Nov 12, 2014
Executives
Gerbrand Nijman - Head of Investor Relations Jo Lunder - Chief Executive Officer Andrew Davies - Chief Financial Officer
Analysts
San Dhillon - Royal Bank of Canada JP Davids - Barclays Herve Drouet - HSBC Bank Alex Kazbegi - Renaissance Capital Ivan Kim - VTB Capital Alex Balakhnin - Goldman Sachs Jean-Yves Guibert - BNP Paribas Dilya Ibragimova – Citigroup
Operator
Good day, ladies and gentlemen, and welcome to the VimpelCom Third Quarter 2014 Investor and Analyst Results Call. At this time, all participants are in a listen-only mode.
Later, we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).
As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr.
Gerbrand Nijman. Sir, you may begin.
Gerbrand Nijman
Good afternoon, ladies and gentlemen. And welcome to VimpelCom's analyst and investor conference call to discuss our third quarter 2014 results.
I'm joined here in Amsterdam by Jo Lunder, our Chief Executive Officer; and Andrew Davies, our Chief Financial Officer will present our results which will be followed by Q&A. Before getting started, I would like to remind everyone that forward-looking statements made on this conference call involve certain risks and uncertainties.
These statements relates in part, to the company's expectation to close and derive benefits from the Algeria transaction, anticipated interest cost savings, 2014 annual targets, operational and network development plans and anticipated 4Q improvements in performance in Russia. 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, including today's earnings release.
The earnings release and the earnings presentation, each of which includes reconciliations only on GAAP financial measures presented on this conference call can be downloaded from the VimpelCom website. At this time, I would like to turn the call over to our CEO, Jo Lunder.
Jo Lunder
Thank you, Gerbrand, and welcome everyone. I think there are two sides to the numbers that we're reporting today, it’s the year-on-year development and it’s the quarter-on-quarter development.
The year-on-year result is showing a decline in revenue and EBITDA impacted by unfavorable currency movement, market economic headwind, a continued weak market in Italy, but clearly also some operational performance issues on our side. The other side, other quarter – on quarter numbers, which reflect continued sequential improvement as a result on our focus on customers and clearly also focus on improved macro quality.
Revenue improved organically by 3% quarter-on-quarter, while EBITDA grew 9% and our EBITDA margin expanded a 190 basis points to 42.9% in the quarter. We also added 3.5 million mobile subscribers in the third quarter reaching 223 million at the end of September.
Our quarter-on-quarter improvements also include growth in mobile data revenue and improved customer satisfaction. Our cash flow generation continued to be resilient and we delivered a US$1.2 billion in operating cash flow in the quarter.
Net income declined due one-off costs related to the recent refinancing of WIND which Andrew will return to during his speech and clearly also unfavorable currency movement. Moving on to some key recent development.
Clearly, during the third quarter we continued to experience market economic headwinds and material currency devaluations in Russia and Ukraine due to the geopolitics unrest. And as we already disclosed, we achieved a major milestone in Algeria in April with the agreement with Algerian National Investment Fund.
We remain on track to close the transaction by the end of this year. The partnership will also provide us with a strong and stable shareholder structure in Algeria, which will support our operations going forward.
We have also successfully launched 3G services in two of the largest markets, Algeria and Pakistan, both drove markets growth. This will strengthen our value proposition to our customers in both of these important markets and it will support continued mobile data growth.
And as part of our ongoing effort to streamline our portfolio and focus on core markets, we have sold our operations in Burundi and in the Central African Republicfor US$65 million, as well as our interest in WIND Canada for approximately US$110 million. We are also announcing today a dividend of $0.035 per ADS and more important we are confirming our 2014 targets which Andrew will address in much more detail.
I'll discuss now the performance of our business unit, starting with Russia. The third quarter operational results in Russia were impacted by market economic slowdown and by also the initiative that we have been taken strengthen our business long-term, both mobile service revenue declined 5% affected by the measures taken to reduce un-requested services from content providers to the Beeline customers and this initiative reduces revenue year-on-year both clearly improved the customer experience and contributes to improve churn and hopefully a stronger long-term profile of the customer base and our image.
Demand for mobile data continued to grow rapidly and as we told our mobile data revenue increased 22% over last year. EBITDA decreased 7% year-on-year due to of course lower revenue, but also higher networking IT cost driven by increased network investment, as well as FX losses from the weakening of the ruble against the US dollar.
As we have told EBITDA margin declined to 40.9%. We increased our investments in 3G and 4G as planned to capture growth in the mobile data traffic and we will continue now to invest in our high speed data networks for the rest of the year and we expect full year CapEx to revenues to be at 22%.
I think overall the third quarter numbers in Russia came in inline with our plans and expectations. Moving to slide 7, as you might recall we've started the transformation of our Russian operations almost 3 years ago with increased investments in network and also in distribution, as well as trying to create a more customer centric organization.
Our network investments and focus on network quality is clearly paying off. We are now number one or number two in mobile data speed in 75% of the countries and in the greater Moscow we are number one on voice quality and number two in mobile data speed.
More than 90% our customers are now being offered a speed higher than 2 megabits per second and we are also focusing on stimulating mobile data with attractive and affordable smartphones, transparent bundles and convenient and innovative data offering. And as you can see on slide 8, we believe our actions to improve customer experience in Russia were driving them solid sequential improvements, that we see on this slide, improved transparency of tariff and network quality, persistence improved our Net Promoter Score, reducing the gap to competitors.
This has contributed an improvement of churn and as a result an increase of 1 million customers in the quarter. And the investments in high speed networks and distribution also resulted in an improved market position in mobile data.
We are now successfully building high quality networks and a customer centric organization and I am confident that we are on the right track and I am pleased with the trends that we are seeing on the slide with revenue growth, EBITDA growth and mobile data growth combined with the 1 million increase in the mobile subscriber base. And we expect now that the year-on-year trajectories in the fourth quarter of the year will show improvement over the first nine months of the year.
I am now moving to Italy, WIND continues to be successful in the Italian market, where the environment remains weak. However, we are seeing some improvement in the competitive landscape.
WIND continues to offer the best customer satisfaction in Italian mobile market evidence by the number one position in Net Promoter Score. Service revenue declined 9% driven primarily by the competitive pricing pressure in 2013 and a further contraction of SMS revenue this quarter.
However, mobile ARPU in the third increased with 5% over the second quarter due to higher data revenue and improving market. EBITDA margin increased to 42.7%, but this is reflecting the settlements made in the quarter.
And then if you allow me, let me address a few more points on Italy, if you move to slide 10. We have launched innovative services here to capture a strong share of the market by focusing on the future needs of customers in Italy and MyWind App for smartphones and tablets that have now reached 5.6 million downloads and through WIND Digital we are targeting now the needs of the digital native segment, while at the same time we are providing more efficient means of offering products and interacting with the customers.
We continue to deliver double-digit growth in mobile broadband in Italy, year-on-year mobile broadband revenue was up 14% and the mobile broadband customer base grew 24% to $10 million. And finally, as I mentioned earlier, we successfully refinanced €8 billion of WIND this year resulting in an reduction of the average cost of debt to 5% from the previous 9% and annual interest savings of approximately €300 million.
We are making solid operational and financial progress in Italy despite the tough environment. And overall we expect Italian market to remain challenging both with improving trends.
In Africa and Asia business unit, our revenue in US dollars decreased 4% organically year-on-year. This was driven by a slowdown in Algeria and Pakistan mainly due to strong competition.
This was partly offset by continued strong recovery in Bangladesh. EBITDA declined organically a 11% due the lower revenue and increased cost related to our significant network investments in all the main markets.
However, our EBITDA margin was still solid at 43.5%. And I think an important point here is that the mobile customer base grew $4.4 million supported by strong customer growth in all main operating units, particularly in the Bangladesh and we plan to continue in our investing in the high speed data networks and with a lot 3G services in Algeria and Bangladesh and in Pakistan to capture the growth potential for mobile data in these large markets, that if I remind you have a population more then 400 million people.
A few comments on Algeria, on slide 12. Djezzy successfully launched 3G as I said now in 14 main provinces, including Algiers and the other main cities.
We expect to cover 19 provinces by the end of this year. Despite difficult environment in which we have operated for last few years, we have remained competitive by offering a wide range of promotions and value added services to our customers.
By providing very good customer service and competitive product and services we remained the preferred choice for most Algerians. We aim to continue being the leading choice in the market and to strengthen our position now that we have launched 3G.
In Bangladesh, the turnaround of the business has been clearly successful, demonstrated by strong result this year and you can probably see this on slide 13, mobile service revenue increased 8% in the third quarter mostly driven by the strong growth in customers, now over 30 million, EBITDA also increased 20% due to higher revenue and effective cost control in our business. Following the launch of 3G services in October last year, we now covered all 64 regions and we see high growth potential as smartphone penetration is currently 4% in Bangladesh.
We are also experiencing growth from mobile financial services, including mobile money transfers and payment. We expect this product to be an important growth driver in the future and we remain focused on that.
Slide `14, turning to Pakistan, where the market remains challenging due to the political and the market economic situation, but also strong competition. In September Jeffrey Hedberg started as our new CEO and he will lead the network modernization project, as well as that allows all the 3G, I am very hopeful that Jeffrey is a good choice for us in Pakistan.
The network modernization which will provide us with sufficient capacity and also improve our capability to offer more attractive bundles, the FX factor [ph] to be completed already by the end of this year. We realized the fastest growth actually on 3G services in the country and being the first to reach 1 million customers and this also within 90 days after we commercially launched 3G, I am quite pleased with that.
Not only are we committed to improving the network, but we are also enhancing the customer experience and during the quarter we have introduced a number of value added services as well. Moving to slide 15, our transformation program in Ukraine is also showing operational improvements, however, in a very difficult geopolitical environment.
Year-on-year performance was impacted by lower voice by revenue services and guest roaming revenue is compensated by growing international interconnect revenue. Mobile data revenue on the other hand demonstrated continued growth with a 5% increase despite the lack of 3G in Ukraine.
EBITDA declined primarily due to the doubling of the frequency fees in the country due to highest utility cost and of course also the lower revenue. While the EBITDA margin remained lower than earlier, but still high at 45.5%.
The quarter-on-quarter results demonstrated the impact of the transformation with service revenue, EBITDA and EBITDA margin all improving over the second quarter of the year. Our focus on customer experience is starting to show good results and we now have the number one position on Net Promoter Score in the market.
We also substantially improved churn and we increased the number of customers mainly in the eastern part of the country, as a result of having the best network there. All-in-all, Ukraine continued to deliver a resilient operating cash flow with the cash margin of 31%.
Now turning to the solid result of the CIS business unit on slide 16, mobile service revenue increased 5% year-on-year organically, while EBITDA grew 3% resulting in a strong EBITDA margin of 51.2%. The mobile customer base grew 6% year-on-year and we gained market share in most our markets.
I'll discuss Kazakhstan on next slide true successfully. But first let me say a few words about Uzbekistan, where the mobile service revenue increased 8% driven by 2% growth in the customer base.
As you know, Uzbekistan is currently a two-player market as we expect that it will return to three-player market in December this year which clearly will put pressure on results thereafter. And then finally on slide 17, Kazakhstan.
We have now successfully completed our turnaround and improved our market position against main peers, despite this being a highly competitive market. I think you can see that on the slide as well, service revenue increased 4% in the quarter and EBITDA grew 16%, leading to an EBITDA margin of 48.2%.
The turnaround has been achieved through a new and very effective management team, introduction of bundle tariff plans the right way. The best value proposition I think in the market clearly improving network quality and also very attractive distribution strategy coupled with a good cost control.
So that’s really something we can learn from and try to continue in other market. All-in-all, 3G coverage which now covers 60% of the population, improved customer satisfaction, highest Net Promoter Score in the country are some of the highlight on Kazakhstan.
With that, I'll wrap up my summary of the different business unit and the performance and I'll pass the floor to Andrew to discuss the financial performance more in detail.
Andrew Davies
Thank you, Jo. And a warm welcome from me as well.
Slide 19, I am sure is got the financial results. The quarter had been negatively impacted by both one-off costs related to the WIND Italy refinancing and foreign exchange.
Unfavorable movements of the ruble, hryvnia and euro against the dollar impacted our reporting results contributing more than half of the decline in both reported revenue and EBITDA. In organic terms, revenue experienced 50% year-on-year decline, mainly due to performance and market slowdown in Russia, Ukraine and Pakistan and continued market weakness in Italy.
EBITDA decreased organically by 4% year-on-year to US$2.2 billion, principally due to higher infrastructure cost in Russia, increased frequency and utility costs in Ukraine and higher network costs related to the 3G deployments in Algeria, Pakistan and Bangladesh. However, we maintained an industry leading EBITDA margin of 42.9% due to our focus on cost control through our operational excellence programs.
Third quarter EBIT decreased to US$1.1 billion, due to the revenue led EBITDA decline with partial mitigation from the one-off gain arising from the sale our interest in WIND Canada. Profit before tax was impacted by one-off costs related to both the refinancing of WIND Italy in July and FOREX losses which taken together aggregated to approximately US$450 million.
Our high effective tax rate in the quarter was primarily the result of $100 million of non-deductible items and non-cash tax charges as a direct result of the Algerian transaction which will become due on closing of the transaction and the impact of that is roughly $100 million for the quarter. If I move on to slide 20, you can see that we've got resilient cash flows from the quarter and the EBITDA decline is partially mitigated by lower payments of both interest which reflects the success of the WIND Italy refinancing and of income tax which results in a lower tax for profit.
As a result, net cash from operating activities declined only marginally on a year-on-year basis. The increase in investments that we are making in our high speed data networks to drive revenue growth was offset by inflows of US$110 million from the sale of our interest in WIND Canada and US$140 million from the return of deposits resulting a year-on-year decrease in the net cash used in investing activities.
Consequently, the net cash inflow before financing activities increased year-on-year by US$130 million and this basically represents the underlying reduction in net debt for the quarter which will exclude the impact of foreign exchange movement. Finally, the decrease in net cash outflows and financing activities is the net result of July 2014 WIND Italy refinancing because of the drawdown under RCF and the bond repayment.
On slide 20 we outlined all of the financing activities that we have completed so far in 2014, while the refinancing of WIND Italy is obviously taken headlines, is also been very active and cost most of our debt portfolio and have refinanced almost US$19 billion in that, taking advantage of some extremely favorable market conditions to both improve both pricing on maturity profile. We also have in place US$2.3 billion of headroom under existing revolving credit facilities.
So if we move on to slide 22, we expect that the refinancing of WIND Italy debt which completed in the second and third quarters on the repayment of gross debt out of the net proceeds from the closing the Algerian transaction will result in significant analyzing [ph] proceedings of approximately US$0.7 billion which will enhance our earnings profile by $0.5 billion per year and represents on those EPS accretion of approximately US$0.13 per share. Slide 23, articulates an extremely solid funding and liquidity position.
We have substantially improved the maturity profile of our debt from early through the refinancing of the WIND Italy debt in April and July, but also through the other refinancing I just discussed. As a result, with no major refinancing obligations until 2020 and more material hard canvassing maturities for the next 2 years.
The debt in Italy which is fully self financing and is completely non-recourse to the rest of the group represents approximately 50% of our total gross debt and over 60% of our net debt. 24% of the debt is now in Russia and our Russian business is also fully self financing.
Slide 24 shows the impact on some of the key financing networks is the result of these refinancing activities. At the end of the third quarter, total gross debt was US$27.7 billion, while net debt improved quarter-on-quarter to US$21.7 billion.
Our gross on net leverage ratios have both marginally improved during the quarter and the net debt to EBITDA ratio was 2.5 times at the end of Q3. We continue to see significant decrease in the underlying average cost a bit.
Over the first three quarters of 2014 we've improved this from 8.2% in Q2 and then again on to 6.3% in this last quarter. Again, precise with the cash position of US$6 billion at the end of third quarter, significant unutilized facilities, no major refinancing obligations until 2020 and solid cash flow generation VimpelCom remains well funded.
On slide 25, we showed the sensitivity of results the foreign exchange movements. As I mentioned previously, our reported financial performance for the third quarter was impacted by movements in local currencies against the US Dollar.
As such we want to share again with you information related to this sensitivity that be first presented at our Analyst and Investor even earlier this year in London. Here we showed the sensitivity of the ruble, euro and hryvnia against the US Dollar.
So as an example, if the ruble weakens by 10% against the US Dollar, but the given amount of ruble revenue our reported revenue in US Dollars would decrease by approximately 4%. I'll now move on to our 2014 targets on slide 26.
We are confirming our guidance for the year, implicit within this we've got revenue and EBITDA, we expect more favorable year-on-year comparison in the fourth quarter than we have seen in the first three quarters of this year. In addition, I stated before, we do expect – expected the rate of decline of EBITDA to be slightly higher than the rate decline for revenue.
We expect that our net debt to EBITDA will be at approximately 2.4 times at the end of this year and of course this will depend on currency fluctuations between now and the year end. As we continue to invest in high speed data networks to be able to capture mobile data growth, we provide the best services to our customers, the full year CapEx revenue ratio is still expected at a relatively elevated level of 21%.
Before handing over to Jo, I would also like to note that our 2015 financial reporting calendar is included in the appendix of the slides. You'll see that we will accelerate our external reporting next year and that in addition we plan to present our fourth quarter 2014 and same quarter 2015 results live in London.
In addition, we will be hosting our Annual Analyst and Investor Day in London in early October of next year. Finally, during the next few weeks in early December we are hosting an Analyst and Investor site visit to our operations in Bangladesh, which we all believe to attend.
With that, I'll now like to hand back to Jo.
Jo Lunder
Thank you, so much Andrew. And well on this, turn to the summary slide before we open for questions.
Slide 28, as I said I think that our two sides to these numbers, the year-on-year third quarter results were clearly impacted by unfavorable currency movement, macro economic headwind and operational performance issues in some markets. However, we continue to deliver on our strategy and we see quarter-on-quarter improvements in revenue, in EBITDA and in growth in our customer base, and mainly driven by investments in high quality networks that also increased focused on the customer experience.
In line with the portfolio strategy that we communicated earlier, we are also now focusing on our core market and we recently now completed the disposal of our interest in Canada, as well as the sale of our operations in Burundi and in CAR. The transaction in Algeria is on track for closing by the end of 2014 and with that transaction closing and the completion of the WIND refinancing, as said earlier on this call, we expect that to yield a couple and well interest saving of US$0.7 also translating into a very nice earnings per share accretion.
And again, with the strong liquidity position Andrew explained no major refinancing obligations until 2020. The solid cash flow we see in the quarter, we also consider the will perform and being well funded.
And lastly, we are also confirming our annual targets as we published in March this year and expect to again be able to deliver up on our pledge to the market. With that I suggest we open the floor for questions.
Back to you operator.
Operator
(Operator Instructions). Our first question comes from the line of San Dhillon of Royal Bank of Canada.
Your line is open.
San Dhillon - Royal Bank of Canada
Hi, guys. Two questions on Italy if I may.
And on the mobile side it stills seems that much is being super aggressive and that discounting at a 40% to 50% discount. And why wouldn’t you accelerate your LTE rollout and it seems that hutch [ph] with a lack of hundred, is that a structural disadvantage there.
And on the fix side, all the other operators are trying to push there on fiber plans, so that will be faster of TI or Vodafone. And what specifically are your goals in high band [ph] hacking you start to roll out our own infrastructure I guess fair share to other infrastructure?
Thank you.
Andrew Davies
Okay. San, I'll take that one.
So your question on mobile is certainly prudent [ph]…
San Dhillon - Royal Bank of Canada
Yes.
Andrew Davies
The Hutch continues to be at a discount to us and I am not sure it is much as 40%. We are continuing to invest in the network there and we are going to start to press on the advantage on both HSPA and 4G/LTE.
And on fiber, yes, we are playing a waiting game for now. We clearly – the Italian market is one that comparison to most other mature markets is actually relatively in mature from a fiber perspective and we are actually waiting to see what our competitors do, what our options are and you will be programmatic for now.
And candidly we don’t feel compelled to Russian to make in a decision in there because that is actually very inherent demand in the market for the kind of product and service that you lead into.
San Dhillon - Royal Bank of Canada
Okay. Thank you very much guys.
I appreciate it.
Andrew Davies
Thank you. Next question please.
Operator
Our question comes from the line of JP Davids of Barclays. Your line is open.
JP Davids - Barclays
Yes. Hi, there.
I've got two questions please. The first one is a follow up on Italy.
So the financial performance of the big three [ph] looks as converged which doesn’t seem to quite time to the comments you made on the Net Promoter Score. And to that end, is this – is there a better a softness in your inter past/business segment and then maybe here as a little bit of color on there.
And separately on Algeria, and you reconfirmed that the transaction is on track for the fourth quarter. Can you provide us with any risk factors and that could cause delay to that transaction being executed if there are any material ones that will be good to know?
Thank you.
Andrew Davies
Okay. Andrew, again.
I'll do the Italy question, I think Jo will do Algeria. I am not sure I agree with your initial hypothesis.
I think the convergence, so I think there is at least one on the big three that’s still – that a bigger year-on-year revenue and certainly margin decline now shows and one of the – the third of the big three players, I am not sure that we've see any convergence that you alluded to. We remain in the lead in Net Promoter Score.
It’s a pretty robust lead, but the believe is narrowing and in particular we do see that lead narrowing a little bit on the network fulfillment which does reflect that and at least one of the big – other big leaders have a better network. And as you mentioned and the other two players in the big three do have slightly stronger business segment than we do but that – that’s a very conscious decision, you can't be all things to all people and we have chosen to focus very much on the consumer side of the proposition.
Jo Lunder
Yes. On the question was on Algeria, and of course as in any transaction there is risk related to closing.
There is a lot of different things that needs to happen and still will need to happen. When we say we are on track, it means that we have done everything according to the plan so far.
The Algerian government is helpful. They are constructive.
We have our negotiation team and closing team in Algeria basically every week these days. It’s very easy to get access to people and meetings and approvals.
So we expect to be able to hold that transaction in line with what you have indicated by the end of this year.
JP Davids - Barclays
Okay. Thanks for the color.
Jo Lunder
Thank you.
Operator
Thank you. Our next question comes from the line of Herve Drouet of HSBC Bank.
Your line is open.
Herve Drouet - HSBC Bank
Yes, good afternoon. Two question as well on my side.
Firstly on Ukraine, could you give us bit of more color about the 3G license, I mean, you know, its been put in the press that expected to happen before the end of the year and figures of around you know, US$220 million in, you know, for like was at 2.1 gigahertz spectrum. Just wanted to see you know, on your side I mean, is it reasonable to think its going to happen before the end of the year on that level of price, is my first question.
Second question is, I understand what you are presenting in term of 4Ks, net debt is been decreasing, the interest cost is decreasing. But when I looked at the Q3 financial expenses, there is only a reduction of US$10 million compared with last year.
I understand you know quite large part of the refinancing was during the summer in July that will have expected more impact you know on the financials. And I was wondering if today anything that may expect these lag of the decrease of financial expenses this decrease?
Thank you.
Jo Lunder
All right. Thank you for the questions.
We – I'll kick of with 3G in Ukraine and then Andrew will pick up the second question. I think first of all its really good news that now Ukrainian cabinet had decided to approve the 3G license in Ukraine.
I think very good news people. This is the only country in Europe without 3G at the moment.
So we've only welcome that of course. We see that there is a hunger in Ukraine for data services and see that on our revenue growth on data readout 3G at the moment.
So we believe this is a good thing for stakeholders. We don’t expect this option to take place this year.
We believe more of this is a first quarter of 2015 as then. We have had meetings with the highest government officials in the country regarding this topic.
And as of today that there is also important information lacking in terms of the auction details on how the license is released. Timing remain still question of also what we're doing here is basically we just following the normal process with them in Pakistan in Bangladesh in Algeria.
We are calculating the risk sort of a rationale way, the value of the spectrum and the value of the 3G license and if we believe the price is accretive for shareholders, we will – we have then advice if we believe its to expensive and more accretive we might consider that not to do so. This remains clearly a commercial decision on our side, but I remain hopeful and expect that this fiscal find its solution, so that stakeholders can sort of pick box and move then and hopefully we can start rolling off 3G in Ukraine next year.
Andrew Davies
Okay. And then I'll answer the same question Herve.
The – so its complicated, the first thing is that there is a bit of timing in there, as you noticed we only partially through Q3 where we actually completed all the financing activities then also running through the interest expense line in the P&L account. There is a quite a few non-cash item and innovation of previously capitalized debt issuance cost, various PPA adjustments et cetera.
So, relevant to kind of (inaudible). And I have Gerbrand from IR follow up to be able to give a more precise quantification.
But that’s the concept that you're going to see when you get that analysis.
Jo Lunder
Can we move on to next question please?
Operator
Thank you. Our next from the line of Alex Kazbegi of Renaissance Capital.
Your line is open.
Alex Kazbegi - Renaissance Capital
Yes, hi. I guess, it’s me, Alex Kazbegi.
Two question also from me, one on the debt repayment I mean, if you look at let say the next year Russia is about $2 billion, is it going to be repaid or is it going to be refinanced and if its refinanced what sort of interest rates you are looking there to – in terms of refinancing of that in the local currency presumably its going to be. And the – also on the debt side, after the repayment of the Algerian debt by global telecom, does that trigger the early negotiation of the remaining portion that global telecom which is going to be charged, that’s which is charged now at 12.5% or it doesn’t actually trigger the renegotiation of the rate and this is going to remain for now at least at the same levels?
And the second question was just to continue on the 3G rather not even at 3G, but generally what in terms of the new licenses, license renewals any kind of frequency payments do you generally envisage for 2014 I guess one could be Kazakhstan, anything else which we should be aware of where you could see that there is potentially cash outflows coming through? Thank you.
Jo Lunder
Okay. Alex, let me, I'll take those and I'll go through them in orders.
So you're right we've got roughly $2 billion equivalent of debt that’s maturing in much of next year. Its pretty much all ruble denominated bonds, candidly we will make a decision closer to maturity date all of those bonds on what we want to do, whether we want to taken those completely refinanced and et cetera, et cetera and given the volatility in the market is quite early for me to be speculating in public about what kind of interest rate I am going to pay on that, on those bonds.
I mean, the other thing I should point out here is, in our maturity profile we've taken a conservative view in how we present those bonds, because technically they don’t ask before driven in terms 2020, but there is an option window that actually opens five years before that. So for the province of the maturity of profile we would assume that people would want to exercise the option which will be that 5 years before the technical maturity.
And on the Algeria, you're right in pointing out that DDH will repay a fair proportion of the existing shareholder loan using all of the proceeds from the closing of the Algeria deal, when that’s done, there will still be over a $1 billion worth left on that share of the loan. When the loan was a – maybe extensions for loan is approved earlier this year and it was extended for 37 month and then there is no opportunity to renegotiate within that 27 months time period.
And then with regards to third question on payments and licenses and spectrum et cetera, that there is nothing else that here in 2014 which is what you mentioned and nobody asking that 2015….
Alex Kazbegi - Renaissance Capital
Yes, I think, definitely…
Jo Lunder
The coming year with 2014 and there is nothing apart from Ukraine 3G and potentially a 4G in Georgia, Opgen [ph] and there is nothing else on our radar screen for 2015.
Alex Kazbegi - Renaissance Capital
Probably in Kazakhstan?
Jo Lunder
No. Not yet.
Alex Kazbegi - Renaissance Capital
Okay. Thanks very much.
Andrew Davies
Thank you, Alex. Can we have the next question?
Operator
Our next question comes from the line of Ivan Kim of VTB Capital. Your line is open.
Ivan Kim - VTB Capital
Yes, good afternoon. Firstly, on the investments in Russia next year.
Could you please elaborate on the roughly of course investment expectations, whether it would be lower or equal to the current year level, and obviously (inaudible) would be LTE, but the year before it says not again the right way so to say so. Do you think there is a risk actual even spending more than this year?
And then secondly on Algeria, the year despite the 3G mentioned some customer intake this quarter. The revenue trends haven’t really improved from the second quarter.
So do you see the material pressure on voice building up, on voice pricing and if you can elaborate on the competitive environment would be great? Thanks.
Jo Lunder
Yes. Thank you for the question.
Let me pick up the question on the outlook and then Andrew can sort of connect to that on revenues question in Algeria. Yes, we as you remember from giving part, leading terms, giving annual outlook this year and I think we're going to continue to do that.
So today we confirming that we believe we are able to reach the outlook we gave in March 2014 for the full year, 2014 and then on the year end results presentation that we will do now in personal in London on February 25, we will also present an outlook for 2015 on that day including of course relevant CapEx target and how we see that for the group in Russia. And I think generally that in the – we've done in the networks in Russia has been successful.
We have cached up in 3G coverage, we have good momentum for 4G actually with the performance of the network is better now then a year ago. So what we need to find do now is to find the right balance, right, between not over investing in the interest of cash flow and – but at the same time not loosing momentum so that we can present the quality product, so this will be partly be driven with by sort of the competitive landscape and partly clearly with more effective processes that is taking place now, with more effective use of capital.
And for the group clearly long-term we believe the CapEx, the revenue number should come down from the current levels that you're seeing right now given the fact that there are lot 3G in major markets and that we have also been catching up into markets and long-term we should see that CapEx to revenue number coming down. I think that’s the best sort of cover I can give on outlook and investments for now.
Andrew Davies
Yes. Okay, so and then I'll address the question on Algerian revenues Ivan.
So the main issue hear is actually seasonality and I am using that genuinely not as some kind of catch hold skills, which people typically use. But you'd remember is that in all the Muslim countries Q3 usage and demand is normally lower than Q2 because you have a four week period of religious holiday parameter.
And actually if you look at our sequential trends for this year and compare them with the same period last year, you will see that we were far, far better this year than last year. By which I mean, the quarter-on-quarter decline in revenues that we saw in Q3 this year was much, much lower than we from Q2 to Q3 last year and in addition you will notice that – or you should notice that our quarter-on-quarter revenue profile for this year was far superior to that, of our main competitor in Algeria.
So again it speaks to as the success of the 3G launch. We generated significant amount of customer growth in the quarter and you know, data usage in Q3 was more than four times what we saw in Q2.
Now that we are out there, the religious holiday period in Q4 we do expect to get that come on normal growth trajectory within the Algerian business and expect that as we said at the end of Q2 that we will see at least stabilization of revenue market share by the end of 2014, so we are – very pleased with launch of 3G in Algeria.
Ivan Kim - VTB Capital
Basically in other words so falling to 5%, 6% reduction in revenue, in the second quarter its 5% for that and I mean, year-on-year and now sequential 5% reduction in the third quarter. So the fourth quarter would be a mature improvement against that or – because I understand that you are now at (inaudible) but I am also comparing year-on-year here.
So they will be material sort of pick up in the revenue?
Andrew Davies
We are, let me repeat, we expect that we will stabilize our revenue market shares by the end of 2014.
Ivan Kim - VTB Capital
Thanks.
Jo Lunder
Right. Thank you, Ivan.
Can we have next question please?
Operator
Our next question comes from the line of Alex Balakhnin of Goldman Sachs. Your line is open.
Alex Balakhnin - Goldman Sachs
Yes. Good afternoon.
Two questions from me, if I may. First is on the tax implication for your CapEx, I was just wondering given more to ruble debt versus USD or Euro exchange currency, does that changes change your plans for the investments in Russia, do you – the plan to install the same amount of the ruble coupon or you plan to basically adjust your spending on CapEx.
My second question is on the cost base and margin evolution in the market share, with the revenue decline I would probably expect to bit more pressure on your profitability, suggesting that you had some cost efficiencies. In your Russian, can you truly explain what were the cost cutting measures you had with your Russian business, that’s it from me?
Andrew Davies
Okay. Thanks, Alex, I'll take these again.
So I think on the CapEx side of things, across the group generally we actually spent in lot of CapEx in dollars within Russia specifically, I would said broadly half as our CapEx is dollar denominated, we hedge pretty far into the future and so right now we have no explicit plans or considerations to change our investments thesis based on what's with currency markets. And then, coming back to your second question, as I explained at the last quarterly results presentation, you know, we've got a very, very broad based cost and action efficiency deficiency program running within Russia.
Its something that and I am actually pretty involved in as the group CFO and its got heavy emphasis from other people within our management board at the group level as well and we're looking at everything. So there is lot of focus on post efficiency and streamlining things which goes hand in hand with a lot of what we're trying to do to improve the customer experience because in my experience if you streamline processes that help you know the customer experience and generally you can also improve your cost performance.
And we're also looking at some structural cost and what we trying to renegotiate rental cost and leasing cost and things of that nature. And so we really are kind of leading most stone unturned when it comes to asset and cost efficiency in Russia.
And then in addition, in Russia as in Venezuela [ph] other operating units going forward we then start looking to becoming much more of a digital business and look to reduce our reliance going forward, structural and physical infrastructure and become ultimately a much more virtual operator. But you'll see much more of that in 2015 as we firm up our strategies and plans in that area.
Alex Balakhnin - Goldman Sachs
Okay. Understood, thanks so much.
Jo Lunder
Thank you, Alex. Can I have next question please?
Operator
Thank you. Our next question comes from the line of Jean-Yves Guibert of BNP Paribas.
Your line is open.
Jean-Yves Guibert - BNP Paribas
Yes. Thank you very much.
I've got two questions if I may on Italy, first one if I may coming back to your October statement about when you commented that you held discussion about the 50-50 joint venture in Italy, which is now completion being I think being reached, the statement precisely refer to a 50-50 joint venture. So could you whether I mean, comment whether was there any other type of ventures that are possible for section that could have been discussed and whether there are still potentially under discussion.
And my second question is, although it is still in its infancy whether there is any impact in terms of revenue and EBITDA on the wholesale basis from the introduction of your NVA agreements with postpaid mobile, so whether there have been any impact in Q3 or it’s a far to see any impact here. And then if you can provide a bit more insight in term of the commercial settlements which obviously benefited both I mean, in Q3 for those rated to Q3 but also it looks like you've based different some commercial settlements in relation to Q4 but accounted for in Q3 and these accounted for something like– between $45 million to $50 million.
So could you give us any color on the nature of this settlements, whether there is any recurring possibility and what we should expect therefore going forward? Thank you very much.
Jo Lunder
All right. Let me pick up the first one and then Andrew will talk a bit about the second part of the question both relating to Italy.
Yes, as you saw in the release we confirmed that we had held discussions with the party to draw 50-50 joint venture in Italy, unfortunately there is no conclusions as of today to these discussions. Of course we are continuing to explore value adding transactions and generally we are very much in favor of the market consolidations.
But it takes two to tango and right now we are looking at WIND in Italy on a standalone basis. We have successfully refinanced them this year.
We have strong team in place. We have the strongest band.
We have the highest Net Promoter Score and I think frankly speaking that that we have sustainable model there and that part of what you are doing now you also saw in the release today we planning out to sell of the towers hopefully in the first quarter of next year to strengthen the balance sheet, to reduce the debt. So we are taking an independent strong view on WINDS in this early market and unfortunately the 50-50 discussions we had will lead to fair conclusion at this point in time and its I think its unsuitable to give the details of the different structure and the different issues that was discussed I think they are probably the conclusion its the more important part of your question on and maybe Andrew you could give a little bit of color on the other thing.
Andrew Davies
Yes. Sure.
So first of all let me address the settlement questions. So from a legal perspective I am unable to give them more color and detail on the nature of the settlement and to who there was.
What I can say again to the last part of that particular question is that they are genuinely one-off in nature and you should not expect them to recur in Q4 or anytime going forward from2015 onwards. With regards to your question on the NVO, we implemented the deal with postpaid in September.
We had small number of new customers come on to the WIND Italy network in the months of September, but the existing customers that postpaid had which (inaudible) NVO agreement with another network if there is no forced migration of those customers will have to go into a sharp take out their existing SIM card put it in WIND Italy SIM card and so there will be a very long tail to the migration of postpaid existing customer base.
Jean-Yves Guibert - BNP Paribas
Okay. Thank you.
Andrew, so if I may just quick follow up on the existing roam I think is 3 million existing postpaid mobile subscribers, so there is no mechanism for them to shift from the I mean, the existing their current networks on 2G the WIND network is that correct?
Andrew Davies
Well, it depends what you mean by mechanism, its voluntary, the mechanism they have to go into a – they have to get a new SIM card.
Jean-Yves Guibert - BNP Paribas
Okay. Okay.
But is the other – the SIM card (inaudible) they can just adopt any new or renew any services on the existing SIM card, you mean that those type of subscribers within the…
Andrew Davies
The SIM card for another operator, right. That SIM card is not going to work on our network.
Customers can choose incoming, but there will be a, you know, it will be natural migration over time, it will be not any kind of forced migration.
Jean-Yves Guibert - BNP Paribas
Some customers can decide to stay on the other network?
Andrew Davies
Clearly.
Jean-Yves Guibert - BNP Paribas
Okay. Thank you very much.
Andrew Davies
Thank you, Jean. We have time for one more question.
Operator
And that would be from Dilya Ibragimova of Citigroup. Your line is open.
Dilya Ibragimova – Citigroup
Hello, hi. This is Dilya from Citi.
I just had few questions please. One is on the potential use of proceeds for – there have been questions before early on potential payment of the Russian debt, but my question particular is when you guided that the interest cost will be reduced by approximately $0.7 billion following the transaction, refinancing in Italy and repayment and they've – and the progress that reduction of by $4 billion, what that exactly did you have in mind or when you had the – when you released the number, so that’s first question.
And second question is on Pakistan, the margin was very weak in the third quarter, so I just wanted to ask whether there are any one-off in the third quarter and what normalized EBITDA margin would be going forward in Pakistan? Thank you.
Andrew Davies
Yes. Thank you.
I'll take those questions. So, when we clearly – we have a lot of debt and lot of different debt instruments that we can repay in terms of proceeds from Algeria and again I am not going to make a decision on what that is, well that’s going to be – closer to the point in time and look at where the market is at and where we are trading.
But you know if you look at excess that we had refinancing Italy earlier this year, and then you know you plot kind of basic yield curve compelling those Italian bonds versus some of our other debt instruments its pretty clear that we've got a lot of expensive debt by today's market standard. So I think we've got plenty of opportunity to yield the kind of interest savings that we discussed when we announced the Algeria deal.
And then – and also the second part of your question Pakistan, no, there aren’t any real one-off cost in there, I mean, there is a little bit of timing I suppose in the sense that we discussed at the same quarter results, we need to have net, we need to complete the network modernization program and we needed to recover the network side of thins. And so we actually got a lot of CapEx and OpEx in the quarter resulting from that fixing of the network and that’s the end to results in the revenue and pick up which we expect to come later on once the network performance is improved and we see that customers kind of perceive at that improvement is out there.
The other thing I would say is that, everybody in Pakistan right now is suffering from slightly elevated network costs because there is so much color outage in the country. I think some of our competitors talked about that and so we're all very reliant upon diesel and things of that nature which is much, much more expensive than being reliant on that go grid.
Jo Lunder
Okay. Thank you.
I think I am getting – that wrapping up the call. Again thank you for the continued interest in VimpelCom and also thank you for participating on our result conference call today.
Clearly if there are more questions that can be answered today, please contact Investor Relations and the team here in Amsterdam. We are also hoping that some of you will participate in the (inaudible) on December 2, and clearly I am really looking forward to seeing you on February 25 in London where we will do the in person presentation of the year end numbers, and if I don’t see you before that, I wish you all a good day and good period and with that I close the call.
Thank you very much.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program.
You may all disconnect. Everyone have a wonderful day.