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VEON Ltd. (NASDAQ:VEON)
Q1 2019 Earnings Call
May. 02, 2019, 3:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to VEON's Q1 2019 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Massimiliano Cominelli, director of investor relations.

Please go ahead, sir.

Massimiliano Cominelli -- Director of Investor Relations

Good morning, ladies and gentlemen, and welcome to VEON's Q1 2019 results presentation. I'm Max Cominelli, director of investor relations at VEON. And today, I'm pleased to be joined on the line by Trond Westlie, VEON's chief financial officer; and Kjell Johnsen, VEON's chief operating officer. The presentation will start with a financial overview of the quarter from Trond, followed by an individual contribution from Kjell.

We'll then hand the floor back to Trond to conclude with some general observations on our financial progress as well as our outlook for 2019. As ever, we will ensure that there is ample time for your questions at the end of the presentation when we hand the call back to the operator. But before getting started, I would like to remind you that we may make forward-looking statements during today's presentation, which involve certain risks and uncertainties. These statements relates in part to the company's anticipated performance and guidance for 2019, future markets, developments and trends, operational and network development and network investments and the company's ability to realize its targets and strategic initiatives, including the current and future transactions.

Certain factors may cause actual results to differ materially from those in 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 on non-IFRS financial measures presented today, can be downloaded from our website. I will now hand over to Trond to review the key developments of the first quarter. Trond?

Trond Westlie -- Chief Financial Officer

Well, good morning from me as well, ladies and gentlemen, and I'm going to the Page 3 on the presentation. You'll see an overview of our key developments in the quarter, and our view is that we have a clear, solid quarter and a good performance. Looking on the country perspective, we see a very strong performance in Pakistan and Ukraine, well followed up by Russia, and then we also see a good turnaround being in effect in Bangladesh. So an overall element, I think, we are well on our way in 2019.

If you look at the numbers, we see a good organic development. Revenue slightly more than 7% up. EBITDA slightly more than 10% up, and that is due to, of course, the cost development in the group. We see corporate costs trending the way we should and also cost intensity overall, as we mentioned in the presentation in February.

Cost intensity is decreasing with 1.9 percentage points. So overall, a good start of the year. The numbers are, of course, affected also by the Ericsson settlement. As we did in our focus on our -- enhancing our core, we have been revising our terms of our relationship with Ericsson, redirecting them to help us to deliberate the market-leading DBSS architecture across many of our markets the next few years.

And as a result of that, we have a $350 million settlement that comes into the P&L in the first quarter. On simplifying our structure, we see that we have a continuous and constructive dialogue with the stakeholders in Egypt so even though we see that this takes more time that one can be used to in more Western market how to organize things, we feel that we're moving along, and we are more optimistic at this point than before even though it's difficult to give you a time line on the development. And then the last part that happened in our -- just around the first quarter, it was the sell-down of the Telenor stake with approximately 5 percentage points of the outstanding shares. That leaves the free float to around 35% of the top outstanding shares.

If we then go to Page 4 and look at the operational performance in the first quarter, I want to spend a bit more time on this page due to the fact that IFRS 16 is introduced and the way we'd like you to look at the numbers to see apples-to-apples. Total revenue, a good $2.1 billion. As I said, 7.4% organic growth with 5.6% declining reported year over year since we have a currency effect of just short of $300 million. If we look at the EBITDA number in the middle, top middle, $823 million comparable to the $854 million last year with a currency impact of approximately $120 million.

Our reported number is $1.298 billion. The difference between the $1.298 billion and the $823 million is, one, the IFRS effects of -- IFRS 16 of $126 million and the Ericsson settlement of $350 million. That's the two elements that goes into that difference. Going into the equity free cash flow, we're showing $205 million, compared to the $334 million last year.

The difference between the $205 million and the reported $457 million is two elements there as well. The IFRS effects is $77 million, and the second effect is that we have only get paid half of the Ericsson settlement so that affects the equity free -- reported equity free cash flow with $175 million, and that is the difference between the $457 million and the $205 million. We also see a good development in mobile data revenue, and I'll come back to that with an organic growth of more than 26%. The leverage ratio, it's still 1.7x, and I'll come back to that on the calculation a bit later.

And the corporate costs is $54 million in the quarter, trending exactly as we expecting to come out of 2019 according to what we have guided you on. If we then go to Page 5 on the revenue and EBITDA development by country, you see the bridge that I talked about on the EBITDA level to the right of these charts. If you look at the top chart on the revenue development, Russia is moving ahead very well, driven by equipment and accessories in mobile services. Pakistan increase of 87 is driven by a top-line growth and a big part of that is the suo motu and Kjell will come back to that in his run-through of the countries.

And Ukraine has been very successful in their marketing activities throughout first quarter. So those three countries are really driving the top-line growth. As you see toward the $2.4 billion of organic development and then the ForEx elements 291 coming down to the $2.1 billion of reported. On the EBITDA, same trend line.

Russia, slightly lower on the EBITDA development due to the fact that equipment, accessories is driving the top line, but Pakistan and Ukraine is developing well. Pakistan and EBITDA development year over year with more than 22% and Ukraine with 27%. So all in all, a very good progress. Going then on Page 6.

We see that data revenue is growing very well more than 26%, as I mentioned, and you see this in $156 million in the top chart. Ukraine is actually increasing with 83% year over year, Pakistan with 94% year over year and Bangladesh with 36% year over year, and that is really showing that our investments is starting to work. Going then to the EBITDA involvement, you see that the effect of service revenue coming up and total cost is not going up as much. And there, you find the effects of the cost intensity ratio improvements, and that leads us with an organic EBITDA of first quarter of $942 million, and then you see the bridge through the reported EBITDA of almost $1.3 billion.

And with that, I'll leave the country reviews to Kjell.

Kjell Johnsen -- Chief Operating Officer

Thank you, Trond, and good morning, everyone. I'll take you through some of our key markets, and I'm happy to say that the overall message is that we see continued good performance in actually all of our major markets. Let me start with Russia, where we are now quite far into the cycle after the integration of Euroset, which was in place by the unitholders last year. We do see the effects that we wanted to see.

We see a focus on value that has continued to drive an increase in the ARPU. We see a shift or rotation out of the washing machine of the multi-brand stores that we were a part of before and toward the much higher proportions through our monobrand stores, which is helping us to underpin the ARPU and the affinity toward Beeline from the customers' perspective. In terms of our numbers, the ARPU development is going well despite the fact that there are strong competitive pressures from the regional campaign that is happening around us. Going into the second half of the year, we also want to stabilize and strengthen the customer base.

One part of the rotation out of the gray channels and the washing machine has been to get people's buying patterns to move into the monobrands, and we are well under way to that. Now we need to stabilize the customer base in order to underpin our growth. Further, you see the numbers, we're growing on top line, we're growing on service revenues and we're also growing in EBITDA. So the kind of overall question for the Russian market is how long will those campaigns go on out there, predominantly two players playing that game against each other.

When it comes to Pakistan, we see phenomenal growth both including the suo moto, which takes us to 23% plus but also in the underlying growth, which is about 10%, which is an improvement even over the trends of the last quarters. As Trond mentioned, the suo moto will go away. The details are up, like 100% clear, but we should expect that that is as of end of April approximately. So -- and then we'll be back to our underlying growth.

We are succeeding with our network rollouts. We are -- I think we are perfectly on cue with the timing of the rollout of the 4G network. We see that the network comes out with very good numbers in the running tests, and we are also quite on track with the upgrades of existing base stations. We see a growth in the customer base.

And to remind you, Pakistan is also, of course, a country with secular population growth of 2 million, 3 million per year so there's still room for growth there. When it comes to EBITDA, we're growing well. There is a tax adjustment that means that the margin gets a 1.8-percentage-point impact, but the underlying EBITDA is growing quite well. We are going to renew our license in the second quarter of this year.

We are in an active dialogue with the government around that. We have brought up a few issues in that respect, and it's important that this process moves out in a most streamlined way. Algeria, on the face of it, a complicated situation. With all the political changes inside the company, we are well on the way of delivering on the plans that actually have been in place for the last 18 months which was to upgrading networks, grow more active into Algiers and to take back the momentum by being more -- a bit more pushy into the markets.

We see that the performance is flattening out, but we also see that relative to competition, we are doing quite well. We're doing really well. So I would say that in a difficult environment, the organization and the management of Algeria on Djezzy have been able to keep the company well on track to build more strength in the local markets. We also see that some of the challenges that we've had in terms of rollout of fiber optics and other things are starting to improve, so hopefully, that will contribute to the growth going forward.

Likewise in Bangladesh, Eric and the team have executed on the turnarounds. To refresh your memory, we bought spectrum in Bangladesh some time ago and have upgraded networks afterwards. So we have an interesting and good value proposition in the local markets, and customers are moving to Banglalink and returning us actually to growth. So we are now seeing several months of growth, and service revenues of around 5% is the result that is a significant improvement of where we were 18 months ago.

This also filters through to EBITDA so we can clearly say that from where we are now. Bangladesh has executed on turnaround, and it's becoming a growth company again. It will never be a straight line. There would always be work to be done, but we also see the SMP regulation coming in, and we will actively engage with the government and with the regulatory bodies in how to implement that in Bangladesh.

Ukraine, excellent growth, excellent performance. The market has been -- has seen a lot of activity from our side. We are the market leader, and we have led onto that. Of course, seeing growth rates of 20%-plus in all our service revenues is phenomenal results.

Going forward, we expect solid double-digit revenue growth, but it may not be in the 20s for a very long time. That is an exceptional growth level. But again, we are very positive to the Ukrainian market and expect solid double-digit growth both in revenues and EBITDA. We're also very well under way with the performance of the 4G network in Ukraine.

Uzbekistan, on the face of it, looks a bit more complicated due to a number of tax changes. If we take away all of the changes, IFRS, MTR, new tax -- taxes in the country, we see still an underlying revenue growth of 7.7%, which is a good result. But the impact of going out of the same base tax toward an excise tax plus the MTR means that we get an impact of our headline numbers on the -- especially the revenue but also at EBITDA. And in cash terms, we're doing well in Pakistan so -- in Uzbekistan.

So in a way, these disturbances that you have on the surface, they disappear when you go down throughout the P&L and toward cash. We are quite happy with the development we see in Uzbekistan, and are, I guess -- also they're very well under way with the network upgrades and rollouts. So I think that will be the key messages on the countries. I'll hand it back to Trond.

Trond Westlie -- Chief Financial Officer

Thank you, Kjell. Then we're going to Page 13 of the presentation and the income statement for first quarter. And I was going to spend more time on the -- above the EBITDA line, but I'm going to just spend some time on the columns as a result of the IFRS 16. So the first column is the reported number of the first quarter.

And the third -- the second column is the pre-IFRS 16 number, and the third column is the reported quarter '18 numbers -- first-quarter '18 numbers. So the comparable figures is the first-quarter pre-IFRS and the first-quarter '18. But here you can see all the numbers. Looking at the EBITDA, you see that we're recording $1.298 billion, pre-IFRS $1.172 billion.

And just to be precise, that includes the $360 million of the settlement. Depreciation coming down mostly as a result of currency effects over the year and then adjusted a bit the other way on the IFRS effect -- 16 effect. So that's where we are. Operating profit then reported on short of $800 million, $772 million, compared to the $354 million including the $350 million.

Net finance coming down if I compare $151 million with $198 million with $47 million really is a part of reducing debt structure. We settle a lot of our debt in the fourth quarter of 2018, and we see the effects coming in, in the first quarter of '19. Profit before tax, $609 million reported, $638 million pre-IFRS. So all in all, good numbers also excluding the $350 million of Ericsson, which you'll see a good progress coming up.

Taxes coming down. Most of that is one-off corrections that is sort of periodization between quarters and that's the reason why you see it coming down from $117 million to $75 million. That leaves us with the bottom-line number of net profit to VEON shareholders of around $495 million reported and pre-IFRS of $524 million. '18 -- first-quarter '18 was still affected by our Italian joint venture and, therefore, you also see a negative number in '18.

Going then to Page 14, the continued cash flow generation. I'm just going to say that we see positive cash flow contribution for all our countries, and you see a big Other in there and that is due to the $350 million from Ericsson, leaving operating cash flow of $854 million. The adjustment of working capital and provision is driven by that half of the Ericsson settlement is not paid in the first quarter and, therefore, it's in a balance sheet yet, so the $175 million is there, and then you're coming down to the equity free cash flow excluding licenses and pre-IFRS of the $380 million. Turning then to Page 15.

Same element there. Net debt development starting with $5.5 billion at year-end. The pre-IFRS EBITDA number of $1.172 billion as you saw in the column of the P&L, that includes the $350 million from Ericsson. Change in working capital is, therefore, high, also included half with $175 million.

But here I would like to focus your attention to the MTO cash collateral that is taking out because as a result of applying for the MTO in Egypt, we had to put the cash collateral for the overall bid. And as a result, we have put down $645 million, and that means that we're coming up to -- after paying dividend in the first quarter as well, we're coming up to $6.2 billion of net debt pre-IFRS. As you can see, on our EBITDA numbers, that leads to a 1.7. That 1.7 is including the $350 million with Ericsson.

If I exclude the $350 million from Ericsson, the gearing ratio would be 1.9. And as we have previously told you, a bid on MTO with 100% pickup will increase our leverage ratio with 0.2%. With the IFRS impact of a bit more than $2 billion, our net debt recorded is $8.265 billion. That is a 2.2 gearing ratio, but that is also a bit distorted by not-IFRS effects for three quarters and non-IFRS effects of one quarter including the $350 million with Ericsson.

So that will, of course, adjust itself a bit over time. Going then to our targets for 2019. First quarter was a good solid quarter and with a good organic growth of more than 7% in revenue and more than 10% of EBITDA. Equity free cash flow of pre-IFRS as we have guided on, on $380 million.

If we take out the $175 million from Ericsson, that takes us down to $205 million, all of them showing that we are well on our way on delivering on the targets. So all in all, good start of the year. We'll surely progress to deliver on our targets for '19. So with that, I will open up for questions.

Questions & Answers:


Operator

[Operator instructions] Thank you. We will now take our first question. The first question comes from the line of Herve Drouet of HSBC. Please go ahead.

Herve Drouet -- HSBC -- Analyst

Yes, good morning. Thank you very much for the presentations. A couple of questions. Firstly, for Russia, I was wondering, can you tell us if you've seen any change in behavior on what you booked then on revenue following the VAT hike that happened in January in Russia? Obviously, I mean you have, I think, mobile service revenues growing at 1.1%.

Do you expect there could be a lag of this VAT hike in coming quarters looking forward? Second question is again on Russia and about your network in place, and how do you believe that with those unlimited data package how much your network can hold the increase of traffic? And I was wondering if you can give us maybe some data traffic increase in Russia you may see. I mean it looks like there's been as well some discussion from some people about VEON but asking for frequency to be released in Russia. So I was wondering when we may expect that to happen and how that can impact your capex or how you will set the tariff and tariff structure looking forward in Russia. And just finally on Algeria, just if you can give -- also, your number shows, compared with your main competitors, an improving trend.

It's still very challenging time in Algeria. I just wanted to get your view on when do you believe you can turn around to -- back to positive growth in Algeria. Do you think that could happen this year? Or we should be more patient? Thank you.

Kjell Johnsen -- Chief Operating Officer

Yes, let me try to take this one by one here. First of all, we are not directly adjusting for the -- in the Russian market. I think that's an important message. But us, obviously, setting the prices based on the inputs that we see around us, there has been a very important point from the Russian authorities that they would look very unkindly to people adjusting directly for VAT increase.

Having said that, I think the market has been better over the last few years at driving a value agenda and improving the ARPUs. We've seen some reverting to the old sense in terms of having aggressive campaigning in quite a few regions of Russia where we saw prices being dropped by up to 50%. I do believe that that should be coming to an end, although that's an external factor that we don't control. Within our company, we've been pretty good at driving the big database analysis on our customer base.

So we've seen a continuation of our ARPU growth also in the first quarter of this year. We are, of course, relying on the behavior of other players in the markets to continue those trends. So in terms of -- the focus area for us is to stabilize now the customer base and then, of course, we will be very actively monitoring how the rest of the market grows in terms of driving further ARPU-generating activities. When it comes to the network, we have made significant improvements.

Last year, the Orascom has rolled and published the data for the network rollouts, and we came out as No. 1 on the statistics. So we are clearly increasing speeds. We have fast-forwarded the swap that is ongoing in Moscow, and also expanded the scope for this one, so we build more capacity.

And your question to spectrum is a very good one. It's not only a question of having the spectrum and releasing more spectrum. It's a question of being able to fully utilize the spectrum. Some parts of our spectrum still have interference from primarily military use, which gives such limitations on how we can utilize spectrum.

That can be different if it runs city to city. We have had situations in Moscow where we actually have the spectrum, and we have physical infrastructure in place that we have had to run it after it's below power. So I'm getting a bit technical here, but these are the detail -- the granular detail that we operate under. So in short, we will always like to have more spectrum, but we have built a lot of infrastructure, and we have expanded the scope in Moscow to cater for the growth in data usage.

And we have also executed on a significant improvement in -- especially in the South, where the network quality has improved quite a lot. I think we're well under way to cater for the data growth now in the short and medium term. And then of course, the next -- the discussion is, of course, how this plays out around the 5G but that's a little bit down the road, so it's not immediate issue. If I then -- will move to Algeria.

Like I said, on a relative basis, we're performing very well. We have a good network performance. We have also been quite a bit more aggressive, especially Algiers over the last year, it's getting good results. So we are -- I'm confident that we are increasing our market share in the Algerian markets.

As you, I'm sure, observed over TV and newspapers, the situation is a bit unpredictable. And of course, all the media will be full of stories about the political situation rather than being a market where you can easily push an advertising campaign, so people's minds are a bit distracted by that. Having said that, we are on course for stabilization. I can't give you a specific time for when that may translate into revenue growth.

But all other things equal, we should be getting closer to that point during the -- during this year.

Herve Drouet -- HSBC -- Analyst

All right. Thank you. Thank you very much.

Operator

[Operator instructions] The next question comes from the line of Andrej Cabejek of UBS. Please go ahead.

Unknown speaker

Hi, good morning. Thanks for taking my questions. I have two, please. First one is quite simple.

If you could please update us on the potential nonextension of the Svyaznoy contract or how that's evolving. And the second one with regards to B2B, if you could please comment on the dynamics that you've seen over the past, say, two, three quarters in the B2B markets, whether they've -- in Russia, that is, whether they've changed significantly following some changes in shareholder structures and then plans to changes in shareholder structures of your competitors especially. Thank you.

Kjell Johnsen -- Chief Operating Officer

I'm afraid we -- I think we have to ask you to repeat the first question because we didn't catch it.

Unknown speaker

Sorry. The first question was regarding -- you were saying in the past couple of quarters that you will be looking at potentially not extending your Svyaznoy contract in mid-2019, so whether we're closer to any decision on that front?

Kjell Johnsen -- Chief Operating Officer

Yeah. OK. When it comes to -- our long-term ambition is to move more toward monobrand and also an online interface through our B2C ecosystems with the -- with no interaction with clients in Russia and for that matter, elsewhere in the group, but we are very pragmatic in terms of how we approach retail. We have definitely got out of the gray markets.

We are not a part of this metro station distributions, the points like before, but are absolutely pragmatic at working with Svyaznoy. And we will, of course, in that respect also align our contract and our expectation with Svyaznoy toward the objectives that we are pursuing, which is to get the churn down, to focus more on value and getting completely out of the washing machine we had before. And I am quite positive that that is possible to do also in the dialogue and in the relationship with Svyaznoy. So those are the parameters that we give to the Russian management team in that respect.

The B2B markets has generally performed well. Over the last years, we've seen improvements and we see a team that is actively pursuing both the big contracts, like the amount of contracts, but also coming up with new approaches to the market in the SMB and smaller segments where I think we have quite a strong position. We have seen more and more usage of the -- our platform for the interaction of banks with their customer base, and we are benefiting from that. So I'd say the general trends in B2B have been improving quite linear -- in a quite linear way over the last couple of years.

Unknown speaker

Thank you. If I can just follow up on the B2B, please. So you're -- it sounds like you're happy with your growth and developments surrounding beyond. But would you say in a growing market, is your market share stable? Is it declining? Is it growing? And then a second follow-up question on this, if we look at your fixed revenues and service revenues in Russia, those seemed to have improved quite significantly on a sequential basis.

And clearly, you've invested money into the fixed assets, but is this perhaps again driven by B2B? Or is this now both B2B, B2C? 

Kjell Johnsen -- Chief Operating Officer

It's a combination. On fixed, we actually made those decisions in August 2017, so lead times are quite long in this business sometimes. And it was about upgrading city range. It was about upgrading our collections through business centers where we, through the old home telecom business, had a strong position.

We have now revamped that approach, and that is leading to positive dynamics. We're renewing contracts, winning some new customers. So that has been helpful to drive both our B2B ambition. But, of course, when you upgrade these networks and city range, it is also helpful to driving the core mobile business.

So in all, I'd say we have strengthened our position in B2B. We're doing pretty well to competition. The thing that will be a challenge, of course, in the longer -- medium term to longer term is the political approach to the biggest companies. The biggest companies that are owned by the governments are under some pressure to sign up with Rostelecom and that is a fact of life.

The good news for us is that we are stronger in some of the other segments. So we don't have that much to lose in that top segment of the state-owned companies, and some of them still continue using our services because they have a preference for Beeline and -- over other suppliers.

Unknown speaker

All right then. And one final question, please. The trends that we are seeing in -- the improving trends that we're seeing in the fixed, do you foresee a return back to growth in some -- at some stage? Or would you see a flattish trend in -- you've reached toward the end of this year as a good level?

Kjell Johnsen -- Chief Operating Officer

Our ambition in fixed is to connect more households, not only to drive a fixed strategy. I think as we move along, some of the distinctions we have had been used to in this industry kind of lose their value. But yes, we would like to return fixed to some growth, but that's also as a part of our FMC strategy. So we're not building fixed for fixed's sake in consumer.

We are building it to drive a longer-term FMC position also with other product offerings on top of the connectivity business.

Unknown speaker

All right. Thank you very much.

Operator

Thank you. Your next question comes from the line of Stella Cridge of Barclays. Please go ahead.

Stella Cridge -- Barclays -- Analyst

Hi there. Good morning. Many thanks for the call and a couple of questions, please. And I wonder if you can just update us on the capex guidance for the year and potentially if you got any sense of what it may cost to do the license renewal in Pakistan, that would be great.

And the second question would be I had seen some local press reports in Bangladesh about a potential sale of Banglalink to another telecoms company. And I was just wondering, can you let us know if there's any twist in that report? Is that something that you are considering or would consider? That would be great. Thanks.

Trond Westlie -- Chief Financial Officer

When it comes to our overall guidance, we did -- we haven't given you any targets of guidance on capex as such. What we have said is that as a result of slightly more needs as we see in Russia and some in Pakistan, on a like-for-like basis, it's a like-for-like basis except for the year over year, we do see a slight increase compared year-over-year percentage-wise. So slightly higher capex to revenue this year than last year, but it's still within our cash flow guidance because that's the guidance we're giving. On the Bangladesh rumors, yes, we are aware of the rumors.

And as usual there, we don't comment on those rumors. We will address the market when it's -- if there is anything to address the market on. So no comment on those speculations on our part.

Stella Cridge -- Barclays -- Analyst

OK. And I mean if you could pass out any expectations on the cost of license renewal, are you including that in your overall capex guidance? And I mean, I guess just maybe to ask again on Bangladesh -- I mean obviously it has been a challenging quite a few quarters there. Obviously, you made the investment there, and you commented yourself to do the -- this -- you see this as a rebrand, and I would obviously just kind of -- the question from me would be, how do you see that business? I mean do you see it now as having more potential, sufficient potential to really make returns on those investments just within the context of whether you see it as a core part of the VEON growth as well?

Trond Westlie -- Chief Financial Officer

Just before Kjell gets into -- to the answers in the questions, on the guidance, just to be very clear, we are guiding before license. Over to you, Kjell.

Kjell Johnsen -- Chief Operating Officer

Yeah. So let me start with Bangladesh. We have -- I think you've heard of this, of the calls in the last few quarters, been a little cautious on expectations of Bangladesh, and I'm happy to see that we have been able to return to growth. And I think fundamentally in a country with secular population growth that there are some parameters in place also for longer-term growth.

We are -- when we are a little cautious, it is because of the position in the markets and there's a bit of uncertainty on how this will play out in the long run. But I don't see any reason in the short term why we should not continue to have a decent growth throughout this year. I just don't want to raise expectations too high in the longer term on the Bangladesh markets. Again, we work with the government on the SMP.

There are some positive things happening around our business, so we are definitely more optimistic about Bangladesh now than we will be 12 to 18 months ago, for sure. When it comes to Pakistan, our position is relatively straightforward. We think the license should be renewed at the last renewal price, which was $291 million. That already represents a significant increase from the last renewal given that we are actually operating in rupee terms in Pakistan.

And the rupee has depreciated quite significantly since the last renewal. So we think we have a strong position for asking for the renewal to take place at $291 million, but we have not received the information memorandum at this stage. So we are carefully monitoring the situation and impact.

Stella Cridge -- Barclays -- Analyst

OK. Thanks for the extra color. Appreciate it.

Operator

Thank you. The next question comes from the line of Alastair Jones of New Street Research. Please go ahead.

Alastair Jones -- New Street Research -- Analyst

Yeah. Hi. Just following up on Russia, just a bit of -- I guess sort of big disappointment, from my perspective, was that your data revenues slipped into negative territory that is revenue growth. It looks like your traffic increased, but it was the pricing levels that came down.

I know you've mentioned some fairly rational movements from your competitors. Is there a sense that you should believe that growth can sort of accelerate from here and actually data revenue growth was maybe hit sort of more on a one-off basis and there could be some recovery in future quarters? If you can get some clarity on that that would be great. And then secondly, just unfortunately a bit of a dry topic, but just on the cash flow that you've described in the release, the one thing I'm still confused by is the IFRS 16 impact. I would have thought that's merely an accounting issue, no cash impact as a result of IFRS 16.

Can you clarify that? And then just finally, I know you've got about $270 million of negative working capital. I know most of that is related to the Ericsson issue, but the balance which is about $100 million negative is quite a big swing from sort of $100 million positive in the first quarter of last year. So I was just trying to get a -- clarity as to whether that is going to turn around in the next couple of quarters or any specific items around that. Thank you.

Kjell Johnsen -- Chief Operating Officer

Yeah. On -- let me start with Russia, and I am sure we will hand over to Trond afterwards. We have been quite successful in upselling on our base and the -- and driving that type of performance through to the ARPU over some time now in Russia. The Russian market seems to go a little bit in ways.

If you remember a couple of years ago, three years ago, there was almost this -- the full speed of the unlimited and then the market kind of stabilized and started operating a bit more rational. We've had now around with quite active campaigns in multiple regions of Russia, which has dampened the ability to drive the ARPU growth in the markets. What do I foresee? I think, logically, you would come out of that cycle. Exact time of that is, of course, not for me to guess, but I think logic would dictate that we would get to that point and hopefully sometime during this year, but that is just a kind of a feeling for me from having been exposed to that market for many, many years because I think it's going to be painful for the red player to do this for a significant amount of time going forward.

Trond Westlie -- Chief Financial Officer

So going to the cash flow. On the -- just a comment on the -- on your latter question first on working capital, yes, I agree. It is the reverse change from last year on the working capital, actually it's excluding the $175 million from Ericsson. That is more sort of the floating nature of operation and when you pay and how you pay, so it will not -- it does not affect our guidance for the year as such.

But of course, some quarters you will find payments before or after the quarter end, and as a result of that, you will see a certain amount of swings. When it comes to the IFRS 16, you have my 100% wholehearted support that I agree that when it comes to the balance sheet of P&L, that should be effective but not the cash flow. But they have made changes to the definition of -- in the cash flow statements as well and that means that it has a positive effect in the operational cash flow, and then it's a reversal in the financial parts. So it doesn't -- it affects the operational cash flow and our equity free cash flow definition positively, but it reverses under the funding or the financial part of the cash flow.

So net effect coming out is 0, but it is affecting the specifications or numbers in the cash flow statements.

Alastair Jones -- New Street Research -- Analyst

OK. Thank you. So that's -- so it's right to say, just to clarify, the equity free cash flow target of $1 billion, the comparative amount is $380 million? Is -- I just want to [Inaudible] not the $457 million.

Kjell Johnsen -- Chief Operating Officer

It's the $205 million. Well, it's -- sorry. That's correct. It's the $205 million plus the $175 million from Ericsson that relates to the $1 billion.

Alastair Jones -- New Street Research -- Analyst

Thank you. Perfect. Thank you.

Operator

Thank you. And our final question comes from the line of Rahul Bhat of J.P. Morgan. Please go ahead.

Rahul Bhat -- J.P. Morgan -- Analyst

Hi, and thank you for the call. I just had two short questions. Firstly, if you could just provide any color on the GTH MTO process. What exactly are the approvals that you're waiting for? And what makes you more confident this time around? And secondly on your debt profile in terms of the currency mix, the -- I just wanted to take on the FX derivatives.

You've got $101.2 billion of dollar debt that you swapped into ruble. Is that plain vanilla swaps? Or are those put call options that have like a ceiling about which you're basically unhedged -- on ceiling on the ruble about which you're unhedged? Thank you.

Trond Westlie -- Chief Financial Officer

OK. When it comes to the GTH, on -- in the -- as I said in the beginning, we do have -- we have submitted our request for an MTO, that is with the Egyptian FRA, and they are in the process of evaluating that. And we haven't -- I said -- as I said, heard the final decision about that yet. As a result of different Egyptian stakeholders having a look at this as it was last time or our last attempt on the MTO, we are having continuous and constructive dialogue.

And I will not go more into details on that, but it is really our interpretation of the content of that constructive and continuous dialogue that leads us to be more positively -- or have a more positive view than last time. And as I said, as a result of being in this dialogue, it's difficult to give you a time line. Going into the debt profile when it comes to the currency swaps, I will not go in -- it's in -- to the details of the structure of the swap, but they are fairly plain vanilla, so we are not doing any exotic elements on our structuring. But as we said in -- both in our third-quarter announcement or reporting announcement -- the fourth-quarter announcement, we said that we were increasing our ruble exposure overall, and that has been done very much by derivative structures.

Rahul Bhat -- J.P. Morgan -- Analyst

Understood. Can I just -- on the Egyptian -- on the -- so the GTH MTO, and how's -- is this -- is one of the things that are part of the negotiation also the litigation on taxes? Is that part of the discussion? Or is that something separate and that can happen even after you take GTH private?

Trond Westlie -- Chief Financial Officer

The significant question last time was -- a year ago was part of the Egyptian IRS raising or sending some letters regarding the taxes. So yes, part of the element is, of course, clarification of GTH legal situation as such, and that discussion is run by GTH management. But of course, we are informed about the involvement as well as participating in regards -- to also have an effect of the MTO.

Rahul Bhat -- J.P. Morgan -- Analyst

Understood. OK. That's very helpful. Thank you.

Operator

Thank you. I'd now like to hand the conference back over to Massimiliano to close.

Massimiliano Cominelli -- Director of Investor Relations

Thank you very much. There are no more questions, and so we can conclude today's conference call. Thank you, everyone, for attending, and please contact the IR department for any follow-up question you might have. Goodbye.

Operator

[Operator signoff]

Duration: 56 minutes

Call participants:

Massimiliano Cominelli -- Director of Investor Relations

Trond Westlie -- Chief Financial Officer

Kjell Johnsen -- Chief Operating Officer

Herve Drouet -- HSBC -- Analyst

Unknown speaker

Stella Cridge -- Barclays -- Analyst

Alastair Jones -- New Street Research -- Analyst

Rahul Bhat -- J.P. Morgan -- Analyst

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