Nov 6, 2016
Executives
Bart Morselt - Head, Investor Relations Jean-Yves Charlier - Chief Executive Officer Andrew Davies - Chief Financial Officer
Analysts
Roman Arbuzov - UBS Alex Kazbegi, - Renaissance Capital Herve Drouet - HSBC Wissam Charbel - Farallon Capital Europe Igor Semenov - Deutsche Bank Ivan Kim - VTB Capital Igor Goncharov - BCS Global Market Stella Cridge - Barclays
Operator
Bart Morselt
Yes, Thank you. Good morning and good afternoon, ladies and gentlemen.
Welcome to our Conference Call on the Third Quarter Results. Today, I'm pleased to be joined on this call by Jean-Yves Charlier, our Chief Executive Officer, and Andrew Davies, our Chief Financial Officer.
The structure of the presentation mirrors the previous quarterly results with Jean-Yves presenting the Group's strategic and financial highlights for the Group and Andrew focusing on the countries and the Group's operational and financial performance. He will then close with guidance and thoughts around dividends, and thereafter we will do the usual Q&A session.
Before getting started, I would like to draw your attention to the disclaimer. The forward-looking statements made during today's presentations involve certain risks and uncertainties.
These statements relate, in part, to the Company's anticipated performance and stated performance targets for future periods, future market developments and trends, expected synergies and timing of pending transactions, including the Italy joint venture, and the Company's 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-GAAP financial measures presented today, can be downloaded from our website. I will now hand over to Jean-Yves, who will run you through the Group highlights and the financial highlights of the third quarter.
Jean-Yves.
Jean-Yves Charlier
Thank you, Bart and good afternoon. Let me start by focusing on the highlights for the quarter.
We are pleased to report that the third quarter 2016 results are in line with expectations with financial results particularly strong in Pakistan and Ukraine, offset by continued weakness in Algeria. Mobile data revenues continued to grow at a strong pace, by 28% year on year in the quarter.
In terms of operating cash flow, the margin was at a healthy 24.5% in the third quarter. As a result, our 2016 guidance is confirmed, abide at the lower end of the range for service revenue and underlying EBITDA margin, as we outlined in August during the second quarter results presentation.
We also confirm that the CapEx ratio for the year is trending towards the bottom of the range at 17%, resulting in an expectation of a strong operating cash flow margin for the year. During the quarter, VimpelCom also made progress on its strategic priorities, as we focused on two major in-market consolidation transactions.
On the 1st of July, we closed the acquisition of Warid in Pakistan with financials consolidated, starting from this third quarter. We are delivering the first synergies and saw both revenue and EBITDA growing by more than 44% year on year in Pakistan.
On the 1st of September, the European Commission cleared the Italian transaction and the Ministry of Economic Development in Italy did the same on the 24th of October. With all the regulatory conditions satisfied, we expect to complete the transaction shortly, and we are planning to update you in more detail on the call that we will organize after the closing.
Furthermore, as we are preparing for closing, WIND reported a strong performance in the quarter, returning to mobile service revenue growth of 2% and EBITDA growth of 10.9% year on year. Not only is the integration plan ready for day 1 upon transaction completion, but yesterday we also launched our digital engagement platform, branded [indiscernible] in Italy as a first step in our digital strategy.
In September, we also welcomed the increase of our free float to above 20% as a result of the placement by Telenor of a portion of its equity stake in VimpelCom. Finally, we are announcing an interim dividend of $3.5 per ADS, expected to be paid on the 7th of December with the record date set at the 18th of November, in line with last year.
Let me now spend the following slides on these major corporate transactions, as well as on the progress of our strategic initiatives during the quarter. In September, we announced that we had doubled the free float of VimpelCom to 20.1% as Telenor sold $164 million ADS, reducing its stake after the green shoe from 33% to just below 24%.
In addition to the share sales, Telenor has also issued an exchangeable bond of $1 billion, which could potentially increase the free float further. Medium term, assuming a full conversion of the exchangeable bond, the free float of VimpelCom would increase to 32%.
VimpelCom not only did not receive any proceeds from this offering and Telenor sales of ADS's will not result in dilution of the Company issued in outstanding shares. As VimpelCom management, we welcome the increase to the free float, which has widened the investor base and increased liquidity.
On Italy, we are not only pleased to report that we will be closing the transaction shortly, but also pleased to report strong performance in the quarter, ahead of the closing milestone. Mobile service revenues were back to year on year growth in the third quarter after 20 quarters of decline with an increase this quarter of 2%.
We also delivered a strong EBITDA margin of 40.8% in the quarter, which is the highest since VimpelCom acquired WIND in 2011. If we focus on the WIND balance sheet and specifically at leverage, our Italian operation now has a net debt of €9.6 billion, with a ratio of 5.6 times EBTIDA.
As VimpelCom management, we obviously welcome these strong results ahead of the merger with 3 Italia. Focusing on the regulatory process for the merger, we are pleased to report that we have obtained the green lights from both the European Commission, as well as the Italian authorities, in particular from the MISE, the Ministry of Economic Development.
The October clearance from MISE was the last key regulatory step required for our transaction with Hutchinson in Italy. Now all conditions are satisfied and we expect to complete the transaction shortly.
Upon closing, we will change Italy's accounting method to equity accounting and no longer as an asset held for sale. As I mentioned earlier, we plan to update the markets in more detail on our plans with the joint venture soon after closing.
As VimpelCom management, we are pleased. Obviously we have obtained the regulatory approval when many doubted that this could be achieved.
I will now turn our attention to the progress we are making to transform the cost base of our Group. This strategic initiative is a cornerstone in improving VimpelCom's cash flow profile and allowing the Company to return to a meaningful dividend policy.
In the past 12 months, we have reduced headcount by 14%, of which line management was reduced by almost a third. We have optimized real estate across the globe by some 8%.
We have set up global shared services in Russia, in Ukraine and these will be covering not only Russia but the seven Eurasia countries and Algeria. A third global shared service center in Islamabad, covering Pakistan, Bangladesh and our headquarters operation, is planned to go live this month.
We also continue to globalize our procurements with the value of contracts globally managed rising to 40%, plus the ForEx exposure has been reduced by 61% through fixed rates and invoicing in local currency. At the same time, we reduced inventories by 18% and warehouse space by some 7%.
Bottom line, the growth savings in the first nine months of 2016 amounted to $280 million and the LTM CapEx to revenue ratio was in the third quarter below 17%. I will now hand over to Andrew to take us through the financials in more detail.
Thank you.
Andrew Davies
Thank you, Jean-Yves, and a good afternoon from me as well. This quarter's financial performance is in line with both expectations and the guidance we provided for 2016.
Our reported results in the third quarter were still impacted by currency headwinds in many of the countries where the Group operates, although there was -- with a softening trend compared to the last few quarters, as I'll discuss in more detail in a little while. Reported service revenue showed a 3% year on year decline, while on an organic basis it grew by 0.6% year on year, driven by strong performance in Pakistan and Ukraine, which more than compensated for continued weakness in Algeria.
Mobile data revenue continued to grow at a double digit pace, posting an organic growth of 28% year on year. Underlying EBITDA also grew organically by 0.6% year on year, leading to a stable margin of 40.6%.
Our last twelve month CapEx to revenue ratio for Q3 is 16.7% and the operating cash flow margin was 24.5%, a 1.1% percentage point growth year on year. Finally, as Jean-Yves already mentioned, we've confirmed our guidance for 2016, and I'll also discuss this in more detail at the end of the presentation.
Slide 9 has a slightly different summary of our key financials, and here I want to focus on operating cash flow margin, which grew to 23.6% when measured on a rolling last 12 month basis, 1.7 percentage points up compared to the same period last year. This is important as it demonstrates that despite the weakened currencies in our footprint, we are returning to meaningful cash flow generation and I'll discuss this in more detail later in the presentation as well.
Moving on to slide 10, as you know, the geographies we operate in expose our financials to currency volatility and trends, given that we report in US dollars and are a US dollar based stock. Our VimpelCom coin, which is the revenue weighted index of the currencies in our footprint against the USD, is showing signs of recovery, even if it is still relatively weak in a historical context.
In the third quarter this year we were some 5% above the lowest ever level, which is recorded in the first quarter of this year. We were down only 4% on a year on year basis.
The result of this is visible in our reported revenue trend, which now shows only a low single digit year on year decline compared to many recent quarters where we had recorded double digit year on year declines. Clearly, if currency remains stable for the next quarter, the VimpelCom coin for Q4 will, for the first time in quite a while, show a year on year improvement against the US dollar, which would in turn help our reported financial performance.
On slide 11, we provide the usual breakdown of the evolution of our service revenue, both in reported and organic terms. On a reported basis, our Q3 2016 service revenue was still impacted by adverse foreign exchange movements, although that effect is moderating, resulting in a 3% year on year decrease in reported service revenue with the year on year translation impact of foreign exchange rates and service revenue being a negative $167 million.
Looking at the composition, you can see on the top chart that the continued strong growth in data and MFS revenue more than compensated for the decrease in voice revenue. In particular, mobile data revenue showed strong growth of 28% year on year on an organic basis, driven by the continued focus on monetizing the deployment of various high speed data networks.
In the bottom chart, you can see that on an organic basis service revenue grew marginally by 0.6% year on year. In the geographical breakdown of our service revenue development, you will find that the pressure on service revenue, mainly in Russia and Algeria, is more than offset by growing service revenues in many other countries, with particularly strong results in Pakistan and Ukraine.
The bottom chart also shows the contribution of $77 million in service revenue for the quarter coming from Warid, which we started consolidating from the 1st of July on completion of its acquisition. Let's now move on to the EBITDA and analysis on slide 12.
On a reported basis, underlying EBITDA declined 7% year on year due to both the foreign exchange translation impact of $82 million and exceptional cost of $66 million, which are related primarily to performance transformation program. On a year on year basis, this program has contributed $118 million to the underlying EBITDA improvement, broadly offsetting the short-term reinvestments in other value accretive initiatives, such as mono-brand shops, devices and network development, which totaled $122 million in the quarter and is aimed at driving future growth.
Looking at the second chart, we see that on an organic underlying basis EBITDA also shows upwards momentum of the strong results [indiscernible] more than offset the decline in Russia and Algeria. Moving to the next slide.
If we look at the Group here now, last year's third quarter EBITDA was significantly impacted by charges related to the Uzbekistan investigations by the DOJ, SEC and OM. Depreciation and amortization was down year on year by about 9%, mainly as a result of currency depreciation while in Q3 2015 we also reported higher depreciation in Pakistan due to the network swap.
Net financial expenses increased due to the $1.2 billion of GTH bonds, which were issued in April this year and the long cash interest expenses on the put option liability resulting from the Warid acquisition. Tax expenses for Q3 2016 were impacted on a year on year basis due to the change in the tax regimen in Uzbekistan, which caused the effective tax rate in that country to increase to above 50% and in addition, the year on year increase is also a result of the reversals of about $70 million of deferred tax provisions and respective withholding taxes in the third quarter of last year.
Profit from discontinued operations totaled $421 million for the quarter, in part driven by a one off derivatives gain after taxes of $185 million as a result of a fair value adjustment on call options over WIND's bonds. In Q3 2015, we reported a loss of $123 million on this line, due to a $236 million one off charge arising from the accounting treatment of the Italian towers transaction.
All in all, this has resulted in a net profit for the period of $445 million compared to a loss of just over $1 billion in the third quarter of last year. Let me now focus on net income from continued operations for Q3 2016.
If we exclude impairments and exceptional items, underlying net income from continued operations increased by $52 million year on year to $162 million in Q3 2016. For the year on year comparison, underlying net income was positively impacted by the favorable impact from ForEx of about $109 million, which is the impact of lower foreign exchange costs in Q3, primarily as a result of ruble appreciation during the quarter.
Depreciation and amortization improvement of $41 million for the Q3 2015 numbers were affected, as I've already mentioned, by accelerated depreciation in Pakistan due to the network swap. A positive contribution in organic terms from the improved underlying EBITDA of about $8 million, and also a slight improvement in the share of profit from JVs, associates and others of again, another $9 million.
And then these posted impacts were partially mitigated by a $97 million increase in taxes for the quarter, as I've just discussed, and also an increase in financial expenses of $18 million for the quarter, primarily as a result of the bonds issued by GTH earlier this year. If we now move on to the net debt evolution on the next slide, in the third quarter of this year, net debt increased by $229 million to roughly $6.8 billion.
The primary driver for this was the consolidation from Q3 2016 onwards of Warid's debt of about $363 million, while the movement in net debt for the quarter was negatively impacted also by exceptional items and ForEx aggregating to about $250 million. However, if we look at the more operational metrics, we can see that the positive contribution from EBITDA on working capital more than offsets the negative impacts from interest, taxes and CapEx.
Before exceptionals and ForEx, the net level ratio would have been about 1.8 times at the end of the quarter, while the actual ratio was 1.9 times, completely in line with the guidance for the full year of approximately 2 times. I'll now move on to the underlying net cash flow analysis.
As you can see from slide 16, we've had strong growth in the net cash flow before financing activities that we've generated from our continued operations during the first nine months of 2016. Net cash from operating activities on an underlying basis, adjusted for one off payments related to the Algeria transaction in 2015 and the 2016 settlements related to the Uzbekistan investigation, decreased by about 7%, mainly driven by the unfavorable ForEx environment.
However, net cash used in investing activities has decreased substantially following the CapEx efficiencies realized as a result of the performance transformation program Jean-Yves has already discussed. As a result, we've generated $681 million of underlying net cash flow before financing activities for the first nine months of 2016, which represents a $234 million year on year increase when you exclude flows rated to deposits.
Now let's have a look at the country performance starting with Russia on slide 17. With the appointment of Kjell Morten Johnsen as interim CEO, Fabrizio Mambrini as CFO, and Marek Slacik as CCO, we have a senior international management team in place in Russia under the leadership of Kjell, who was appointed in August 2016 as the Head of Major Markets and who has extensive experience in the country.
We will continue to drive the Company's transformation forward. In Russia we see continued signs of increasing competition in the market with pricing pressure in particular on devices and increased data allowances while the microenvironment also remains challenging.
Service revenue decreased year on year by 1% due to decreases in both mobile and fixed line service revenue. Mobile service revenue decreased by about 1% year on year, driven by lower voice and roaming revenue, resulting from an average price per minute reduction as existing customers continue to migrate to the Company's newer price plans.
Fixed line service revenue decreased by 3% year on year as a result of corporate customers continuing to change their contracts from being US dollar denominated to ruble denominated, together with lower business to consumer revenue. Underlying EBITDA, adjusted for RUB380 million of transformation costs, decreased by 5% year on year.
This decline was due to the decrease in revenue, together with increased interconnect costs on both the mobile and fixed networks resulting from growth of off net traffic, driven by the increased penetration of bundles with larger allowances. EBITDA margin showed a decline of 1.8 percentage points as a result.
In terms of NPS, which is the best measure of customer satisfaction, our relative ranking keeps on improving, positioning ourselves as the number 1 operator among the three main operators. The last 12 months of operating cash flow margin is at 22%, driven by the decreased CapEx revenue ratio as a result of both capital efficiency and a bit of phasing.
Moving on to Slide 18, in Pakistan the Mobilink and Warid integration is very much on track and the legal merger is expected to happen in Q1 of next year. At the same time, the first synergies of approximately PKR500 million from site sharing and marketing cost optimization have already been realized.
Meanwhile, Mobilink also continued to deliver strong results with double-digit growth in both revenue and EBITDA. The positive momentum in data revenue in particular continued with a strong 71% year on year growth, while MFS revenue also grew by 42% year on year.
The customer base increased organically by 15% year on year and this growth has been driven by the continued focus on 3G network rollout, simplifying the pricing offers, improving billing transparency and by further investments in distribution. Mobilink reported strong EBITDA margin, up 3.5 percentage points year on year on an underlying basis to 42% due to revenue growth and the benefits of the performance transformation program.
The last 12 months operating cash flow margin is 27%, supported by both the year on year growth in EBITDA and the decreasing trend in the last 12 months CapEx to revenue ratio. In Algeria, we continue to face pressure on results.
But at the same time, the regulatory environment continues to improve as the significant marketplace status has now been lifted. We've continued our commercial overhaul and we have launched 4G LTE with the intention to rollout the leading network in the country to win back high value customers.
An important part of this launch was also the complete overhaul of our pricing architecture, where we introduced a much simpler data centric pricing model in mid October. Mobile service revenue decreased 13% year on year for the quarter due to the suboptimal commercial decisions taken earlier in 2016.
However, mobile data revenue growth remained strong at 73% year on year. EBITDA margin remains above 50% as a result of the performance transformation program and the last 12 months operating cash flow margin is strong as a result.
That's 39%. We also distributed cash from Algeria in Q3 following the approval of dividends for a gross amount of $128 million or 48% of 2015's net income.
We now move on to Bangladesh where our operations continue to grow, both in service revenue, up 2% year on year, driven by 45% of the data revenue and an EBITDA growing at 7%, despite intense market competition. This translates into the underlying EBITDA margin growing at 0.7 percentage points year on year, driven by the revenue accretion and the performance transformation program with particular success in reducing salary costs and in also optimizing the commercial cost base.
This increase in EBITDA margin and the declining trend in CapEx to revenue ratio to 18.3% for the last 12 months led to a healthy cash flow margin of 29%. In Ukraine, we remain the clear leader in the market with more than 45% market share.
The business performance continued to be strong during the quarter with mobile service revenue growth of 9% year on year driven by successful commercial activities and strong growth in mobile data revenue of 61%. The customer base grew 2% year on year, the first growth since Q2 2015 when customers in the Eastern Ukraine were disconnected following that network switch off.
The strong revenue growth, coupled with lower interconnect costs, drove an 18% year on year increase in EBITDA leading to a very robust 55% EBITDA margin. The operating free cash flow margin in the country remained strong at 34%, supported by this robust EBITDA margin and the declining trend in network investments.
The strong cash flow generation has also enabled us to reinstate modest regular dividend payments from Ukraine of $5 million per month. Moving on to slide 22, in Uzbekistan, service revenue grew 5% year on year despite the decrease in customers due to increased competition.
The growth in service revenue was driven by increased interconnect revenue, solid mobile data revenue growth of 7% year on year and the impact of Beeline's price plans being denominated in US dollars. Our strong market position is also supported by the strengthened leading position in NPS.
The underlying EBITDA decreased 3.8% year on year when adjusted for the provision related to a supplier dispute of over $42 billion that we made in third quarter 2015. This underlying decrease in EBITDA was mainly due to the doubling of customer tax from the 1st of January this year, which negatively impacted EBITDA margin for the quarter by about 4.3 percentage points.
The cash flow generation is strong in Uzbekistan with the last 12 month operating cash flow margin to 45% and we have recently started to implement a structural approach to cash upstreaming. Let me now conclude the country sections with Italy, which is still accounted for as an asset held for sale.
Results were strong in Italy, ahead of the closing of the joint venture, which, as Jean-Yves has already mentioned, is expected to close imminently. Mobile service revenue is back to year on year growth in Q3, showing a 2% increase after 20 quarters of decline, supported by market improvements.
Mobile data revenue growth continues to grow at a double-digit rate of 18%. In fixed line, we once again saw robust performance in fixed direct customers, showing a 4% year on year growth, while the broadband customer base also grew by 3% year on year.
As a result, fixed line service revenue increased by 1.3 percentage points year on year. EBITDA growth was incredibly strong at 11% year on year, with the EBITDA margin expanding by 1.7 percentage points to 40.8%, the highest margin since 2011.
Cash flow generation continued to improve during the quarter as operating cash flow grew 25% year on year to just over €320 million, representing an operating cash flow margin of 28%. Moving on now to guidance.
So the third quarter has demonstrated broadly stable results. All the metrics, to which we have previously provided guidance, are in line with expectations for the first nine months of the year, especially on the cash flow and leverage side.
As a consequence, with today's visibility we broadly confirm our guidance for the full year, albeit, as Jean-Yves already mentioned, we anticipate service revenue, EBITDA margin and the CapEx to revenue ratio will all be at the lower end of their respective ranges. With regard to the operating cash flow improvements that we started discussing this time last year following the strategy refresh, we also confirm that we remain on track to deliver the incremental year on year benefits between $100 million and $200 million for this year and we remain well on track to deliver the $750 million annualized cash flow improvements by the end of 2018.
Now moving on to the last slide, let me conclude by articulating again how we view future developments around our dividend policy. As we've previously discussed, we have three primary conditions to fulfill in allowing those [indiscernible] to consider the adoption of a meaningful dividend policy.
First of all, the completion of the Italy transaction, which we expect to happen shortly, but explained earlier, bringing the Group net leverage to around two times. Secondly, we want to see sustained increased free cash flow generation from our operations.
Thirdly, geopolitical and macro stability, especially related to our operating currencies. With all of the recent developments that we've just discussed on this call, we now feel reasonably comfortable that the supervisory board can consider the resumption of a substantive dividend for the shareholders no later than early 2017.
In addition, and as also previously discussed, when we do resume a more substantive dividend policy, it will be linked into our operating results, so what would probably be a certain percentage rate [indiscernible] the generation of free cash flow or of net income for example with the aim being a sustainable long-term dividend stream to our shareholders. With that, we can now start the Q&A session.
Operator, please.
Operator
Thank you. [Operator Instructions] We will now take our first question from Roman Arbuzov from UBS.
Please go ahead.
Roman Arbuzov
Thank you very much for taking the question. My first one is on Russia.
So you sound quite cautious on the Russian business, highlighting increasing competition. I guess your peers would agree with that in terms of the 2016 year as a whole, it has been a pretty tough year.
But also your peers are perhaps a little bit more optimistic in terms of the future prospect and in particular, I think your peers would say as that Q3 is the likely trough for the industry in terms of the operations and financials. So I was wondering whether you actually share this view and do you indeed think of Q3 being perhaps some sort of an inflection point for VimpelCom and Russian telecom's industry more broadly perhaps?
So some color here would be very helpful. And then secondly, just on the towers, could you please give us an update on where you are in terms of potential tower deals and do you still expect to perhaps close a transaction before the end of the year?
Thank you very much.
Jean-Yves Charlier
Okay, thanks Roman I’ll start off with Russia, just giving you our perspective. I think first thing we continue to see a challenging market overall in Russia.
We think that our relative performance remains good within that competitive framework. Obviously we'll be able to judge that in the next few weeks when our competitors release their numbers, but that was certainly the case if you're calling Q1 and in Q2.
But I would be more prudent than saying that it's all upside from here. So I don't think that we have any signals right now in the business that would allow us to make that statement with a high degree of comfort.
Andrew, do you want to add anything to that in terms of color?
Andrew Davies
I think the only thing in terms of color, I think worth noting is that we see the competitive environment as definitely still being pretty intense. Devices and also either increasing data allowances for even at the higher end of the tariff structures going to forms of unlimited Internet traffic.
So I think I agree with Jean-Yves that we are right to be somewhat more on the prudent side.
Roman Arbuzov
I have a very quick followup on that one. The distribution in Russia in particular seems to be the long awaited source of upside for everybody.
I mean do you share this too? Do you think something can be done in the distribution, something significant?
Jean-Yves Charlier
I think that's a fair statement. We are looking at all options of restructuring the distribution structure in Russia.
But I think it's too early to comment on the benefit. But certainly I think help improve the conditions and the structural conditions that we see in the Russian marketplace, particularly with the unusually high level of churn that the industry witnesses overall.
I think just coming back on towers, nothing to report on this call on towers. We are continuing to work on a number of transactions and as we've always said, we're wanting to ensure that these transactions are truly value creative and it will take the time it will take.
Roman Arbuzov
Thank you very much.
Operator
We will now take our next question from Alex Kazbegi from Renaissance Capital. Please go ahead.
Alex Kazbegi
Just I appreciate again that you defined your dividend policy sort of say prudently and I understand you may not be saying much more from here, but just to understand what do you yourself think is a meaningful amount in dividends. Maybe you can comment on that one.
Second question is about Italy, the fees which the regulator is talking about additional payments for the frequencies. What is your view on that?
Do you need to take that so to say? Or do you think the portion at least, which will be passed to Iliad will be then taken by Iliad.
I mean what stage of that is? Then maybe a last quick one.
You already answered partial on distribution, but are there discussions on your asset maybe sale or split up going on or it's too premature to discuss those things? Thank you very much.
Jean-Yves Charlier
You want to start off Andrew?
Andrew Davies
Yes, thank you, Alex. I'll take the first part of that three part question.
So on dividends, I think you kind of almost answered your own question. I think we've said what we're going to say publicly for now and we're not going to give any kind of color context or informal guidance as to what we would consider to be a more substantive dividend policy for now.
I think that would be vastly premature and prejudging clearly a meaningful dialogue that we need to have with the Board on that. So I'm afraid on that one you're just going to have to do your own modeling and math.
Jean-Yves Charlier
Okay, on Italy, look, I think that the first point to make at this stage this is all speculation as to what we're going to see in terms of fees and conditions for spectrum renewal in the marketplace. I think I'd add just two comments.
First, it is unlikely if the speculations are confirmed, to have much of an impact on the merger or the cost structure of the once merged win 3 Italia, certainly from a P&L point of view. If we need to pay these out up front versus over time or annually as previously, yes, there will be a cash flow impact.
But P&L immaterial at this stage. And I just want to remind everyone that we have a binding set of contracts with Iliad for the transaction.
The only condition is the closing of the transaction. And as I said, we are expecting this shortly.
So I think that's as much as we can say about Italy on distribution. On Russia, as I said, I mean too early to comment.
We're exploring all options, including Euroset and when we have something to communicate we'll obviously do that at the appropriate point in time.
Alex Kazbegi
Okay, thank you very much.
Operator
We will now take our next question from Herve Drouet from HSBC. Please go ahead.
Herve Drouet
Yes, good afternoon. Coming back on Russia, the fact that you are a bit, let's say, more cautious maybe with some of your peers looking forward, is it because you think if there are some price moves you might be a bit less keen to follow any price move?
I mean it looks like in some regions some of your competitors are starting to indicate put and show price increase. I mean is it something that we might see happening in some regions do you think?
Or do you believe the current consumer environment is still difficult and therefore of your cautiousness. And just to come back on distributions, what do you think prevent (inaudible) anything to be done on the distribution either a particular criteria or item that makes the current restructuring of the distribution difficult from your point of view?
Jean-Yves Charlier
Okay, maybe I can start. I think, look, on Russia I'm just cautious because I don't know what would be required within the industry to see an improvement in the trading conditions of the three main players in the industry.
I mean let's not forget that the biggest challenging dimension right now is just the macroenvironment in Russia and consumer spending. So I'm not seeing any improvement on that front and hence I think that's got to be the main driver of a potential stabilization or further stabilization of the Russian marketplace.
So this is why I think we remain prudent. I think that -- and I'm not sure that we see at this stage any improvement in pricing in any one of the regions.
I think it's too early. Yes, there are some price movements, but just too early.
So look, I just want to remain cautious at this stage and I go back in saying that we think that our relative performance in the third quarter will again have been good. So it's not concerns of our underlying performance.
I'm just much more cautious about where the overall market is today and where it's potentially going to go. And until we see I think some improvements at the macro level, I just don't see why this market is going to improve in the telecom sector.
Andrew Davies
Absolutely. And I mean just as a bit of extra color, Herve, I think what we see in Moscow in particular, which you have to remember represents a good 40% of the total country's revenue pool, is one of our primary competitors in particular has been disproportionately impacted by Tele2's entry into that market.
And as Jean-Yves mentioned, we actually think in terms of relative market shares that we've had another decent quarter in Russia. And what we do see is one of the primary competitors being more focused on price aggression in order to try to counteract what their experience in Moscow.
Jean-Yves Charlier
So I supposed I'd probably end then just saying I hope I'm wrong and I hope the competition is right in being much more bullish than we are at this stage. Well, we'll see in the next couple of quarters as they unfold.
On distribution, I think nothing specific in terms of criteria to change the structure of distribution at this stage. As I said, we're exploring all options, too early.
It's obviously complex and I think there's not much more than we can say.
Herve Drouet
Okay, thank you.
Operator
We will now take our next question from Wissam Charbel from Farallon Capital Europe. Please go ahead.
Wissam Charbel
Thank you for taking the call. I just had a quick question about your statement surrounding the Uzbekistan cash up streaming.
I was just wondering if you could give us a bit more details on is that a going forward statement about future cash flows or is it about the existing cash on balance sheet and what, if any, would be withholding taxes we should factor in?
Jean-Yves Charlier
Andrew, well, talk about Uzbekistan cash up-streaming.
Andrew Davies
I think it's a little too early at this stage, Wissam, to go into specifics here. But we are looking at fully compliant, let me stress, but indirect ways of up streaming cash from Uzbekistan.
So we're not talking here about just a straightforward dividend stream and directly converting Uzbeks into dollars. So one of the things that we'd be looking at is some commodity type trading.
And within that, as we've disclosed in the 20-F of quite rigorously and very transparently what we do see in the sense of an indirect market is that the real exchange rate that exists for that kind of transaction is markedly different to the official exchange rate that we use to consolidate the Uzbek operations. So we're not going to be paying withholding tax necessarily, but there would be quite a reasonable haircut that we would take on the indirect translation of some into dollars outside of the country.
Wissam Charbel
Thank you, sir.
Operator
We will now take our next question from Igor Semenov from Deutsche Bank. Please go ahead.
Igor Semenov
This is just my question you just answered, but maybe a little more broadly, can you talk a little bit about the ability of any other operations to upstream cash to headquarters and at what kind of level? Is it kind of full EBITDA or at what level of cash flow generation would you upstream cash to headquarters from the businesses?
Thank you.
Andrew Davies
Yeah, thank you Igor. The upstreaming of cash is a topic that's of immense focus for us right now.
I think clearly from a historical perspective we've been too reliant on dividends just coming from Russia. And that's not sustainable going forward as we look towards a more meaningful dividend policy which is why I highlighted a few breakthroughs, if you like, in my discussion earlier.
So Algeria, clearly we've got the dividend arrangements with SNI where we can get at least 42.5% of the net income paid out in the form of dividends just by a majority Board vote. But as I highlighted, we actually paid out the dividend in excess of that minimum amount in Q3 and the only reason we kept it at the level we did is that there are some debt maturities and still some overdue foreign vendor payables in the country in the next 12 months.
And so the amount of cash that we've paid out in the form of dividend really did kind of fully use up the short-term liquidity that we have in that business. Ukraine, another breakthrough within this quarter.
So they fully repaid within by the end of Q2 all of the intercompany debt that we put into the business about a year and a half ago as part of funding the 3G license and the network rollout. And this quarter they've been able to resume a modest dividend flow of $5 million a month.
Kazakhstan and Kyrgyzstan, we had historically voluntarily blocked, if you will, because the legal entity structure was such that the withholding tax burden on the dividend flows was too much. That's been solved within the last 6 to 12 months, so we now feel able to upstream cash out of Kazakhstan and Kyrgyzstan and just pay a relatively modest amount of withholding tax.
And going forward, we expect that from this year onwards that we're going to be able to upstream cash out of Pakistan and Bangladesh as well. So significant improvements across most parts to the footprint, quite candidly, when it comes to the ability to upstream cash.
Igor Semenov
Right. Can I just go back to Pakistan and Bangladesh?
Then what else did you say? This year or -?
Andrew Davies
I kind of meant within the next 12 months, yes. So it didn't mean necessarily by the end of 2016, just to be clear.
Igor Semenov
Okay. And the cash that you will upstream, the main use for that would be repayment of group level debt, of [indiscernible]?
Andrew Davies
I think we've got - yes, if we start upstreaming cash on a regular basis, that then gives us much more confidence that we don't need the significant liquidity cushion to start off with. We've got it at headquarters level, so we can then start using that cash that we've already got at headquarters to repay gross debt.
And then also the future cash upstreaming will in part be used to fund what we're hoping is a more meaningful dividend policy going forward.
Igor Semenov
Right. Thank you very much.
Operator
[Operator Instructions] We will now take our next question from Ivan Kim from VTB Capital. Please go ahead.
Ivan Kim
Good afternoon. Two questions please.
First on, Italy performance, which improved a lot this quarter. I was just wondering the revenue pickup and EBITDA pickup as a result, is it totally related to markets becoming much more benign?
And what kind of trends you see there for maybe 2017? So, [indiscernible] shall we see on the standalone kind of organic sort of the basis significant improvement in pricing and the competition?
Two questions please. First on Italy performance, which improved a lot this quarter, I was just wondering the revenue pickup and EBITDA pickup as a result, is it totally related to markets becoming much more benign?
And what kind of trends you see there for maybe 2017? So [indiscernible], shall we see on the standalone kind of organic sort of the basis significant improvement in pricing and the competition?
Jean-Yves Charlier
Okay, just maybe starting with the CEO search in Russia, we're evaluating a number of internal candidates, but also completely external candidates. I think we want to appoint the best executive to take on this role.
Having said that, there is for us no rush in the sense that with the appointment of Kjell Johnsen, who is the head of the region, is a fluent Russian speaker, we have somebody that knows very well the Russian marketplace and is responsible for the Russia entity ultimately. So I think that the management structure that we now have at VimpelCom allows us to be less reactive and have the right bench strength when these type of situations occur.
On Italy, I think that the performance you see in the third quarter is a result of two things. First, I do think that the market is improving in Italy.
We are seeing improved trends and that's driving top line mobile service revenue growth. But we also see that the focus on our cost structure and our performance transformation program is yielding results and hence the EBIDTA line moving or growing even further.
So I think as we think about 2017, and as we enter into the merger implementation plan, I think that we expect quite good trading conditions overall in the Italian marketplace. Now, I remain cautious about the latter part of 2017 with the entry of Iliad and the impact that that will have on the marketplace.
Fundamentally I think there are two indicators to watch. The first is market share gains by Iliad and that I'm less concerned about.
And the second I mention is obviously the ARPU impact and that obviously has a much greater impact on our P&L than the market share dimension. But I think overall, we're really pleased to see WIND's performance being very strong at just before closing of the transaction.
Ivan Kim
Great. Thank you.
Operator
We will now take our next question from Igor Goncharov from BCS Global Market. Please go ahead.
Igor Goncharov
Yes, thank you very much I just have one small question left. Obviously you made an announcement of the dividend up $0.035 and this time you called it an [indiscernible] dividend, and although you didn't use this language before you just called it a dividend.
Is there any reason for using it this way [indiscernible]? Can we expect another dividend for the remainder of the year?
Thank you very much.
Andrew Davies
That’s a very good question Igor, thank you. I think I would answer in this way.
I think it's a more technically correct way of describing it. I mean you can't possibly declare a final dividend if you're within the financial year that the dividend relates to.
So you should always more accurately describe a dividend paid within the year as an interim dividend. Now if you then wanted to join up a couple of other dots, and interpolate to that also means that there may be a final dividend in Uzbek in 2016 then that's up to you.
I'm not going to give any further guidance at this stage.
Igor Goncharov
Thank you very much.
Operator
We will take our next question from Stella Cridge from Barclays. Please go ahead.
Stella Cridge
Hi, there. I just wanted to ask about the debt maturities in 2017.
So you've got $2.8 billion in total. And I was just wondering on two specific points what might the options be with regards to the Alpha Bank loan?
Would you like to keep that in place if possible? And on the other dollar debt, do you think you might try to replace that with some local currency debt as part of your strategy or were you thinking about maybe refinancing some of the Eurobonds and the dollar market.
Andrew Davies
Thank you very much Stella. I think we've had a number of discussions over several quarters about how we still need to further optimize our capital structure.
So yes, while we've got the leverage ratio broadly in the right ballpark, there is still some work that we need to do on the debt structure with regard to maturities, structural issues, currency mix, et cetera. And I think going forward what we are going to look to do is to move more towards local currency funding, matching the debt structure that we have more evenly with the EBITDA generation, or maybe the operating cash flow generation.
We're also going to look to remove all of the structural impediments that we currently have within the structure by which I mean mainly the upstream guarantees. And we are already hard at work on that.
So I expect to deal with all of the maturities that you referred to, probably within the next two to three months. And the situation is slightly more acute than you mentioned, because we also have the RCF maturing in the early part of next year as well, which at the moment is completely undrawn.
But we remain confident that we're going to be able to refinance all of these things in an away which makes much more sense going forward and which will further optimize the debt structure.
Stella Cridge
And no comments specifically on the Alpha Bank loan?
Andrew Davies
We're going to look at that - that's all part of it. I mean, we want to keep that loan in place, but maybe we - or keep certainly a facility in place, but maybe we look at that being part of the old currency matching exercise as well.
Stella Cridge
Okay, thank you.
Jean-Yves Charlier
I think with that we'll try to close off. I would like to thank all of you very much for your attention.
Any follow-up questions, feel free to contact us at IR here in Amsterdam. And for now, I wish all of you a very nice day and say goodbye.
Thank you.