.

We also continue to invest in high-speed data network, and we are the first operator to have launched 3G in more than 200 cities. Our CapEx has actually decreased year on year due to the completion of the 2G modernization program at the end of 2014.

In Bangladesh, on slide 11, we saw continued strong performance with Banglalink maintaining its leading position in MPS. Mobile service revenue increased by 8% year on year, driven by data revenue growth of 82%, and EBITDA increased 22% year on year, aided by effective cost control with a particular focus on labor and maintenance costs. Similar to Pakistan, we continue to actively invest in our high-speed data network during the quarter and have expanded our 3G coverage to over 30% of the population.

One final but important point to note is that Bangladesh, as with Pakistan, is now generating sustainable positive operating free cash flows and is therefore going to be capable of funding itself going forward.

Performance in Ukraine was robust during the quarter with mobile service revenue growth of 14% year on year, driven by a 67% growth in mobile data revenue as a result of the successful launch of our 3G network and related commercial activities. The strong revenue growth together with cost efficiencies drove an increase of 28% in EBITDA year over year with a strong 51% margin.

As you would expect, CapEx increased materially in the quarter as we continued to roll out our 3G network which is clearly now offering the best nationwide coverage. Finally, on Ukraine you will recall that earlier this year the Group provided nearly $100 million of funding to Ukraine to finance both a 3G license acquisition and the related network rollout. It is an illustration of the strength of the operating performance in Ukraine that the business has already started to repay that funding, and we expect that we'll have repaid approximately one-third of that loan by the end of this year.

I now move on to slide 13, Kazakhstan's underlying mobile service revenue net of MTR reductions declined by 5% year on year mainly due to the intense price competition that we've seen since roughly the middle of the second quarter. This has been partly offset by strong growth in mobile data revenue which is up 12% year on year. EBITDA declined by 19% year on year, although excluding currency headwinds the decline was only 8%. Clearly the market in Kazakhstan remains challenging and we expect this to persist throughout the rest of 2015.

Let me now complete the country section with Italy. Since third quarter of this year service revenue posted a year-on-year decline of 3%. But the trend continues to improve particular from mobile service revenue which decreased by 1.5 percentage points year on year to just over EUR750 million, a further sequential improvement compared to the 2.2% and 3.3% year-on-year declines that the Company experienced in the second and first quarters respectively.

Mobile data continued to exhibit strong performance with double-digit revenue growth at 13% year on year, driven by a solid 12% year on year increase in data users to 11.3 million. In fixed line the quarter witnessed a robust performance in fixed broadband with customers increasing by 5% year on year and dual-play customers at 8% year on year.

EBITDA for the third quarter decreased 18% year on year as a result of both settlements recorded in third quarter last year and the impact in the third quarter this year of the tower transaction. On a like-for-like basis EBITDA declined by only 7% year on year with a stable EBITDA margin driven by cost efficiency measures.

I will now turn to the overall Group performance. On slide 16 we present an overview of the key underlying trends in the business. On an organic basis and ignoring what was obviously an unsustainable blip in the fourth quarter last year caused by the impact of the rapid decline in the ruble on dollar-denominated fixed lines revenues in Russia, service revenue shows growth this quarter for the first time in over two years.

Underlying EBITDA margin has also remained broadly stable, reflecting our ongoing performance transformation program. This quarter we recorded an underlying margin of 41.7%, which was down 1.2 percentage points year on year due solely to foreign exchange, but is broadly flat quarter on quarter.

The CapEx to revenue ratio over the last 12 months was 19%, which is, as you can see, is the fourth quarter in a row this ratio has fallen, reflecting ongoing CapEx efficiency programs. Finally, the operating cash flow margin remains strong at 23%, up 1.1 percentage point year on year.

This quarter we also wanted to provide a more detailed breakdown of the various factors impacting our service revenue, both reported and underlying. On a reported basis revenue was significantly impacted by adverse foreign exchange movements. However, as I've already mentioned, on an organic basis service revenue increased year on year by 0.7 of a percentage point.

Looking at the composition, you can see that voice revenue continues to decline but this is broadly offset by our growing data and MFS revenues which is a trend that we expect will continue.

The second chart looks at the revenue development across our footprint. As you can see, the decline in revenue in Russia is more than offset by growth in emerging markets and the Eurasian business units, and that decline in Russia is completely driven by the decision to eliminate certain low margin fixed line transit traffic.

Moving on to slide 18, EBITDA was down 1.1 percentage points on an organic underlying basis with revenue growth slightly offset by an increase in cost. Looking at the second chart, the EBITDA contribution from emerging markets much is the decline in Russia, and as I noted earlier that decline in Russia's EBITDA is entirely linked to foreign exchange pressures. On a reported basis, EBITDA declined over the previous year due to the large exceptional charge of $960 million and foreign exchange impact of $477 million.

I now move on to slide 19, looking at the P&L for the quarter. We have already talked in detail about revenue and EBITDA, so I will focus on the so-called below-the-line items. Depreciation and amortization was down year on year due to the effect of local currency depreciation being some -- slightly offset by higher depreciation in Pakistan due to the network swap.

Net financial expenses were also significantly lower year on year due to the debt repayment in the first half of roughly $3 billion and the positive effect of the ruble weakening against the US dollar.

The ForEx and other charge was stable year on year but still a negative due to a non-cash fair value adjustment on derivatives in the third quarter and depreciation of local currencies mainly in Russia and Ukraine.

The tax expense in third quarter last year was affected by non-tax deductible items and non-cash tax charges of about $110 million as a direct result of the Algerian transaction.

Finally, the reported loss of $1 billion for this quarter was entirely due to the exceptional items of $1.2 billion without which on an underlined basis net income would have been $191 million positive.

Focusing on the cash flow statement, you will notice that net cash from operating activities have been affected by three main items. A reduction in reported EBITDA, as previously discussed, which is somewhat offset by a big movement in changes in working capital which obviously reflects the provision that we have taken. We have lower interest outflows thanks to our various refinancing activities and lower cash taxes as a result of lower taxable income.

Net cash used in investing activities increased year over year as lower CapEx was offset by deposit outflows. In addition, in the third quarter of last year we also benefited from deposit inflows on the sale of Wind Canada. Net cash used in financing activities also increased mainly due to higher dividend payments to non-controlling interests.

Slide 21 shows the net debt evolution from the end of the second quarter including Italy to the $5.4 billion of net debt that we report at the end of September. So the reclassification of Italy as an asset held for sale reduces net debt at the end of June by $12.1 billion to a pro forma $5.8 billion.

Significant working capital change largely reflects the reversal from the lower EBITDA caused by the $900 million provision which obviously is a non-cash item for the quarter. Net debt then increases due to cash payments for CapEx, interest and tax but was more than offset by the EBITDA contribution, unfavorable working capital and foreign exchange movement, leaving net debt at the end of the quarter of $5.4 billion to the equivalent to a net debt-to-EBITDA ratio of 1.3 times.

Please move on to slide 22. As Jean-Yves said earlier, we are confirming our key targets for 2015 which we updated in August for the impact of the reclassification of Italy. I also want to reiterate that these targets are stated on an organic basis, assume constant currencies and also exclude any extraordinary items or major one-offs.

We've also removed the EPS guidance given the $1.2 billion of exceptional charges. Given the progress of the first three quarters, we now feel very comfortable that we can achieve these key targets and would expect to be on the more positive end of all of these ranges.

So, in conclusion, third quarter has been a mixed quarter for VimpelCom. We've seen continued improvements in operational performance and positive service revenue growth. However, exceptional items caused a significant net loss for the quarter. Looking forward, we expect the macroeconomic and the operating environment to remain challenging throughout the rest of this year, but we are confident in meeting our key financial targets. I look forward to speak with you again with Jean-Yves at our full year 2015 results in February where we'll provide more detail also on the progress of our strategic framework.

And with that I will hand back over to the operator for Q&A session. Operator?

(Operator Instructions) Dalibor Vavruska, Citigroup.

Just two questions, if I may. One is regarding your provisions for the transformation. I'm just wondering if you can give any guidance in terms of how much more you may intend to provision in the following quarters or in the next year.

And the second question is, I know that you mentioned and I understand that it's not possible to discuss the Uzbekistan situation, but my question is more that after the announcement of the provision that you are taking, I think that some shareholder said that they intend to have some legal claims against the Company based on the presentation of the results before.

So I'm just wondering -- I just wanted to double-check, this provision obviously does not or cannot include any possibility of any claims like that. I just wanted to check if that any potential losses from such claims may be included in this provision and if not whether you think that the level of provisioning as of now is correctly reflecting your expectations of the losses from the case. Thank you.

Thank you, Dalibor. So we let me deal with the second part first. So, yes, I think as you alluded to, the position that we've taken in this quarter just reflects the ongoing negotiations with the SEC, DOJ and OM and reflects the expected outflow of cash associated with resolving those investigations.

It does not reflect anything that might result from the class action lawsuits. I mean, clearly we will defend those very vigorously. But we've, 24 hours of news, so it's far too early to make any kind of judgment or evaluation on those lawsuits.

Sure.

With regard to your first question, we would expect to see similar scale of transformation related charges and provisions in maybe the next 2 to 3 quarters as we get people into the transformation program and start making specific decisions on how we're going to reshape the business. But clearly any costs associated with the transformation program will be completely off -- more than offset by the $750 million worth of annualized free cash flow improvement that we expect the transformation program to deliver for us.

Okay, thank you, Andrew.

Thank you.

Herve Drouet, HSBC.

Two question also on my side. Firstly, can you give us an update on the filing for the joint venture with the commission in Italy. I mean, are you still in preparations of the paperwork or are documents being submitted? And if it's not the case, do you have any timing in mind when those documents could be submitted.

And the second question is on Pakistan, it has been --- we've seen some progress in Pakistan. How do you see potentially the consolidations playing out there? And do you think the numbers what we saw in Q3 are sustainable in terms of the trends looking forward? Thank you.

Okay, let me perhaps take the two first parts of the question and then Andrew will take on the trends going forward.

Look, in terms of the filings for the Italian joint venture we have started the pre-notification with Digicomp at the European Commission and have submitted draft documents at this stage. And we're still working towards the 12-month process that we indicated at the time of the announcement. So at this stage we are working towards the timeline that we indicated.

As to Pakistan consolidation, obviously I will not comment on any specifics, but as we articulated in the new strategic framework, we will focus on consolidation options in a number of countries if these arise, looking at mobile to mobile or mobile to fixed consolidation opportunities. And obviously we'll report if we have progress to report on that side. Andrew, do you want to say anything on the trends?

Yes, absolutely. So I think that the team in Pakistan has done an excellent job over the last two, three quarters of starting to -- turning that business around and we've regained market leadership there very, very successful SIM reverification program, really successful execution of the 3G network rollout and all of the related commercial activities. So without being overly specific on exactly what we expect to see.

I mean, clearly we've got very, very good operating momentum within Pakistan and would expect to see this level of EBITDA margin and this level of service revenue continue for the next few quarters.

Okay, thank you very much.

Ivan Kim, VTB Capital.

Two questions from my side, please. Firstly on the tower sale in Russia, can you please elaborate a little what you expect from the tower sale, probably what kind of pre-tower value price and how you're going to use the proceeds and what are maybe also the key issues you have selling the towers for you in Russia because I guess it's quite different from the case in Italy?

And the second question is on the Global Telecom loan or financing, any update on that? And I mean I understand that you are in the process but what kind of issues are you facing there, so why it's taking quite an extended period of time? Thank you.

All right, so I'll do the first one and I'll let Andrew take the second question.

On tower sale, again I'm not going to comment on any specific country-by-country projects or initiatives. But again as we articulated just as much as on consolidation, we indicated as part of the strategic framework that we were going to move more towards an asset-like network model going forward as part of the transformation of VimpelCom. That includes two dimensions, the disposal of the tower portfolio and network sharing opportunities potentially in a number of geographies.

What I can say on the tower portfolio is that it's a significant tower portfolio, one of the largest in the world. It's also a portfolio that potentially will derive pricing per tower that will vary tremendously country by country, reflecting obviously the specific market conditions of those countries.

As to proceeds of any tower sale, I think there is two points to take in consideration. First is that this is not an overnight process, it's a medium- to long-term plan for the business because we want to extract maximum value for the disposal of the tower portfolios. So I think that's very, very important from that point of view. And we will have the debate with the Board at the appropriate point in time on usage of those proceeds. We haven't determined that specifically. Andrew?

Yes, sure. So on the GTH refinancing. I think as GTH mentioned today in their earnings release, they are exploring refinancing options right now. And they've started a ratings process. And I think that will be -- they'll probably give you more of an update on their earnings call later but we expect that process to be completed within the next quarter.

Okay. Thank you.

San Dhillon, Royal Bank Canada.

I had a couple of questions. Firstly a follow up on towers. Jean, you've given your point on wanting to maximize the proceeds from towers. I guess my question is would that rule out a possible IPO over the tower ventures we've seen in the Italian market which can ascribe a pretty good value and do it in relatively quick time-to-market.

And second question is on the Telenor stake sale. Has there been a temptation to engage with the company on helping them get to an exit route, whether that be persuading them to SBO, whether you have enough capacity to buy back some of the stake yourself for instance. Love to get your views on that. Thank you.

All right. Again I will take the first part of the question and let Andrew take the second part of the questions. I think on towers just to I think frame the opportunity, we will look at all options of maximizing value including potential IPO. Whether that is independently or with potentially a partner I think that, as we want to maximize value we wouldn't certainly not rule that out, but again I would say that that needs to have a clear timeline for us.

In terms of proceeds, I don't think we'd want to contemplate any long-term position in (inaudible) most probably. So I think that's probably what we can frame in terms of towers, looking at all options basically of extracting maximum value. Andrew?

Yes. So on the Telenor stake, San, so to be clear the Company itself as such has not yet been formally contacted by Telenor with regards to that or we know the same as you, which is the public announcement that they made. So therefore there is no timeframe, in particular that's been set yet for their intended divestment. You recall that the day after the announcement was made public we issued a release where we welcomed the opportunity that this would give to increase our free float and that we will work with Telenor to ensure that the divestiture of their stake is as successful as possible.

Again, thank you very much. Appreciate it.

Thanks.

(Operator Instructions) Efrain Chavez, ARTHA.

I just had actually one clarification and two questions, please. The first, Andrew you mentioned that the refinancing options that you would expect to be completed within the next quarter, were you talking about the current fourth quarter on accounting basis or are you talking about next year 2016, early 2016?

And my two questions were more on Italy and the Russian business. So in Italy I was just wondering if the developments in Denmark have changed your view as to what kind of requirements you will have to get the deal through. Do you think that Italy is a very different example from Denmark because of the lower market shares?

And on Russia, I was just wondering how you're seeing the new entrant in Moscow and how that's likely to impact your earnings going forward?

Okay. Andrew, you want to start on refinancing?

Yes. For clarity, when I said within the next quarter I was talking about within the end of this particular quarter, so Q4.

Thank you.

Look, on Italy, our perspective is that there are material differences between the Danish and the Italian marketplaces. Obviously here we are looking at a potential combination of two entities that are number three and number four in the marketplace. The marketplace we fundamentally believe is bifurcating in Italy between two strong incumbent MNOs and two weaker MNOs, represented by Wind and 3, both weaker for different dimensions. But certainly on the Wind side, as you know, we can buy the debt levels of the business and this market is at a turning point. There is an acceleration in investments in LTE and acceleration in investments in fiber.

And we believe that our case will be centered around the creation of a third fully functional competitive MNO in the Italian marketplace. So I think that the dimensions are very different than Denmark.

As to Russia, I think that we have not seen a substantial impact in the first two to three weeks of the launch of Tele2 in Moscow. That predominantly in spite of price reductions are at least 25% compared to the three other major operators in Moscow. Obviously there are network quality issues that Tele2 faces, obviously the lack of 2G availability but also in the roll-out of their LTE network.

So I think at this stage, we remain relatively confident of our position and the strategies that we've put in place and as we've seen from the third quarter results and we have not seen to date any material impact resulting from the Tele2 launch.

Andrew, I don't know if you want to add anything to that.

Yes, I think you said quite a bit, Jean-Yves. Yes, Moscow, quality of the network is critical there and we have a very strong network in Moscow. So we expect the impact to be limited.

And going forward our focus from midway through this year has been on bundled price plans and we will continue to execute on that strategy going forward and we will not structurally lower prices in order to compete where we don't need to compete. We will be having a rational pricing strategy and we will compete on coverage, quality, customer service and innovative products and tariff plans.

Thank you very much.

Okay.

(Operator Instructions) Dalibor Vavruska, Citigroup.

Just a very quick question on Russia. I mean, when I look at the trends in your numbers, they're improving and I think it's quite interesting they're now quite comparable, for example, with Megaphone that reported in the third quarter.

But one thing that I wanted to ask is, you see this decline in the fixed line revenue and I think you mentioned that you have focused perhaps on scaling down some of the low-margin activities. But in terms of your EBITDA margin year on year, it's about roughly the same.

So can I just double-check if whether this scaling down of the low-margin activities businesses has been offset by anything or whether you feel confident that your performance of your Russian business especially on the mobile side is now essentially on par with competitors and may continue to be so?

Yes, I'll take that question. So thank again, Dalibor.

I mean, so I think the main thing affecting margins in Russia is the foreign exchange headwinds. We have a pretty reasonable exposure to dollar-denominated costs in Russia, particularly from a P&L perspective -- well, from an EBITDA perspective when it comes to service costs, so interconnect traffic which is denominated in dollars.

As I said earlier, I mean if you actually look at the business excluding the impact, the adverse impact year on year of the foreign currency impact we've had absolute EBITDA stable, actually marginally up, but still rounding or two. And EBITDA margins would have actually increased by about 160 basis points year on year.

So really the impact, the positive impact that we would otherwise have seen on margins from eliminating very low margin revenue business has been completely masked by the impact of the foreign exchange headwinds year on year.

Thank you, Andrew. Can I ask just one last follow up? In terms of the FX impact, that would be similar to your competitors in Russia as well, right? Or is there any reason why the FX impact on EBITDA should be different for VimpelCom?

No. We actually think that we're much more exposed to dollar-denominated international traffic than our competitors -- our footprint.

Okay. Thank you.

Okay. Thank you.

Roman Arbuzov, UBS.

Thank you for taking the question. Just a follow up on one of the earlier questions related to the $900 million provision. I just wanted to check, does it relate only to the actual settlement with the Department of Justice, the SEC and the Dutch authorities or there are other costs in that number as well, like for example legal or maybe some accounting fees? Thank you very much.

Yes. I'll take that one. Yes, Roman, thanks for the question. Yes, within that provision there is a relatively modest amount in -- for future legal costs associated with the investigation.

Okay. Thank you very much.

Sergey Libin, Raiffeisen Bank.

My question is about the cash flow. So you said that it is stabilizing in Pakistan and Bangladesh. Does it mean that you're now thinking probably more thoroughly on resorting a more meaningful dividend? So as you said, I think a couple of quarters ago that this now becomes the main factor for -- to consider when restoring dividends? Thanks.

I think we said in fact there are two factors really in restoring a dividend policy and for the Board to obviously consider that. But obviously, first, as you outlined, it's an increase in free cash flow.

But the point I'd like to make, it's certainly a sustained increase in free cash flow, I think that's actually important for certainly management to make a recommendation on the dividend policy to the Board.

The second dimension for us still remains some stability from a macro economic and currency headwinds that we've been confronted to. I think it would be premature to say anything about a dividend policy whilst we still have a high degree of volatility in the markets in which we operate.

Absolutely. And then one final thing from me. I think we're maybe getting a little bit ahead of ourselves as well. We clearly said that the resumption of a meaningful dividend going forward was going to be tied to the net debt to EBITDA ratio being lower than 2. And while we've reclassified Italy as an asset held for sale with effect from this quarter onwards and therefore we've got a reported net debt to EBITDA ratio of 1.3 times.

We still haven't completed the transaction. And so we absolutely need to complete the joint venture transaction and get through the regulatory approval process as well. That's still, that's very key from a dividend policy perspective.

That's clear. Thank you.

All right. Okay. Good. Ladies and gentlemen, thank you very much for your interest. I would like to close the call. If there are any follow-up questions after this call, feel free to contact the Investor Relations people at VimpelCom. We look forward to speaking to you very soon again and thanks again for your interest. Have a very nice weekend. Goodbye.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.