Yahoo Finance VEON Ltd. (VEON) Q2 2019 Earnings Call Transcript
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VEON Ltd. (NASDAQ: VEON)
Q2 2019 Earnings Call
Aug 01, 2019, 3:30 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Nik Kershaw
Morning, ladies and gentlemen. Welcome to VEON's second-quarter results presentation. I'm Nik Kershaw here, head of investor relations. I'm pleased to be joined on the line with Ursula Burns, our chairman and CEO; Trond Westlie, our chief financial officer; and Kjell Johnsen, our chief operating officer.
For the presentation we'll start with an overview of our financial year -- for the first half of our financial year and our business priorities from Ursula. And after that we'll get an operational overview for the second quarter at the country level from Kjell. And then Trond will give a review of the financial results and our outlook for the balance of the year, after which Ursula will conclude with some final remarks. And then obviously after that we'll move on to the Q&A.
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Just before we get started, I just like to remind you that we may make some forward-looking statements during today's presentation which involves certain risks and uncertainties. These statements relate in part to the company's anticipated performance and guidance for 2019, future market developments and trends, operational network development and network investments and the company's ability to realize its targets and commercial and strategic initiatives including current and future transactions. 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 include reconciliations of non-IFRS financial measures presented today can be downloaded on our website.
And with that I would like to handover -- the call over to Ursula.
Ursula Burn -- Chairman and Chief Executive Officer
So thank you, Nik. And good morning everyone. And thanks for taking the time to dial in for our interim results announcement. As you are aware, I have been in my role as CEO or executive chairman for the past 18 months or so.
As I look at VEON today, the business has seen significant positive change over this period. And we now have a stronger grasp of the business and a clear understanding of our investment case. Our investment case is first and foremost built around strong operational execution. And I think our track record over the past four operating periods are evidence that we are making clear traction in this regard.
Secondly, moving to a more appropriate group structure remains a priority for us. And while this will be an ongoing process I think that the recent progress with GTH again shows that we are moving forward in this regard. We believe that a simplified and streamlined group will allow us to unlock value for shareholders over the medium term. And we'll continue to look at ways that we can achieve this.
And lastly, managing an appropriate capital structure is vital to our success as a group. This is a balance between investing in capex for the core telcos -- telecoms business, managing gearing at the group level, investing in new growth areas and returning cash to shareholders through dividends or buybacks. Now if we look at Slide 5 in our results pack you will see for the interim period organic revenue and EBITDA were up 7.4% and 10.7% respectively. Encouragingly we are tracking ahead of our guidance at the interim stage.
Our guidance on equity free cash flow remains at around $1 billion for the full year. And here we remind you that this does not include the impact of the tax payments associated with the GTH MTO process in Egypt. Trond will go through this in more detail during his presentation. Financial metrics in the second half of 2019 are more challenging, and for this reason we would caution against extrapolating first half financial trends for the full year.
That being said, there is directionally some upside to both our revenue and EBITDA performance as we move into H2. Reflecting on this performance the board has approved the distribution of an interim growth dividend to our shareholders of $0.13 per share with a record date of the 14th of August, 2019, compared to $0.12 declared in quarter 2 of 2018. Moving on to our strategic priorities, first enhancing our core. We continue to invest across our markets, improving both data capacity and coverage.
While market conditions in Russia remain challenging, the strong results from Ukraine and Pakistan ensured a balanced performance for the group. We continue to target cost efficiencies both at the head office as well as across our operating companies. In this regard we are on track to achieve our 25% reduction in head office costs for the full year. And the cost intensity ratio for the group improved by 2.3 percentage points organically year over year in the first half.
We continue to actively manage our portfolio. And I'll give you a little bit of cover on the GTH process in more detail in the next slide. Lastly, investing for future growth. Here in particular we are making good progress with JazzCash.
And we are stepping up investments on this to take advantage of the big opportunity that Pakistan presents with its 225 million people, many of whom lack access to basic financial services. I'd like to take a moment just to talk to you a little about the GTH process. As you saw, the announcement that we released on June 26th, this was a collective process during which we worked closely with various authorities in Egypt to put us in the best possible position to get a successful outcome that benefits all stakeholders. While we are not yet in a position to have a definitive view on the MTO, we are optimistic about the outcome.
We expect to make an announcement on or around the 6th of August on the MTO process. With that I'd like to hand this over to Kjell who will take you through our operational results by country. Kjell?
Kjell Johnsen -- Chief Operating Officer
Thank you, Ursula. I'm very happy to report on overall very good numbers. And I like to take you through some of the key operating companies. Let me start with the biggest one in Russia where we would say that the operating environment is very challenging.
We are executing on the strategy of optimizing our monobrands in a bid to focus on value creation in the market rather than gross adds. This is still giving results. We see ARPU still increasing but the growth coming down. We are also executing on strengthening our networks to build a more robust position in Russia.
The overall target going forward for the management of Russia will be to stabilize the customer base in a fairly challenging market. In the fixed area, I'm happy to report that for the first time in many, many quarters we are back to some growth. And that is due to a effort over quite some time to upgrade our city range and our last mile accesses to businesses, leading to for the first time in many quarters growth in fixed in Russia. The challenge going forward will be within the mobile market where we do see very active campaigning toward price points on flat rates.
And we are still trying to drive the market toward value here by being relatively predictable. But we think that this is going to take a bit of time before the turnaround comes in the overall mobile market of Russia. We expect to stabilize the customer base and move -- try to move the market back toward some ARPU growth over time. When it comes to Pakistan -- to Ukraine, we're very happy to report solid performance.
Ukraine, Pakistan, Uzbekistan and Kazakhstan are markets where we can play quite a leading role in developing the overall markets. We are taking that responsibility and driving the -- setting the market conditions in the Ukraine. That leads to value creation and growth. Some of these countries have relatively high inflation and we need to compensate for that over time, which is the cost that we put in front of ourselves.
Kyivstar has developed a strong 4G network which came a long way already last year. We are continuing to build out capacity and coverage. And we are also now increasingly putting some effort into developing our fixed line since we are a key overall telecom operator in the country. We have a quite big development or capex program pushed out into the Ukraine.
So I'm pretty sure that we will have a strong backing for continued good performance also into next year. We have very good news in terms of the ability to upstream cash from the Ukraine. The central bank has liberalized the market, giving us the opportunity to take out our profits from the Ukraine without the limitations that we have in the past which is of course a solid contribution to the overall group. In Pakistan we are again, like I said, executing as market leader.
We are well under way on the 4G. We see that we are performing good, relative to the other main players in the markets. We have had a lot of external factors influencing the business, the suo moto and the administration fees. The suo moto of course was helpful to our numbers for some period of time and has been abolished.
But we are also seeing the underlying growth excluding the suo moto coming in with very healthy numbers. So the secular growth of operation in Pakistan is of course helping us in the long run. And our ability to perform versus competition seems to be at the same strong level as it was in the previous quarters. Coming over to Algeria.
Very challenging from the political thing. We are working in a market full of turbulence. We have been able to develop our network resources in a decent way over the last couple of quarters. The turbulence has actually net-net been able to take away some of the obstacles we had in the past, but it's still a difficult landscape to navigate.
Compared to competition, we do see the earnings announcements of others that we have had a good quarter. And we are relatively satisfied with the overall development in Algeria. Although of course we would have liked to see more stability and an economy coming back to growth. Bangladesh has moved from being a drag in our performance to now showing very strong numbers.
We see improvements quarter over quarter, leading on to the growth figures of this H1 with 5.4% top-line growth. This is down to a very surgical approach of where we apply our capex. The Bangladesh management team has done an excellent job at providing the capex where it gives good return on our investments. And we are now more hopeful that we will see positive trends staying on for some time.
It's still a complicated market from a regulatory point of view, but we have seen a good ability of navigating those obstacles over the last year or two. There are some developments in Bangladesh that we have to relate to, its introduction of the S&P regime, which is going to have some impact to our business. But net-net, it should be positive for Bangladesh. Uzbekistan, another one of those markets where we execute the strategy as market leaders.
We have strength in the organization there, quite significantly. We are executing well on driving ARPUs up in the market. We are far ahead of the plans of the 4G rollout, so we are building strength in the position in Uzbekistan. And Uzbekistan is also one of those countries where we have secular population growth.
So it's a long-term bet that has good potential for long-term growth. We also see that the authorities of the central bank are handling the reserve situation very well. So we are able to upstream money out of Uzbekistan, which was of course not the case if you go back two years ago. There are some tax effects that we have to relate to here.
At the end of last year there was an excise tax put in place, which cosmetically leads to negative numbers for us on the top line. At EBITDA it evens out. The good news is that while introducing the excise tax, the authorities also reduced the SIM tax from UZS 4,000 to UZS 2,000, which is a positive step. So overall, we will continue to advocate a better structure of the tax system in Uzbekistan.
And net-net this is an improvement over time for VEON. That will take me through the key OpCos, so I'm happy to take any questions later on if you have. Trond?
Trond Westlie -- Chief Financial Officer
So going to the financial results. We are delivering another good quarter with our second-quarter 2019 results. The total reported revenue is $2.3 billion. That is seven and a half percent organic growth and slightly below 0 or flattish year over year in dollar terms.
We are also reporting in EBITDA. If you look at same reporting level pre-IFRS 16 of $866 million, that's 11.1% organic growth year over year and 1% reported growth year over year. The reported post-IFRS is higher due to changes of accounting policies, which is just short of $1 billion, which is a reported growth of -- just above 16%. A couple of specifics this quarter.
We have a revenue other income of $38 million coming from Kazakhstan and in the EBITDA that flows through. But in addition to that, as a result of the GTH supplement on taxes, EBITDA is charged with $27 million. So the net effect is limited on the EBITDA, but it's $38 million effect on revenue base.Going to the equity free cash flow pre-IFRS, that's just short of $250 million. That includes all the three effects I mentioned -- or the two effects I mentioned on the Kazakhstan of $38 million.
It's the first payment of taxes in GTH with just above $50 million. And in addition to that, it's including the payment, a second payment from Ericsson of $175 million. But if you look at the effect year over year and the cyclicality of the year, it really follows the flow as previous years. Reported post IFRS numbers is $338 million.
Going then to the revenue and EBITDA development by country. We see that Shell has just improved its Pakistan and Ukraine driving the growth. Pakistan, a very good market. But also one caveat, just a small caveat in it, suo moto is a part of the second-quarter number in April, but not in May and June.
On Ukraine, we do have, as also as Kjell mentioned, strong data-led growth that drives the revenue development. On the other side of $60 million in gross receipt, it's the Kazakhstan element and is giving the high number of $60 million. That leaves us on organic $2.439 billion. ForEx effect is $179 million.
It's actually even though it's high, it's actually much lower than it was in first quarter. Of course, the first-quarter number were just below $300 million. So it's not healthy. We're getting close to half effect of quarter-over-quarter effect on the revenue side.
And that of course drips through to the EBITDA and cash flow. On the EBITDA, same trend line. As we on the revenue, Pakistan and Ukraine is driving the development. And in other parts KaR-Tel and the tax element is also driving on the other side, so same trend lines.
On the Russia side, as Kjell mentioned as well, a challenging market. Some of the effects is of course the VAT change that has happened, as well as the national roman calculation that will have some effects on the quarterly numbers on Russia. If you look at then the next page on revenue and EBITDA by product, the data revenue is driving the organic growth, and it's really strong growth. We see an organic growth of more than 22% in the data revenue.
That means the organic part of it and then the reported part is about 14% on the data revenue growth. If we then go to the EBITDA a moment, we see that service revenue is going up, $106 million. And cost is just going up, 11%. And there you actually see the effect of the cost intensity improvements as we have done in the second quarter.
We're going down with cost intensity of 2.7% year over year in second quarter. And we're on a good trajectory to actually deliver on our longer-term plan of 1% a year. That also leads to a margin increase, so the $951 million is actually a margin increase from the -- from up till 38.3%, that's a 0.6% margin increase better than last year. The ForEx effect on the EBITDA is $86 million.
If you actually deduct the $86 million from the $951 million, you get the $866 million. And that means that going from last year of $857 million, it's actually covering for all the currency effects, the improvements of efficiency together with the revenue increase. Going then to the overview of the income statement. Starting on the EBITDA level.
We have the normal three columns. We have the reported second-quarter '19, we have a pre-IFRS 16 to be -- have numbers comparable to the reported number of '18 in the third column. And as you can see on 2019 in the mid-column, $866 million, as I just mentioned, is actually even with the reported number last year in U.S. dollars.
Depreciation goes a bit down compared to last year. And that leads us as an operating profit of pre-IFRS of $449 million compared to the $383 million last year. If you look at the finance income and expenses comparable to last year, $153 million, down due to leverage decline, meaning that we paying less interest, slightly countered by the change of hedging that we did last year to increase our ruble denomination. And as a result of that that interest cost of course is a little bit more expensive.
But that leaves us at profit before tax of $285 million in pre-IFRS numbers and reported number of $256 million. If you look at the pre-IFRS 16 numbers and compare them to 2018 numbers, it's actually an increase of more than $124 million year over year. In the tax line, on 2019 there are two adjusted effects. One is $29 million coming out of the settlement in GTH this quarter.
And the second one is an adjustment of a deferred tax asset as we had in the headquarter that has been written down with no cash effects. That leaves us at $187 million on pre-IFRS number and $182 million in the second quarter reported. And net profit attributable to shareholders according to second-quarter '19 reported number is now $70 million, up from $142 million of loss last year. If you then go to the cash flow slide, you see that from an operational view every country is contributing positively to the operational cash flow.
Of course headquarter is a cost element, as we mentioned before, and we see the evolvement of working capital is a positive one, driven by -- mostly driven by the Ericsson, countered by the supplement of GTH. And then, interest tax and others, I will come back to that on the next page. On the next page is the usual net debt flow. Starting the quarter or -- starting the quarter we had a debt of -- just shot of $6.2 billion.
You see the normal effect of EBITDA, working capital, financial charges, taxes and capex really driving the evolvement now specifics beyond the three elements that I mentioned in this. And that leaves us at a net debt of $6.1 billion, slightly down from end of first quarter and still a gearing ratio of 1.7. Going then to the guidance. And in terms of our financial guidance Q2 was another strong quarter for the group operationally, with both revenues and EBITDA before exceptional items trading above the guidance points we communicated at our full-year results 2018 presentation.
And as a result, the group performance achieved during the first half leave us directionally trending above our guidance points of low single digit organic revenue and low to mid-single digit EBITDA growth. However, the second half of 2019 looks more challenging with little or no sign of competition easing in Russia, Pakistan and Algeria. And persistent headwinds of macro factors and changes in local tax regimes across many of our markets. Equity free cash flow guidance remain at around $1 billion for the full year, which includes exceptional items like Ericsson and KaR-Tel.
But please also note that does not include the impact of the tax payments in GTH in Egypt. Underlying this is a long-term run rate of equity free cash flow generating by our operating businesses of around the $800 million, which I discussed in some retail during full-year 2018 results in February. As before, I will caution that equity free cash flow remains depended on the movement of our functional currency against U.S. dollars which we cannot control.
However, we continue to mitigate this through things we can control, particularly cost intensity reduction and driving growth in services across our operating companies. So with that I hand it back to Ursula for her closing comments.
Ursula Burn -- Chairman and Chief Executive Officer
So thank you, Trond. And let me conclude today's call with four final comments. The first half of 2019 was a period of strong operational execution during which we met our targets and we delivered on our commitments to shareholders, both in terms of financial guidance, which we are reconfirming today, and returns through our dividend. This puts us on a strong footing as we enter the second half of the year in which financial metrics are expected to become more challenging.
Second, cost control is fundamental to how we manage our business both at the group level and throughout our operating companies. Here I am pleased to see that our commitment to reducing organic cost intensity is yielding early results, underscoring our ability to operate a lean efficient group for the benefit of our stakeholders. Fundamentally to this, thirdly, we are moving toward a simplified corporate structure. And ongoing progress in restructuring GTH is an important milestone.
And fourth, we are aware of the need to develop and expand our services in order to drive long-term growth across our business. Here, thinking beyond our current connectivity business to the new services and future assets that will inspire the loyalty of our customers over the long term will remain a core focus for the group in the quarters to come. More on this at Capital Markets Day which is scheduled for the 3rd of September in London. And finally, I'd like to thank Trond.
This is the last time that we'll hear him on the earnings call for VEON. He has been a true soldier and a great server on behalf on VEON's stakeholder. So thank you, Trond.
Trond Westlie -- Chief Financial Officer
Thank you.
Ursula Burn -- Chairman and Chief Executive Officer
And with this, we can now open the Q&A session. So operator?
Questions & Answers:
Operator
[Operator instructions] And your first question comes from the line of Cesar Tiron. Please ask your question.
Cesar Tiron -- Bank of America Merrill Lynch -- Analyst
Yes, hi. Cesar from Bank of America. Thanks for the call and the opportunity to ask questions. I have three questions, if I may.
The first one, can you please talk again about the pricing and competition in Russia, particularly through the introduction of an unlimited data offer where you get the first three months for free. Can you please elaborate a little bit? And then in Pakistan, it seems that the license award comes with a very high price tag. It's probably in line with expectations. But you mentioned that it can be appealed.
Are you going to appeal that decision? And then finally, just wanted to cross-check the run rate of the decline of corporate cost year on year because I know there was a provision reversal in 2Q. So what's the decline around the 15%? Thank you so much.
Kjell Johnsen -- Chief Operating Officer
Should I do one and two?
Ursula Burn -- Chairman and Chief Executive Officer
Yeah. Yeah.
Kjell Johnsen -- Chief Operating Officer
So when it comes to Russia and the price setting in that market, it is clear that what we see there is not healthy market. There has been a direction toward unlimited tariff plans for quite some time. Our approach to that has been along several channels. First of all, we are the leader of the market when it comes to FMC.
We are trying to build more capacity within the FMC part of our business which shows more loyalty and brings more value to customers. Secondly, when we in a way have to reply to the ongoing tough competition in the market, the kind of offerings that you refer to are usually structured as try and buy so that you get an opportunity to use those kinds of plans. What we then monitor is toward the end of this period how many people stay on beyond the try before buy so to speak. And we do see some more positive trends in terms of the ability to steer customers toward these kinds of packages and stay on.
So it's not our intention to drive the market toward even more of the unlimited rates, I mean the unlimited tariff plans. This is a way to try to steer people toward a target plan within our system that will bring value over time. But I would repeat in my initial statement that the overall development of the Russian market, the way the competition has played out for the last year or so after two of the players started fighting with each other has not been healthy. And it would be -- at some point this will have to turn around to start focusing more on value.
When it comes to Pakistan and the license renewal, we have followed a very clear approach. We have had a dialogue with a regulator about the license renewal. We came to a point in May where there was no information memorandum available. And we protected the -- our customer base and ourselves with the actions we took in the court in Pakistan.
Since then, there has been a couple of iterations also administered by the court. We are reviewing these, all of these options and will of course inform the market and everyone else in due course about our decision whether to appeal or not, so this is in process.
Trond Westlie -- Chief Financial Officer
On the corporate cost, it's about $60 million this quarter. It's slightly higher than last year. But I can confirm that the 25% reduction year over year that we have as a target in 2019 is still our target. And we are en route to delivering on that.
And that also means that our run rate ambition for getting into 2020 still remains around $215 million. So I can just confirm that. And we haven't put another slide in this quarter because it's just confirmation of our previous page.
Cesar Tiron -- Bank of America Merrill Lynch -- Analyst
Thank you very much.
Operator
And your next question comes from the line of Vyacheslav Degtyarev. Please ask your question.
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
Yes, thanks for the call. A couple of questions. Firstly, again on the Russia, so Russia mobile service revenue went from positive in Q1 into the negative growth in Q2. But it seems like both VAT and roaming effect was in both third quarters.
So do you see any intensified competition throughout Q2 in particular? And also where do you see second half trending should the comps ease closer to the end of the year? And secondly with regards to changes in Bangladesh taxes. You mentioned that 2019 EBITDA affects is 5.7%. Trying to understand from which time those changes are effective from, i.e., in other words, do we observe any implications for 2020 numbers as well? Thank you.
Kjell Johnsen -- Chief Operating Officer
OK. So again returning to Russia. I think I, to a large extent have to repeat what I said earlier. Of course the overall price building of the market has not been in a direction that we tried to set it a couple of years ago, focusing value where use more, spend more.
It has become more focus on specific price points. And of course, as a player with a market share of around 28, 28 and a half, the big three or around 24, 25 in the big 4, we have to relate to that overall market and the price building that we see out there. So there has been some impact from the roaming changes but those are transient. I don't think that be over time compensate or so, so they are short-term impacts.
And I wouldn't be too concerned about that. What fundamentally needs to change in the Russian market is that we need to get back from focusing only on driving pseudo unlimited plans and build a different value of proposition. And when it comes to the second half of the year, it's clear that if these trends prevail it is going to be tougher. Now what we are going to put in front of us as an absolute target is stabilization of the subscriber base.
And I think that's a realistic ambition to strive for. The challenge will be to continue the upward trend on ARPU that we have successfully executed on for several years. So these two things go in opposite directions. I hope that answers your question.
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
Yes. Thank you very much. [Inaudible]
Trond Westlie -- Chief Financial Officer
Yes.
Kjell Johnsen -- Chief Operating Officer
Well, there have been some adjustments to the cold in Bangladesh and with respect to the last budget that was unveiled about a month ago or so. And we do see that Bangladeshi authorities are looking to raise revenues in multiple directions. And one of them is also impacting us. So of course that's a negative for the development of Bangladesh.
Although we should see this more balanced because there are also some of the regulatory changes that are being proposed will have a possible effect on us. So I don't know, Trond if you want to...
Trond Westlie -- Chief Financial Officer
No, as said, as we say in the report, it's recently. I haven't seen the actual date of the implication. So Investor Relation has to come back to you on those specific dates.
Kjell Johnsen -- Chief Operating Officer
What you can remember is that when it comes to smartphones the duties are up, but also some of these producers are producing in country. So there is a mix here of not everything play straight into the tax coffers, so. But maybe we should come back here with a more detailed view.
Trond Westlie -- Chief Financial Officer
Yep.
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
OK. Thank you very much.
Operator
And your next question comes from the line of Alexander Vengranovich. Please ask your question.
Alexander Vengranovich -- Renaissance Capital -- Analyst
Yes, hi. So couple of questions on Russia, if I may. So first one, so you mentioned on your -- in your speech that you are looking at strengthening your distribution network in the country. So I'm just wondering whether you are thinking of expansion of your distribution network or you're talking about the improvement of the utilization? Or you might be talking about the partnership with the other players to improve the quality of your distribution and then come back again to the improvement of their subscriber base.
So that's the first question. Second one, do you see your current network coverage as sufficient? Or do you think it needs to be improved? Because I've been looking at the statistics and the market looks like you have the lowest number of the base stations in the market now and whether you see this as a problem. And the third one, probably outside of the core telecom segment in the Russia what sort of product initiatives do you plan this year? If you can share anything. Thank you.
Kjell Johnsen -- Chief Operating Officer
Well, let's go to distribution first. We have been on a journey for a couple of years to move out of the washing machine of the multi-brand toward monobrand. And then we spend a lot of work and effort on building a good quality, high quality monobrand structure in Russia. And we have by and large done that.
So the task going forward is, of course, to do some substitutions here. We have areas or shops which -- that are not perform up to the standard. We would move them or build elsewhere, but this is normal course of business. That's what we do internally and that will be an ongoing process.
Now I will not want to see us going back to working with other players in order to have a multibrand again because that will take us back to the washing machine that we had in the past where we don't have a direct relationship with customers to your retail. So I would think the -- and I've said this for a couple of years, the long-term direction for the Russian market is to reduce the number of retail stores. And I -- again I welcome the statement by the CEO of MTS that he says there are far too many shops, too many retail points. It's too expensive.
I fully agree. I think the Russian market if it's well structured, I'm not so much focusing on the gross adds but more focusing on retention and value creation. Probably could have had something like 40% less retail points than it has today. But obviously would save tremendous amount of cost.
So that's our thinking around the retail. When it comes to the network, Russia is a huge country, so you can never have full coverage everywhere. But we have very good population coverage. And we've spent a lot of effort and money over the last couple of years together with the lenders to get a faster speed of rollout.
So 2018 was a year where we had a quite good rollouts. Also compared to the others [Inaudible], we did have a little bit of catch up [Inaudible] But I'm happy to say that the effort of your undertaking especially in Moscow with our super city projects and also in other cities have made our network much more robust. This is a job that will never end. I mean, it's going be continuous.
And we are much more robust now that we were two or three years ago. Could you repeat the third question please?
Alexander Vengranovich -- Renaissance Capital -- Analyst
Yeah, sure. So in Russia, outside of the core telecom segment, do you have any product initiatives which you might share with us currently? Or we can skip it and then discuss it later if you can. [Inaudible]
Kjell Johnsen -- Chief Operating Officer
Yeah, a very short answer to that. We are predominately working internally with developing our -- the -- when it comes to our digital initiatives, we have a good group of people there. That is as strong [Inaudible] competence. We do have these both competencies in terms of technical and human resources in place.
We are working with partners where we are also selling services. We come a long way with the development of our Beeline TV. What we previously used to call our self-care, we now call it B2C ecosystem. And the number of people who use the B2C ecosystem with us is not that far off what you would have, the most popular messengers like WhatsApp in terms of usage on our customer base.
So we are moving in this direction. Where we are a bit different from -- maybe from the market leader is that we are raising the bar very, very high for making any acquisition. So we are more inclined toward internal development than acquisitions.
Alexander Vengranovich -- Renaissance Capital -- Analyst
OK. Thank you.
Operator
[Operator instructions] And your next question comes from the line of Maria Sokanova. Please ask your question.
Unknown speaker
Hello. Thanks for the call. Three questions from my side. First on GTH tender offer and the progres.
You say that you are optimistic about that. I wonder if your opinion is based on just -- on -- you're thinking that the whole proposition is attractive for minorities? Or it's also based on the initial results that you see from in terms of buy back? Second, with new addition to the team, Sergi Herrero, as the COO of VEON Ventures, should we expect some like new proposition on your side in terms of digital services? And when do you think you'll be able to update the market on that? And third, I'm just wondering, in terms of your progressive dividend policy. So if we look at free cash flow this year, just rough calculation, if you deduct from the underlying $1 billion cash flow, the frequency payments that you expect, you seem to be -- like the dividend seem to be -- go ahead above this free cash flow longer term also with $800 million expectation for underlying free cash flow and 300 average of payments -- in frequency. It also seems that you are -- you'll be more -- that you're going to earn.
So I wonder are there any positive factors that are not included in this guidance that you think you'll be able to continue paying progressive dividends? Thank you.
Trond Westlie -- Chief Financial Officer
On the GTH, we are optimistic because we do think it's a good offer to the minorities. I think that's the fundamental issue. When it comes to the interests, we are limited according to local legislation in Egypt to actually comment on what we see already accepted, how many has accepted the offer. But of course all the circumstances is driving us toward that optimism.
So all in all, I do think that we are optimistic, we are positive. We think we have a good proposal both to the minorities. I think we have a good alignment on understanding with the stakeholders in Egypt. And it's good for the structural evolvement and simplification for VEON.
So all in all, that's the reasons why we are optimistic.
Ursula Burn -- Chairman and Chief Executive Officer
And let me take the next two on ventures. We announced that we hired an executive to lead this activity. This activity is focused on taking the assets that we have from our core telco business and expanding those close to our core to offer more services and value to our clients. It's too early to tell yet exactly where this will go, but you should start by looking at the activities that we have in Pakistan around our digital financial services, offers in JazzCash.
These are the types of activities that we want to accelerate in Pakistan and expand if possible around some of the other geographies. Trond and Kjell spoke a little bit about Beeline TV and some of the B2C ecosystem's offerings that we have in Russia. These are also the types of activities that the ventures group will be looking at to strengthen and accelerate, but also to expand around the other geographies. At the Investor Day in September, we'll probably spend a little bit more time talking about that in particular.
And I'm hoping that you'll be able to meet in person on the lead of the ventures group because he should be there at that time and you'll get his initial ideas in person. As far as the dividend goes, we're very pleased to be able to offer a dividend now payable in a couple of weeks to our current holders. And we -- as we said earlier in last earnings call and I'll reiterate again, our dividend policy is to continue to actually provide returns to our shareholders, but it's really based on our free cash flow trends, and that's really then based on currency. But you should -- people should be committed and/or confident in our commitment to continue to provide a strong dividend to our shareholders.
Unknown speaker
OK. Thank you very much.
Operator
Your next question comes from the line of Adrei Kabuzet.
Unknown speaker
Hi, and thank you. Two questions for me, please. One on Pakistan where we've had the reversals of the taxes and you've clearly been more successful than some of your competitors in offsetting these reversals. I'm just curious if you could guide us through how you're doing this business purely just driven by price increases.
And if so, do you expect -- or is there risk you see that the regulator would sort of push back against passing these taxes back on to the consumer the same way they have done so in the case of the service charges that some of your competitors have employed. And then second question regarding just back to the distribution in Russia. So it's been discussed that your contract with Svyaznoy is up for renewal in mid 2019. If you could just update on how you're thinking about this especially in the light of MTS returning to Svyaznoy.
And then your current goal of stabilizing your subscriber base there. Thank you.
Kjell Johnsen -- Chief Operating Officer
Yep. Thank you. Let me start with Pakistan. We are very happy to see that the investments we've done into 4G networks there really are paying off in terms of not only growth of traffic but also growth of data revenues.
And looking at 59% year-over-year growth of data revenues is quite spectacular. So we're going to continue down that path. When it comes to the taxes and the way the government introduced or the Supreme Court took -- primarily suo moto and then reversed and then made some changes to this, I would just highlight that there are some differences in how these things are treated from an accounting point of view. But of course that's a short-term thing.
The medium-term thing is of course that the industry will work to claw back the fees that have been now cancelled out. They used to be a part of the proposition for the suo moto. So it was reasonable for us to expect that when suo moto was reversed that it would remain in place. And now we have clarification of that.
So it would be for us and the industry to adjust our pricing models to compensate at least partially for a loss of that revenue. But again, the substance of the matter is that we are in a very fast growth in terms of the data usage in Pakistan. We see a huge growth of the 4G-enabled smartphones, and that is translating into service revenue growth and we're very satisfied with that. When it comes to the distribution in Russia and the issue of Svyaznoy, no Svyaznoy, MTS going into Svyaznoy.
I wouldn't want to comment on what actions we are planning to take there. I would leave it for Vasyl to communicate what actions you take with respect to specific contracts in Russia. Now, the longer term, and please don't read too much into this. I'm just saying that the longer-term direction should be away from multibrand.
And I do not exclude that multibrand would be with us for some time still to come.
Unknown speaker
Thank you. Maybe just a short follow-up. Can you give us an idea of when these negotiations are to take place at all? The ones that are in [Inaudible]
Kjell Johnsen -- Chief Operating Officer
Well, I do not remember exact dates on this. But I do remember that the relationship with Svyaznoy was renegotiated not very long time ago in terms of how we want to drive the performance through that channel more toward customers that stay with us over time. And always, when you're working with a multi-brand channel you try to structure the compensation so that you don't pay people just to sell a SIM card, you pay them to provide you with customers that stay with you over time. And then you have iterations on how you try to capture this in contract language and also in the development of skills with the employees who work in the touch points.
So -- but I wouldn't want to go more into those details.
Unknown speaker
That's great. Thank you very much.
Operator
And your last question comes from the line of Anna Kazaryan. Please ask your question.
Anna Kazaryan -- VTB -- Capital
Hello. Thanks for taking my question. It's just a clarification for the previous one about Pakistan. So taking into account some changes in taxes.
And as we remember, there is a suo moto regime, which was in the second half of the previous year, but now it's came to the end and so I understand there might be some price adjustments. But looking forward to the second half of this year, for example, taking into account all changes, do you think that year on year we can expect some decline in revenue trends in Pakistan? Or do you think that underlying trends of the revenue will offset all tax changes? Thank you.
Kjell Johnsen -- Chief Operating Officer
Obviously, the suo moto when it was introduced changed the numbers quite significantly. And taking away suo moto and the administration fee has the opposite effect. So where we are now, we are talking about a growth of our customer base. We are talking about having an underlying growth of our revenues.
But obviously, to compensate in full for a suo moto and a lot -- and the lack a administration fee, it's not going to happen for any other payers in the industry. So let's focus on key thing -- focus on the current growth rate, the underlying growth rate and try to keep that up to the best of our abilities. That's the task we set in front of the management.
Nik Kershaw
I mean, Anna, maybe just to add to that, just remember, the suo moto method came to an end on the 24th of April. So already it was out for two months in the quarter. And it was -- it's really just the administration fee which was still in the quarter which will not come out. So for sure it will be -- although revenues will still be growing, the growth rate will for sure slow down in the coming periods.
Kjell Johnsen -- Chief Operating Officer
Yes.
Anna Kazaryan -- VTB -- Capital
Ok. Thank you.
Operator
There are no further question at this time. Please continue.[Audio gap]
Duration: 56 minutes
Call participants:
Nik Kershaw
Ursula Burn -- Chairman and Chief Executive Officer
Kjell Johnsen -- Chief Operating Officer
Trond Westlie -- Chief Financial Officer
Cesar Tiron -- Bank of America Merrill Lynch -- Analyst
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
Alexander Vengranovich -- Renaissance Capital -- Analyst
Unknown speaker
Anna Kazaryan -- VTB -- Capital
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