VEON Ltd (VEON) 2017 Q3 法說會逐字稿

Good day, and welcome to the VEON Third Quarterly Results Investor and Analyst Conference Call. Today's conference is being recorded. I will now hand the call over to Mr. Bart Morselt. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome VEON's Third Quarter 2017 Results Conference Call. Today, I'm pleased to be joined on this call by Jean-Yves Charlier, VEON's Chief Executive Officer; Andrew Davies, VEON's Chief Financial Officer; and Trond Westlie, who succeeds Andrew as CFO effective from today. The structure of the presentation mirrors that of previously quarterly results with Jean-Yves starting with the group financial and business highlights, followed by Andrew running us through group and operational results and finishing by reconfirming our 2017 outlook. At the end of Andrew's discussion we will open the line for the Q&A session.

Before getting started, I would like to draw your attention to the disclaimer. Forward-looking statements made during today's presentations include and involve certain risks and uncertainties. These statements relate in part to the Company's anticipated performance and guidance for 2017, including its ability to generate sufficient cash flow, future market developments and trends, expected synergies at the Italy Joint Venture and the Warid transaction, operational network development and network investment, the effect of the acquisition of additional spectrum on customer experience, timing for the expected completion of the tower sale in Pakistan and the sale of VEON's Laos operations and the company's ability to realize its targets and strategic initiatives.

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 20-F and other recent public filings made by the company with the SEC. The earnings release and the earnings presentation, each of which includes reconciliations of non-IFRS financial measures presented today, can be downloaded from our website.

I would now like to hand over to Jean-Yves who, as you can see from the agenda here, will run through the Q3 financial highlights before updating on the group's strategy execution and our recent management changes. Jean-Yves?

Good afternoon, ladies and gentlemen, and thank you for joining our third quarter results call. VEON delivered another set of financial -- solid set of financial results in the third quarter, with further growth in revenues, EBITDA and cash flow. We remain satisfied with the rate of progress we are making as a company, both strategically and operationally.

In terms of financial results, Q3 has seen a continuation in the positive trends of the first 6 months of 2017, with the group posting solid organic growth on a number of metrics.

Total revenue grew by 4% to $2.5 billion and by 3.2% on an organic basis, driven by Russia, Pakistan and Ukraine and partially offset by continued pressure in Algeria and Bangladesh. Mobile data usage growth continues to be the key driver for revenue growth across our markets, recording 27% organic revenue growth year-on-year. EBITDA improved by 16.4% to reach just over USD 1 billion for Q3, benefiting from organic revenue growth and exceptional income from a one-off adjustment to a vendor agreement. On an underlying basis, EBITDA grew 3.5% organically year-on-year.

CapEx increased by 4% year-on-year due to higher CapEx in Russia and Bangladesh, primarily driven by a more linear phasing throughout 2017. The CapEx ratio in the quarter was just above 16%, trending towards our medium-term objective of 15%.

Growth in underlying equity free cash flow, excluding licenses, was especially strong during the first 9 months of the year, totaling $965 million, of which $475 million was generated in the third quarter, further demonstrating the financial turnaround of the group and underpinning our sustainable and progressive dividend policy.

Let me now focus on our strategic initiatives. On the 27th of February this year, we relaunched the company as VEON and accelerated our strategy to both revitalize and reinvent the group. At the time, we presented our plans to grow equity free cash flow to more than $1 billion for 2018 in order to support a sustainable and progressive dividend policy. Our strategy is to become a best-in-class provider of connectivity in all of the frontier markets where we operate as well as reengage with the 240 million consumers we currently serve, with a key component of this being the launch of the VEON personal Internet platform.

Since then, I am pleased to say that we have made significant progress, and I want to take this opportunity to share with you a few of the initiatives that have been completed or that are currently underway.

Consistent with our goal of simplifying, strengthen our structure, yesterday we submitted an application to the Egyptian financial supervisory authority to approve a mandatory cash tender offer for any and all shares in GTH. Considering VEON's current shareholding in GTH, the offer will be for 42.31% of GTH's outstanding shares.

In September, Telenor completed the third sell-down of shares in VEON, increasing our free float to just below 30%, an important development, which I will turn to later in this presentation. We also took advantage of the strong high-yield market in Europe to successfully refinance our Wind Tre joint venture, generating an expected annual saving of approximately EUR 240 million, which further adds to the EUR 700 million in synergies we announced at the time of the transaction. Andrew will discuss the transaction in more detail later in the presentation.

Also in this quarter, we have made significant progress in further disposing of our tower assets as we move to a more asset-light model. In Pakistan, we announced the sale of our tower business for an enterprise value of $400 million, a significant -- sorry, $940 million, a significant premium versus the current VEON GTH trading multiple.

In September, the government of Uzbekistan also liberalized the currency exchange rules and reset the official exchange rate at 8,100 Uzbek som per U.S. dollar. While this did result in a strong devaluation, we expect that the longer term -- in the longer term, VEON will have more opportunities to effectively repatriate cash from Uzbekistan. Again, Andrew will talk about this later in the presentation in more detail.

Finally, during the quarter, we further strengthened the management team of the group.

A further component of our strategy is about reinventing VEON's business model. A key part of our digital strategy is launching the new VEON personal Internet platform, which is now available to customers in 5 of our key markets. We are seeing a number of green shoots, and we are focused on delivering a world-class experience to the millions of customers that have started downloading the platform. In addition, we are also focusing on personalizing our services and exploiting the significant data that we have on our networks by rolling out DMP platforms as well as implementing a new digital BSS stack across all our businesses.

I would like to spend a moment now on our announcement regarding GTH. Yesterday, VEON submitted an application to the Egyptian Financial Supervisory Authority to approve a mandatory tender offer for any and all of the GTH's outstanding shares, which are not owned by VEON.

Accordingly, the offer will be for close to 2 billion shares in GTH, representing 42.31% of the outstanding shares in GTH. The offer price is 7.9 Egyptian pounds per share. This is the same price as the GTH share buyback in February 2017, which was over 2.5x oversubscribed. The 6-month volume weighted average trading price of shares in GTH is 6.63 Egyptian pounds and the 6-month simple average is 6.61 pounds. The transaction, which will be funded by cash on hand and/or undrawn credit facilities is subject to the approval by the EFSA. About the impacts of the transaction, what I can say is that VEON's leverage will increase in line with the final cash outlay for the transaction as we already consolidate GTH. This cash outlay depends on the number of minority shareholders who accept the offer and the prevailing foreign exchange rate. We do not expect the transaction to have an impact on VEON's dividend policy. As the EFSA approval process is still pending, we cannot comment further on this matter at this time.

Slide 7, Telenor completed the third sell-down of its VEON shares in September, decreasing its holding to 14.6%, an increase in VEON's free float to 29.2%. This marks another important milestone, improving the trading liquidity in our shares. Back in September 2016, our free float was just under 11%. Now just over a year later it has nearly tripled to just below 30%.

Looking ahead, Telenor has indicated that it expects to use the remaining 14.6% holding to exchange and/or redeem the exchangeable bonds. If full conversion does occur, then it will result in Telenor fully exiting VEON, increasing our free float to 43.8%.

Slide 8. VEON, our personal Internet platform, is now commercially available in 5 of our markets, including Pakistan, Russia and Italy. It is still very early days, but the initial signs are encouraging. To date, the platform has been downloaded by 5.3 million consumers and passed 1 million downloads in each of Italy, Russia and Pakistan. In Pakistan, in particular, the VEON platform was the #1 top free app on the Google Play store and the Apple App Store after the first week.

We continue to focus on adding more functionality as well as content and offers to the platform before launching in new markets in 2018. To date, we have 140 partners in content, offers and payments, and we are partnering with both global and local brands. This is essential to the platform's growth and mass appeal. Our main objective is to build once again engagement with our customers.

Finally, I wanted to update you on the senior management appointments that we have announced over the past 2 months as we further strengthen our management team. Trond Westlie has been appointed group Chief Financial Officer, succeeding Andrew Davies. Trond joined on the 2nd of October and formally takes over today as CFO. He is a highly respected and experienced finance executive having most recently been CFO of A.P. Moller-Maersk from 2010 to 2016 and will contribute significantly to the company's transformation, in particular around our digital and cash flow growth initiatives.

Andrew Davies will remain with the company until the end of the year to ensure a structured handover. In addition, he will continue as board member of the Wind Tre joint venture.

I would like to take this opportunity to thank Andrew for his leadership, integrity and commitment over the past 4 years. He has made a major contribution to ensuring VEON is where it is today, a revitalized business that is generating strong free cash flow, with a stable and appropriate capital structure and a set of strong results, which enabled the board to announce a new dividend policy earlier this year.

We have also appointed Jacky Simmonds who will join us as Group Chief People officer on the 1st of January 2018 and who brings strong experience from her time as Group People Director at EasyJet. Finally, as we continue to strengthen our compliance and control functions, Josh Drew has been appointed Group Chief Compliance Officer since the beginning of October. Josh was previously an Associate General Counsel at VEON and prior to that served as Vice President and Associate General Counsel at Hewlett-Packard.

With that, I now hand over to Andrew to run through the group and country financials and present our 2017 guidance.

Thank you for all those kind words, Jean-Yves, and good afternoon, or good morning currently, well for me to everyone else as well.

So I'll start as is usual on the revenue slide, where we show year-on-year evolution for the quarter both in reported and organic terms. On a reported basis, third quarter 2017 revenue grew by 4% year-on-year, boosted by both organic growth and a little bit of ForEx tailwind. If you look at the composition in the upper chart, we see a continuation of trends from previous quarters, with strong growth in data and MFS revenues, partially offset by a decrease in voice revenue, the latter being a secular trend across the industry. Mobile data revenue in particular showed strong growth of nearly 27% year-on-year on an organic basis, driven by the continued monetization of our high-speed data networks. On the lower chart, you can see that on an organic basis, revenue increased by about 3.2% year-on-year with the main growth markets being Russia, Pakistan, Ukraine and Uzbekistan with continued pressure in both Algeria and Bangladesh.

Let's now move on to the next slide on EBITDA. On a reported basis, EBITDA improved 16% year-on-year for the quarter, driven by organic growth, performance transformation savings and exceptional items. Excluding exceptional items related to income from one-off adjustments to a vendor agreement, the year-on-year growth in underlying EBITDA was 3.5%. As you can see in the upper chart, on a year-on-year basis, performance transformation program has contributed approximately $88 million in the third quarter 2017 to the underlying EBITDA improvement through outright cost savings, while short-term counter effects and reinvestments in longer-term value accretive initiatives, such as mono-brand stores, devices and network development all aimed at driving future growth, aggregated to $123 million.

In addition, reinvestments from prior periods is one of the main drivers underpinning the $69 million growth in year-on-year terms of service revenue for the quarter.

Looking at the second chart, we can see that on an organic underlying basis, EBITDA shows sustained momentum, growing by 3.5%, excluding both ForEx and the exceptional items I just noted. If you look at the geographies on the lower chart, we again see positive trends in Russia, Pakistan, Ukraine and Uzbekistan, which more than offset the pressures in the other countries. While the year-on-year increase in corporate costs is primarily driven by changes in accrual assumptions relative to long-term variable compensation plans, which are noncash in nature.

I will now move onto the country review, starting as usual with Russia where performance continued to improve during the third quarter, while market conditions and competition remain somewhat challenging. Total revenue in the quarter increased 3% to just under RUB 73 billion, driven by an increase in mobile service revenue and sales of equipment and accessories. Mobile service revenue increased by 4.2% to just over RUB 59 billion from growth in mobile data, value-added services and mobile financial services, partially offset by a decrease in voice revenue.

Mobile ARPU grew 3% year-on-year as a result of successful upselling activities and continued efforts to simplify tariff plans, while also being supported by increased penetration of bundled propositions in the customer base. VEON's mobile customer base increased by 0.7% year-on-year to 58.8 million at the end of the third quarter.

Fixed-line service revenue decreased by 12% year-on-year due to negative ForEx impacts and the effective increased FMC penetration. The take-up for our fixed mobile convergence proposition remains strong, with a total customer base of more than 800,000 at the end of the quarter. B2B is also a focal point for Beeline with both small and large enterprises. And this segment recorded a 6.7% year-on-year growth, driven by expansion of the customer base.

Underlying EBITDA margin was 38.9%, representing a year-on-year improvement of 0.5 percentage point. And in September 2017, Beeline started a national promotional campaign for the VEON personal Internet platform after its soft launch in July 2017. The increased cost related to the Internet platform rollout are expected to negatively impact EBITDA margin for the rest of the year. Furthermore, Beeline expects additional EBITDA margin pressures related to the Euroset transaction and -- from roughly the end of this year onwards with the unrealized margin dilution from this transaction expected to be approximately 1.5 percentage points.

I now move on to the joint venture in Italy on the next slide. In Italy, the competitive environment remains tough, ahead of Iliad's market entry. Revenue for Q3 decreased by 6.4%, driven by a 4.7% decline in mobile service revenue due to continued aggressive competition, which drove a customer base decline of 5.1%, together with the impact of the new EU roaming regulations. This mobile revenue decline was partially offset by growth of 1.4% in fixed-line service revenue, being driven by growing broadband customers, coupled with broadband ARPU growth of more than 3% year-on-year.

Underlying EBITDA, excluding nonrecurring items, declined by 4.9% year-on-year to EUR 579 million, mainly due to the revenue erosion with some mitigation from OpEx synergies of 44 million in the quarter, which led to an increase in underlying EBITDA margin of roughly 0.5 percentage point to 37.5%. CapEx for the quarter totaled EUR 236 million and was primarily focused on expanding capacity and coverage of the 4G/LTE network together with modernizing and merging the former Wind and Tre networks.

The net leverage ratio reached 4.3x at the end of the third quarter mainly as a result of a EUR 435 million payment at-- right at the end of the quarter related to spectrum renewal and reforming. Wind Tre expects to offset this impact by the end of the year with a sale of the Iliad spectrum receivable.

Finally, the JV contributed a shared loss of $60 million to VEON's P&L, primarily driven by integration costs, together with accelerated depreciation and amortization.

Before moving on to Pakistan, I now want to speak in a bit more detail about the refinancing and synergy progress at the Wind Tre joint venture. So as Jean-Yves noted earlier, in recent days, Wind Tre has concluded the very definition of a landmark transaction with the refinancing of its debt following the issuance of EUR 7.3 billion of new bonds and the use of nearly EUR 3.5 billion of newly signed senior facility agreements. The bond issuance was vastly oversubscribed and was the largest Eurobond issuance ever for this class of debt. Following the refinancing, the average cost of debt for Wind Tre has decreased significantly to just under 2.7%, compared to the 5.5% average at the end of the third quarter. And this will generate annual interest savings of around EUR 270 million. In addition, as you can see from the chart on the bottom right-hand side of the slide, the Wind Tre joint venture now has a significantly enhanced maturity profile. The total one-off costs of this refinancing amounted to just in excess of EUR 300 million giving the joint venture, a cash payback on this transaction of just over a year.

Moving on to synergies on Slide 16. As of the end of the third quarter, Wind Tre has now realized OpEx synergies of approximately EUR 98 million. The 3 boxes on the right provide you with an overview of where the synergies have been generated. In network and IT, Wind Tre's terminated its national roaming contract, looked to insource activities and renegotiate contracts wherever possible and has embarked on a network consolidation and modernization program with ZTE.

In G&A costs, the business continues on its rightsizing project with the reduction of approximately 1,800 FTEs on 19% of total employee population year-to-date.

Overall, Wind Tre continues to project EUR 700 million of annualized run rate synergies, almost EUR 500 million of which is related to OpEx with the remainder being CapEx-related, and the JV continues to expect that 90% of this annualized run rate will be achieved by the end of 2019.

It's also important to note that the EUR 270 million of annualized interest savings that I discussed on the previous slide are completely incremental to the previously announced synergy target of EUR 700 million and thereby will further accelerate both the cash flow generation and the deleveraging profile of the joint venture.

Moving now onto Pakistan on the next slide. Jazz continues to show strong growth with Warid integration also ahead of schedule. This is the first quarter in which the 2017 results in Pakistan are fully comparable on a year-on-year basis following the consolidation of Warid in July of 2016. Jazz reported revenue growth of nearly 7% year-on-year, driven by continued growth in mobile data revenues, which grew by nearly 39% year-on-year for the quarter. That itself driven by an increase in data customers and the continued 3G network expansion.

The customer base increased by more than 4% year-on-year driven by continued customer satisfaction through focus on price simplicity and efficient distribution channel management. Underlying EBITDA margin, excluding PKR 700 million of restructuring costs related to both performance transformation and the integration with Warid, was 55.1% in the third quarter, improving by 13 percentage points year-on-year and just over 10 percentage points quarter-on-quarter. However, this steep increase in margins is partially attributable to approximately 7.8 points of margin benefit coming from the release of historic SIM tax accruals, but excluding this impact, the margin would have been very healthy at 47.3%.

CapEx increased year-on-year with the last 12-month CapEx to revenue ratio of approximately 18% and this is entirely driven by the network integration and 3G and 4G LTE rollouts.

Finally, while Jazz has already fully achieved, the synergy target announced at the time of the Warid transaction, it remains fully focused and on track to complete its network integration by the end of this year.

Now moving on to Slide 18 to discuss the Pakistan tower sales. So at the end of August, we announced that Jazz had signed an agreement for the sale of its tower business, Deodar, to Tanzanite for a $940 million equivalent on a debt and cash-free basis. This is clearly a highly attractive transaction for VEON shareholders and fully in line, as Jean-Yves already mentioned, with our asset-light strategy. The $940 million valuation implies a high single-digit EV multiple on a contributed EBITDA basis and a significant premium versus both current VEON and GTH trading multiples.

In terms of accounting, VEON will book a gain of approximately $420 million at closing, and our leverage ratio will decrease by about 0.1 of a turn on a pro forma basis going forward. In addition, the group EBITDA margin will be diluted by around 1.3 percentage points on an annualized basis following the closing of this transaction.

Completion of the transaction is subject to the satisfaction or waiver of certain conditions, including receipt of customary regulatory approvals. The approval process is in progress and on track, and we are still aiming for completion to occur by the end of 2017.

Now moving on to Algeria, were Jazz's operational turnaround continued in third quarter 2017 despite a challenging regulatory and macroeconomic environment, which remains characterized by strong competition and inflationary pressures. Telecom's share of wallet remains under significant pressure in Algeria from full basket inflation and taxes resulting from the new finance law introduced in January of this year. The final piece of the regulatory puzzle has been completed since the end of the quarter with the introduction of mobile termination rate symmetry with effect from the end of October 2017. Against this evolving regulatory background, revenue decreased by 9.8% year-on-year, slowing the year-on-year decline from second quarter with service revenue decreasing by 11.3%. Data revenue growth was 55% due to higher usage and a substantial increase in data customers as a result of the 3G and 4G LTE network rollouts. However, competition on smartphone data pricing in particular remains aggressive with certain propositions being several times cheaper than Jazz's standard tariff architecture.

Underlying EBITDA margin remains strong at nearly 49% and, excluding the impact of changes to indirect taxes with effects from January 1 of this year, the underlying EBITDA margin would have been robust at approximately 51%.

I now move on to Bangladesh on Slide 20. In Bangladesh, the market is still characterized by intense price competition, which has accelerated following the SIM reverification process with additional pressure in Q3 coming from the impact of very adverse weather conditions. Revenue decreased by 4.6%, with continued competition of customer acquisition driving multi-SIM penetration and a diluted share of wallet. The operational focus continues to be on improving network coverage, which has driven data revenue growth of 28% from both data usage growth of 106%, along with approximately a 17% growth in active data users. Underlying EBITDA decreased by 19% year-on-year mainly caused by the revenue erosion together with higher acquisition -- customer acquisition costs and increased technology costs to improve network availability, which have been put under significant stress by the extreme weather conditions that characterized the country in the recent months.

At the end of the quarter, 3G population coverage reached approximately 70%, representing a gradual closing of the gap with competition. Finally, on the regulatory front, the government of Bangladesh approved the regulatory and licensing guidelines for 4G LTE cellular mobile services and spectrum auction guidelines. However, an auction is unlikely to occur until 2018. In addition, the Ministry of Post Telecommunications and Information Technology issued a public consultation on draft regulatory and licensing guidelines for tower sharing and the industry has now provided comments on these guidelines to the government in Bangladesh.

On Slide 21, in Ukraine, Kyivstar continued to deliver robust results during the quarter and remains the clear leader in both market share and NPS. Total revenue grew 10%, with mobile service revenue also increasing 10% year-on-year driven by continued strong growth of mobile data revenue, which grew in excess of 70% as a result of improving data customers, successful marketing activity stimulated by the continued 3G network rollout and more data-centric tariffs. As a result, data consumption per user more than doubled in third quarter 2017 compared with the same quarter in the previous year. The customer base grew 1% year-on-year due to higher gross additions, while mobile ARPU continued to increase by just over 8% year-on-year.

Underlying EBITDA adjusted for performance transformation costs grew 8.7% year-on-year driven by higher revenues with some partial mitigation by increased structural OpEx and commercial costs.

Kyivstar continued to roll out its 3G network in the third quarter, reaching a population coverage of approximately 73%, compared to 52% in the same quarter last year.

In Uzbekistan, we reported another quarter of strong revenue performance despite the liberalization of the Uzbek som on the 4th of September 2017. Total revenue grew by just over 24% year-on-year, and mobile service revenue also increased by just over 24%, supported by successful marketing activities and increased revenues from interconnect services, value-added services and mobile data. The company's tariffs, which were previously pegged to the U.S. dollar, were fixed at the pre-liberalization foreign exchange rate of approximately 4,200 soms to the U.S. dollar, which is a higher level compared to the prior year. And the underlying EBITDA increased 10% driven by the revenue growth, but partially offset by an 83% year-on-year increase in customer taxes. Adjusting for this negative effect, underlying EBITDA growth would have been 22.8% and underlying EBITDA margin would have been nearly 6 percentage points higher than reported at 56.5%.

The last 12 months CapEx to revenue ratio increased to 21%, mainly due to prepayments of equipment at the end of 2016 for deployment in the first half of 2017.

Finally, the Republican Radio Frequencies Council in Uzbekistan has delayed the implementation of the decision to redistribute radio frequencies in the country till April of 2018. We believe that this may result in the reallocation of Unitel's radio frequencies to other telecommunications providers in the market, and we are still evaluating the effect of this measure, which may lead to an increased investments in network capacity in the future.

At the end of September 2017, the company held cash and deposits balances equivalent to approximately USD 370 million, denominated in a Uzbek som.

I also just want to spend a little bit more time discussing the impact on the group from the Uzbek som liberalization. On 15th of September, we highlighted the announcements from the government of Uzbekistan, which liberalized the currency exchange rules and reset the official exchange rate at 8,100 Uzbek som to the U.S. dollar, which represented nearly a halving of the value of the Uzbek som to the U.S. dollar. Under these liberalized exchange rules we believe that VEON may, in the longer term, be able to more effectively repatriate cash from Uzbekistan, while the cash balances at the end of the third quarter was approximately $370 million, as I just noted.

However, the new official exchange rate will also directly impact VEON's reported group results for 2 reasons: Firstly, and most obviously, the Uzbek som results of Unitel will now be translated into U.S. dollars at a higher exchange rate; secondly, Unitel, and all other telecommunications operators will experience an erosion of EBITDA in local currency terms, resulting from the fixing of tariffs from U.S. dollars into Uzbek som at the prior official exchange rate. As a result, we expect annualized decreases in revenues of somewhere between USD 300 million to USD 350 million and an underlying EBITDA of somewhere between USD 175 million and USD 225 million. Based on last year's total annualized revenues and underlying EBITDA, these ranges represent approximately 3.5% of revenues and approximately 5.5% of underlying EBITDA.

In addition, in Q3, the group's leverage ratio immediately decreased -- sorry, increased by 0.1 of a turn and the group's net assets decreased by approximately USD 430 million.

We now look at the Q3 group income statement, and as normal, I'll focus my attention at the areas below EBITDA. EBIT increased year-on-year due to both the EBITDA growth, along with stable depreciation and amortization. Net ForEx and other gains increased year-on-year, driven by a one-off arbitration award of approximately USD 44 million related to a prior [Wind] indemnification. VEON's share of results from JVs and associates was a loss of $60 million, and as I've already noted is primarily related to the accelerated depreciation and amortization in connection with a network modernization program in the Wind Tre joint venture.

Last but not least, taxes, which increased by $59 million year-on-year is due to primarily higher taxable profit in Russia, along with higher withholding tax expenses due to dividends from both Pakistan and Algeria.

I'll now move on to the net debt analysis on Slide 25. We closed the quarter with approximately $8.7 billion of net debt and a leverage ratio of just under 2.3x. However, excluding the impact of ForEx, which is mainly related to the Uzbek som liberalization, net debt would have totaled $8.2 million at the end of the third quarter, a leverage ratio of 2.2x, and in line with the ratio at the end of the prior quarter.

On the next slide, we provide an update on the underlying equity free cash flow. As already presented, the cash flow generation for both the third quarter and the year-to-date was very healthy and in line with our expectations.

If we look at the year to date trend, in the first 9 months of 2017, we have delivered, as Jean-Yves has already mentioned, USD 965 million of underlying equity free cash flow, a robust growth compared to the same period last year. The significant increase in net cash from operating activities of just over $310 million, which was mainly driven by an increase in the underlying EBITDA generation, more than offset a $246 million increase in cash used for investment activities. This increased cash used in investing activities results from better CapEx planning and an improved phasing of CapEx spend across the 4 quarters of the year.

Let's now move onto the final slide on full year 2017 guidance. The results for the 9 months demonstrate that we remain on track to deliver our full year guidance, which we refined in September as a result of the Uzbek som liberalization. From a revenue perspective, results were fully in line with the guidance of low single-digit growth, showing 2.1% year-on-year growth for the year-to-date. Underlying EBITDA margin was broadly flat year-on-year at 0.1 of a percentage point increase, and we expect to be at the lower end of the flat to low single-digit range for the full year.

Finally, and as noted on the previous slide, we have generated $965 million in underlying equity free cash flow, excluding licenses, and we now expect to be at the upper end of the USD 850 million to USD 950 million range for the full year.

With that, operator, can we now please start the Q&A session?

(Operator Instructions) We will now take our first question from Alastair Jones from New Street Research.

I just wanted to talk around your free cash flow generation. You previously mentioned, earlier in the year an increase in 2018 versus 2017 of at least $200 million to $300 million. I was just wondering if you've got any update on that based on what you are seeing in the markets today, whether you're still comfortable with that. And sort of linked to that is just on your free cash flow and therefore for your dividend evolution, how did the one-off impacts of the Euroset acquisition Pakistan lease repayments, how does that affect your thinking about dividend growth, I guess, going forward? They are typically one-off, though value-accretive in the longer term, but does that affect the dividend growth in the nearer term? And then just finally, the second question on Russia. Obviously, strong performance there in Russia, particularly on the revenue side. What are we -- how are you sort of thinking about the market at the moment in terms of competitive pressures? We've got, obviously, Sberbank's entry into the market. Can you sustain this level of growth in your service revenues on the mobile side? Or do you see any sort of potential for further increases or are, in fact, maybe downside?

All right, thank you. Andrew, you want to take 2 and 3, I can take the first one on guidance?

Sure, yes. I think at this stage, it's too early to talk about 2018 guidance, obviously. And on the objectives that we have given ourselves whether they relate to equity free cash flow or medium-term guidance on CapEx, there is no change with these set of results.

Sure. So let me deal with the second question first of all then, Alastair, Euroset and Deodar. So look, I mean, both of those transactions, first of all, had a relatively lengthy lead time or gestation period. So when we set the dividend policy and when we've talked about cash flow guidance, et cetera going forward, we definitely factored those transactions into all of our thinking. Let me just make one point clear on these transactions before we move on. So the Euroset transaction, the EBITDA margin dilution is related to basically consolidating now 2,000 stores. And therefore, it's the growth in the equipment revenue affecting the denominator in the EBITDA margin calculation that we're referring to. We're not actually expecting a dilution of absolute EBITDA once we get past the initial integration phase. So it's very important to understand that maybe slightly nuanced point. And on the Deodar transaction, while the EBITDA margin dilution is related to the absolute EBITDA impact that we'll have, so obviously, we're going to increase tower rental costs in the country, we will also have some CapEx mitigation in the country against that. So the cash flow impact will be quite a bit less than the EBITDA impact. And then if I come to your final question on Russia. It's still relatively early days in the -- what some would have termed I think the last quarter, the recovery in Russia. Right now, we are cautiously optimistic that, that market will continue to develop. But again, against that, there are -- you can see some things on the horizon. I mean, elections next year might prove a bit of a challenge, et cetera. But right now, I think we're just generally pleased with the overall direction that, that market is going in.

We will now take our next question from Irina Idrissova from RBC.

My first one is on spectrum reallocation in Uzbekistan. Are you able to give us any color on the potential magnitude of the additional CapEx impact there? And my second question is on Bangladesh. Looks like both you and your competitors are reporting a reduction in minutes of use and this seems to have accelerated in Q3. Could you just talk about the main drivers here? Is it most due to lower share of wallet in a multi-SIM market? Is it mix? Or are you also seeing voice for data substitutions stepping up?

Okay. Just on spectrum reallocation in Uzbekistan, I think, Andrew, what we can say is that the reallocation will have an impact on CapEx in Uzbekistan, but it's relatively immaterial in the grand scheme of things for the group. We will continue to have sufficient spectrum given the #1 position that we have in that marketplace. We'll need to add density to the network, enhance the number of sites, but again there, we feel that, that's immaterial. You want to say a few words about Bangladesh?

Yes, sure. I mean, just a little more color on Uzbekistan. I mean let's remember, we spend roughly $1.5 billion a year on CapEx as a group. So any incremental CapEx that we need to spend in Uzbekistan will be very low single-digit percentage points of that overall group number. On Bangladesh, I think in a way, with your question, you kind of provided your own answer. I think it is a little bit of the impact from multi-SIM penetration. Some of it clearly is OTT substitution via data. And also, you should, as I mentioned and what I said, it's the weather. I know it's -- it sounds overly convenient, but the weather conditions in Bangladesh this particular year have been truly atrocious. And the worst that many people can remember for several years. So that has definitely dampened down traffic. And in particular as I said because we -- it's actually directly impacted the functioning of the network and has contributed to a relatively decent amount of network outages.

We will now take our next question from Alexander Vengranovich from Otkritie Capital.

Follow-up question on the Euroset transaction. So you said about the negative impact on the EBITDA margin, but can you also please provide the outlook for the sales boost following the transaction? And also the second question here, whether you think we can expect some cost optimization following the acquisition? And when should we expect the margin in Russia to start recovering after the transaction? So I'm basically trying to understand whether you'll keep the stores or you will try to cut some part of them in order to optimize the margin. And the second part of the question on VEON platform launch. Can you please share the detail for monthly average users or daily average users in any of the markets, especially in Russia? And how can we also estimate the impact of the platform launch on financial results, please?

I'll take the VEON launch. You'll take the Euroset dimension. On VEON, Alexander, we are not providing at this stage any of the [Mau/Dau] indicators because it's simply too early. At this stage, we're very much focused on, first and foremost, in the commercial launches in the number of downloads. We are then very focused on basically migrating the millions of consumers that we have on a variety of customer service apps that are legacy apps in Russia and in other parts of the world. And all of this is about creating engagement. And once we've gone through sort of those milestones, that'll be a point in time when we will consider providing the Mau/Dau indicators. We're seeing, as I said, significant number of downloads and interest from consumers. We're also very pleased with the partnerships and the number of partnerships, both with local and global brand that we are signing. Again, that's all about creating the engagement around the platform. In terms of the financial impact, I think that we see the financial impact in 3 stages. Obviously, short term, there are costs with launching commercially the platform in the various markets as well as development costs. In the medium term, we expect to see benefits on our own cost structure. Obviously, if we have a very significant proportion of our customer base on the platform, we can expect to see the traditional customer service costs coming down with people doing self-care on the digital platform. If top ups are high through the platform, we can expect distribution costs to come down, and so on and so on. So in many ways, the platform is about reengineering in a more digital way our own business. And finally, the more longer-term perspective is we create a marketplace as a potential new revenue stream. So that's the way that we look at sort of the financial impact. Euroset?

Yes, So on Euroset, I'm not going to give any specific guidance on increased revenues, et cetera. Clearly, we have indicated when we announced the transaction that, over the long term, we saw margin uplift as a result of this transaction. Some of that margin uplift will be related to a more operationally efficient distribution network, and therefore, rationalizing stores, et cetera. However, the bigger margin uplift should come from a greater focus on our own monobrand distribution, and therefore, lower reliance on third-party indirect distribution, particular the smaller mom-and-pop type stores, which would benefit the P&L in 2 ways. So first of all, having more control over distribution should enable us to drive data device penetration, and therefore, data revenues. But possibly, more importantly, we should be able to reduce the churn washing machine effect within the market and reduce churn from the 50%, 60% range to a range that's more normal for a prepaid market. And therefore, you'd save money on customer acquisition costs, et cetera. But the -- those longer-term impacts are once we've completed the entire integration and rationalization of the store footprint, which I think we said we'd probably achieve by the end of 2018.

We will now take our next question from Madhi Singh from Morgan Stanley.

This is Madhi Singh from Morgan Stanley. So I have 2 questions. So firstly just following up on the last question. Is it possible to isolate the one-off integration cost, which you will incur on the Euroset integration? And secondly, on the -- in terms of the group leverage target, can you share after the GTH MTO is completed, whether that changes your leverage targets in any way and what would be the target, if you could share that as well? Thirdly, after exiting Laos, is there any other market you might be considering to exit?

Okay. So let me -- I'll start off with addressing, I think, the first couple of questions you asked there, Madhi. And Jean-Yves will discuss the portfolio side of things. So on Euroset integration costs, have not given any specific number yet and I think don't think it's appropriate to do so just right now. We're still going through the planning process for that integration. On your question on leverage targets, so let me start off by unequivocally stating that we're still very firmly committed to a medium to long-term leverage target of around about 2x. So that's the first important thing to note. So with the GTH MTO, assuming that we get approval and assuming that we get 100% take-up rate at the [SEM] 90 offer price and foreign exchange stays where it is right now, you can expect the MTO to cost us almost exactly USD 900 million. So that's in the short term, going to increase the reported leverage ratio by about 0.25 of a turn. We think that is very, very manageable. We have more than enough liquidity and access to funding to be able to afford that transaction. And then we see a future deleveraging path down towards the 2x target that I just mentioned. So Jean-Yves, on Laos?

Laos marks for us, I think, the completion of the reshaping of the portfolio in many ways. It marks the last of the very small assets that didn't fit in the portfolio. This has been a 3, 4 year process in exiting these smaller nonstrategic assets. The portfolio that remains is very solid, as you know, as we predominantly have #1, #2 positions in significant marketplaces. So I think that's about as much as we can [sum up].

Sorry to interrupt, but in Bangladesh now you are #3. Would that be a market you might consider?

As I said, we pretty much completed our program. Bangladesh is a market at this stage that we can't roll up as it's a 3-player market. But we see structural opportunities in the long term. Let's not forget that this is a market we believe that has very significant upside given the size of the market, the fact that it's a 3-player market, et cetera, et cetera. So whilst we have a number of short-term challenges in that marketplace, we believe that the structural long-term opportunity remains sound, which wasn't the case in Laos. Laos is a very small market. I don't remember the number of players in Laos, but it's 5 or 6 players. So it wasn't structurally sound and didn't represent a significant opportunity for us.

We'll now take the next question from Ivan Kim from VTB Capital.

My main question is on Italy, because the third quarter results, to be frank, looked quite worse to me. And it looks like it will only get worse. Remembering how long it takes in some markets to stabilize, what can -- you think you can do to protect the market share there? What's your strategic view of how the market is going to shape up? Because obviously, it would be very hard for Iliad to do anything, but they will try and then Telecom Italia is super aggressive, it doesn't feel like they want to lose any ground to Iliad, which is impacting the whole market and you, of course. So any thoughts on this will be very much appreciated. And secondly, Andrew, what is the cash tax number you expect this year and maybe next year?

All right, let me take Italy and talk a little bit about the market conditions. Obviously, the market conditions are tougher in the third quarter. And particularly, that has to do with Below The Line offers and initiatives undertaken by Tim in the marketplace. When we look at it from a medium to long-term point of view, whilst there are obviously question marks and concerns about the top line and the impact of the new entrant on the top line, our focus is very much on the value drivers of that marketplace, on preserving ARPUs in that marketplace and on delivering very significant synergies that go well beyond, as you've seen, the $700 million of synergies that we have guided towards at the time of the transaction. Don't forget also that we will have substantial revenues and profit coming in with Iliad's entry as we have the wholesale contract, which should dampen the impact that Iliad has on the Wind Tre joint venture versus the other operators in Italy. So net-net, I think current market conditions are challenging, but we're very focused on delivering the synergies. And we believe that we'll have an opportunity to see a cushion created with the arrival of Iliad compared to our competitors with the wholesale contract.

Yes, cash taxes. Wow. It's a long time since I've had a question on cash taxes. So I assume you mean in absolute terms, Ivan, and not as a percent of profits or anything of that nature.

Yes, yes, in absolute terms.

Yes. So roughly somewhere in the region of $350 million to $375 million for this year probably, which would itself represent a $50 million to $75 million year-on-year improvement in that number, which is almost exclusively driven by the success of the tax planning initiatives, which we put in place since first quarter of this year. In terms of next year, I'd be careful to phrase my answer so that nobody can actually back into any form of profit guidance for next year. So look, I think for next year, in absolute terms, we will see a broadly similar number, which will be, in essence, driven by 2 opposite effects. The first one of which is that next year, we will get a full year's benefit of the tax planning initiatives that we put in place this year. But that would be somewhat offset by, hopefully, a greater level of underlying profit generation, and therefore, taxability within the business. So broadly the same numbers -- set of numbers next year.

We will now take our next question from Dilya Ibragimova from Citi.

This is actually Dalibor. If I can ask a question on the platform. So basically from my understanding, the key selling point is the free communication, but also in some markets at least they are giving some free allocation of data in addition to the 0 rated connectivity within VEON. I'm wondering if you have any early signs of the economics of which type of ARPU customers this is attracting and how is it impacting the -- I know it's early days, but how is it impacting the economics of this particular customer for you?

Dalibor, thanks for the question. It's really too early days, in fact, for us to share in a conclusive manner any of those points. What I would say is that we're seeing today 2 parts of the platform that are resonating with consumers in the various markets. The first point is the one that you raised of the value proposition around free messaging even when you're out of credit. We see that particularly resonating in Pakistan, given that, that market, being a prepaid market with most users not necessarily having a monthly data plan, but a daily data plan is particularly attractive. What we've also seen in the first few weeks is that the promotion part of the platform is also particularly attractive, for example, in Russia where we've had significant interest in the promotional dimension. And as I said, we now have 140 partnerships with both local and global brands. And this goes from in Russia, specific promotions with La Moda, for example, in terms of fashion, to Burger King in terms of free meals or free specific items on the meal. So we're working on all dimensions of the platform. In the first stage what is important for us to create engagement is have a very differentiated value proposition on messaging because through messaging, we can, in fact, personalize offers. We can contextualize offers and content. The second element is really around promotions and content. And the third element, which I haven't talked about and will be launched in the next -- in the near term in a number of our markets is really the customer care self-serve proposition to enable consumers to really manage the A to Z part of the -- of their subscription with a VEON brand. So those are the elements that we're very much focused on in the initial stages. And beyond that in the medium to long term it's creating the marketplace. So I think when we have sufficient scale on the platform, we will start at the appropriate point in time sharing more of the various dimensions and indicators.

And Jean-Yves, can I very quickly ask another question on the platform? Out of the over 5 million customers that you have or downloads, how many of them are actually VEON customers? Is there any meaningful number in any of the markets of customers of other operators who are downloading?

Again, I think this is something I don't want to share at this point in time. All I can say is that it's obviously not just VEON customers that are downloading the platform. The value proposition, obviously, of the platform is much stronger for VEON customers. That's the free dimension that can't be offered on competitive networks. But I think too early again to share those type of data points.

We will now take our next question from Stella Cridge from Barclays.

I have 3 questions. Maybe I can ask them all upfront. The first one is that you mentioned you're talking about a progressive dividend going forward relative to 2017. Could just give us a sense in absolute terms of how you'll think about that given that there may be some cash outflows or sort of negative impact from the cash flow going forward, say either from Uzbekistan and perhaps spectrum in Bangladesh. Just to see how you may balance dividends with the balance sheet strength. That's the first one. The second is on the proceeds in Pakistan. So I know you said you plan to use some of the proceeds for spectrum, for paying down debt, but also to distribute to shareholders. Could you give us a sense of how -- what proportion you might see going to each part? And are there any obstacles in you getting that cash out of Pakistan? The final question is on Bangladesh. I see you're talking about perhaps trying to raise debt in the local market there. Could just give us a sense of how deep you think that market is and perhaps what proportion of spectrum cost might be able to be funded out of local currency? That would be great.

Andrew? those are all Andrew question, so I'll -- there you go.

I knew before Stella started asking questions that all of these would be coming my way. Thank you, first of all, for the kind words, Stella. So let me kind of try and take them in reverse order, if that's okay with you. So Bangladesh, we actually think that the market is probably sufficiently deep enough for us to be able to fund all of our requirements locally in local currency. And that might even extend to being able to refinance the existing dollar bond in that same manner. With regards to Pakistan, this is probably the longest answer of the day, Stella. But it is a question that we get frequently, so let me take the time here to step through this in a clear way for everybody. So we're going to get roughly -- let's make it easier to work with the numbers. We're going to get a ballpark figure, $750 million equivalent either at or shortly after closing. We're going to use roughly $200 million to $250 million equivalent to pay down gross debt locally. So that's going to leave somewhere between $500 million to $550 million to -- for Jazz to distribute out. So obviously, when it distributes that money, 17% of that amount first of all, and you can do the math from what that means, is going to go to dhabi group, our minority partner in that entity. Of the amount that will get paid to GTH, being 83%, 15% of that number is going to get paid in the form of withholding taxes to the Pakistani authorities. And then GTH will get what's left over. GTH will need to use those proceeds or the residual funds to repay, first of all, the $200 million bridge facility that was put in place in order to fund the share buyback program of earlier this year, coupled with also paying down over $100 million worth of revolving credit facility, which it currently exists between Amsterdam and GTH, and will also need to fund the interest payments on all of its debt, including, don't forget, the $1.2 billion bond that was put in place in roughly, what, April or May time frame of last year, okay. So after all of that amount of money -- I mean, basically that will use up all the proceeds. So 0 of the proceeds is going to end up being paid by GTH in the form of dividends. In terms of time and the capacity in Pakistan, there is sufficient currency reserves in the country to be able to pay all this money out in the form of dividends, but it will take quite some time. And we -- our expectation is that it may take until the end of 2018 before Jazz pays out all of these dividends to GTH in dollars. And -- but, back to your first question, I think we're not going to put a number to this yet. I mean, clearly, we will talk about this alongside the fourth quarter results in February time frame next year. But again, as I noted earlier, when we looked at the dividend policy before we announced it in February of this year, we took account of a number of things, including Euroset and Deodar transactions that I mentioned earlier on. But also, we looked at stress testing dividend capacity in connection with Uzbek som devaluation and various other potential impacts. And we -- having gone through all of that stress testing, we were comfortable that we could announce a sustainable and progressive dividend policy. And the fact that many of these things have now come to fruition doesn't change the dividend policy, just thankfully demonstrates internally that we did a really good job in actually doing all of the stress testing that we did.

That's really helpful. Maybe just a small follow-up. Do you have any sense at this stage of what kind of cost the spectrum allocation in Bangladesh may be? And I think also, you mentioned that there may be one coming up in Ukraine in the past as well, is there any update on that side?

I think the guidelines in Bangladesh have been published. I think it's a little too early at this stage to speculate as to what that might cost. So -- in part because we're not quite sure how much spectrum we're actually going to need, et cetera, and when we're going to need it. And Ukraine, I think there's some draft guidelines, but again, it's difficult to put a number on that at this stage, albeit I would -- we would imagine that we will probably be running a spectrum auction process in the Ukraine by the very end of next year.

We will now take our next question from Igor Goncharov from BCS.

My question was already answered.

There are no further questions in the queue. I will now hand the call back for any additional or closing remarks.

Thank you very much for your time and for your interest today. And Andrew, special thanks to you also on behalf of the IR team for good years of good interaction with the capital markets and all these people on the call. Very much appreciated. We wish you all the best for the future. With that, ladies and gentlemen, I would like to close the call, and we hope to speak to you very soon again. Thank you, and goodbye.

Thank you.

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