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VimpelCom (NASDAQ:VIP)

Q3 2012 Earnings Call

November 14, 2012 08:00 AM ET

Executives

Alex Tramont - FTI Consulting

Jo Lunder - CEO

Henk van Dalen - CFO

Analysts

JP Davids – Barclays Capital

Alex Balakhnin - Goldman Sachs

Igor Semenov - Deutsche Bank

Ivan Kim - VTB Capital

Evgeny Golosnoy - Metropol

Operator

Good day ladies and gentlemen, and welcome to the VimpelCom Third Quarter 2012 Investor and Analyst Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference call is being recorded.

I would now like to introduce your host for today's conference Alex Tramont of FTI Consulting. Ma’am you may begin.

Alex Tramont

Thank you. Good afternoon ladies and gentlemen, and welcome to VimpelCom’s conference call to discuss the company’s second quarter 2012 financial and operating results.

Before getting started, I would like to remind everyone that forward-looking statements made on this conference call involve certain risks and uncertainties. These statements relate, in part to one, the timing of the dividend authorization; the company’s plans to maintain cost in Russia and Italy and to roll out its LTE network in Russia; and three, the company's expected future debt position and refinancing plans.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in one; the company’s earnings release and presentation announcing third quarter 2012 results; two, the company’s Annual Report on Form 20-F, and three, other recent filings made by the company with the SEC.

Certain amounts and percentages that are used here have been subject to rounding adjustments. As a result, certain numerical figures shown as totals including in tables may not be exact arithmetic aggregations of the figures that proceed or follow them. Please note that the actual financial results of the third quarter of 2012 are not added in. If you have not received a copy of the third quarter 2012 financial and operating results press release, please contact investor relations at +31207977234 and it will be forwarded to you. In addition, the earnings release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented on this conference call can be downloaded from the VimpelCom website.

At this time, I would like to turn the call over to Jo Lunder, Chief Executive Officer of VimpelCom. Jo Please go ahead.

Jo Lunder

Thank you. Good afternoon to those in Europe and good morning to our guests from the United States and welcome to our third quarter earnings presentation. Let me start by introducing the members of the teams sitting with me here. We have Henk van Dalen, our Chief Financial Officer who will be covering the financials in detail and (inaudible) our Head of Investor Relations.

In the third quarter VimpelCom continued to deliver only strategic priorities as defined by the company’s value agenda for 2012 and 2014 with profitable organic growth in almost all business units. The group recorded a 3% organic growth in revenues year-over-year reaching $5.7 billion. Excluding the impact of the reduction of MTRs Wind Italy, the organic growth would have been 5%. EBITDA increased 8% compared to the same period last year leading a margin of 44%. This is the heights margin we have achieved since the combination with VimpelCom in April 2011.

We are pleased with the continued positive operational development in Russia where EBITDA in local currency grew double digits in the third quarter. Likewise, CIS also delivered double digit organic growth in EBITDA. Wind Italy, we are facing a challenging regulatory and economic environment but our operations there continue to outperform the market and win (inaudible) market share.

In Ukraine 2012, remains a transition year and we see an improved and accelerated migrations to bundled offerings. In the third quarter, we achieved strong overall subscriber growth with an increase of 7% reaching 212 million mobile subscribers, the largest contribution came from Austria and Asia and from CIS. The company was able to deliver a solid financial performance in the third quarter despite a considerable negative impact from currency movements. Net income reached $538 million, almost triple last year’s third quarter results and we continued to deliver strong cash flow with net cash from operating activities of $2 billion.

Before moving from operations by business units, I would like to briefly touch on some important recent development. The supervisory board of VimpelCom has decided to schedule the VimpelCom annual general meeting on December 21st, assuming that the fast claim will have been resolved by November 27th. We expect that once the fast claim has been resolved, the supervisory board will consider the payment of the final dividend for 2011. As you might have noted, the dividend is not included in the AGM agenda as this decision is a matter that rests with the supervisory board.

In relations to Algeria, we continue to negotiate with the local authorities on finding a mutually beneficial agreement and discussions are still progressing well.

Turning to Canada, VimpelCom reports OTH efforts to increase the voting stake in Canada to 65% and we are optimistic that the Canadian investment authorities will approve this petition.

And finally, we announced today that we will be hosting our Analyst and Investor Day on January 16, in London and I hope you will all join us for this event.

Now moving on to the performance of the five business units, starting with Russia. In Russia the company maintained the positive operating results as seen in the first half of the year. The business saw organic revenue growth of 7% while EBITDA increased 16% leading to an EBITDA margin of 43.2% delivering on our strategic strategy of profitable growth. The revenue growth was reported by a 38% increase in mobile data revenues as we continued to promote these services.

We’re also making significant progress on the operational excellence program and we are well ahead of schedule on the (inaudible) in annualized savings. This is also confirmed by an increase of just 1% of operational expenses despite the significant growth of the business.

In addition, we have launched initiatives focused on increasing further operational productivity. Average churn rate in the third quarter was 15% down from 16% last year, but more work is required to secure our objectives of producing the churn. It is worth noting that our churn rate partly can be explained with higher proportion of migrant in our customer base compared to our competitors.

We also continued to improve deficiency of our networks through agreement on network outsourcing and we will seek to expand this model to other regions in the near future. We are on track to deliver continued improvement in the matter of quality and to drive the popularity of the mobile data services. We tried to launch LTE in Moscow and in six other Russian regions in 2013. Last 12 months CapEx to revenues stood at 18% as we continue to effectively mask in building our 3G network.

In summary, we’re pleased to the progress in Russia and we will continue to execute on our strategy there.

Moving then to Italy, in Italy we continued to outperform competitors and gain market shares in the face of regulatory headwinds and every challenging market environment. Despite this difficult context, total revenues were flat year-over-year if we exclude impact of the mobile termination rates cuts. Our mobile data offerings continued to achieve strong results with mobile broadband revenues up 40%, mobile messaging revenues up 9% and fixed broad revenues up 3%. EBITDA was impacted by the July and (inaudible) which was partly offset by our customer reduction initiatives. That said, the company was able to deliver a stable EBITDA margin of 40.4% and operating free cash flow generation also remains solid at a stable level over the previous year. Mobile subscriber growth in the third quarter was strong, up 3% with a record number of gross positions and 63% of the market net additions in the third quarter.

An important milestone was achieved in October as we made significant progress in optimizing our cost structure. We signed an agreement with our employees to adopt a cost efficiency plan that will increase productivity of the natural maintenance personnel and at the same time reduce our HR costs. Through this plan, we aim to reduce maintenance OpEx by approximately 40 to 45 million euros per year from January 1st, 2013 onwards.

Looking ahead, the cost in MTR is expected to continue pressure on the topline for the next year and a half. For this reason, we will remain focused on adjusting our cost base through structural OpEx measures in order to protect and focus on cash flow margins and EBITDA levels in Italy.

Moving then to Asia and Africa. In Africa and Asia business unit, revenues recorded an organic growth of 5% driven by strong subscriber growth and increase in data and value added services in our key markets. Due to the devaluation of the local currencies of Algeria and Pakistan against the US dollar, the reported revenues declined by 6%. EBITDA amounted to $424 million with an organic growth of 6% as a result again of operational excellence initiative and despite the negative impact we had in the third quarter from Ramadan.

In Algeria our subscriber base grew by 9% while revenues increased by 2% negatively affected by again Ramadan occurring in the peak summer 30th of July. EBITDA in the third quarter increased by 1% in local currencies despite the challenging operating conditions (inaudible) remains the market leader with a 56% market shares. Our performance in Pakistan remains strong with Mobilink delivering revenue growth of 4% driven by a strong focus on subscriber growth as well as increased data and value-added-services penetration. This performance came despite two government mandated network cultures during the third quarter. EBITDA increased by 10% driven by growing revenues and ongoing cost control measures including lower customer acquisition and retention costs.

In Bangladesh, the third big market in Asia Africa business unit, our subscriber base grew by an impressive 21% in the third quarter reaching 26.8 million subscribers. Revenues increased by 23% driven by subscriber growth, a higher level of value-added-services and data as well as targeted startup and reactivation promotions. EBITDA increased by 9% impacted by higher subscriber acquisition costs.

Moving on to Ukraine, in Ukraine, we continue to invest in our market position in the mobile segments by migrating customers to bundled offerings. Revenues in the third quarter increased by 4% as a result of this migration and we were also supported by strong dynamics in our fixed line business which saw a revenue increasing by 11%.

EBITDA declined by 1% due to higher service costs and higher subscriber acquisition costs, reflecting increased sales and an increase in the network and IT costs. The transition to bundle improved and accelerated in the third quarter and the migration is expected to be finalized by the end of this year. We are deploying initiatives focused on upselling low and medium ARPU customers after they have concessions to bundles now and in addition, VimpelCom continues to focus on optimizing its cost base in order to maintain efficiency. With the aforementioned measures, the company expects to further solidify its market position in 2013.

Moving on to our last business units in CIS, we continue to deliver strong revenue on subscriber growth in the third quarter despite an increasingly competitive environment especially in Kazakhstan. Revenues grew 17% year-on-year on an organic basis for the business unit adjusting our revenues in Uzbekistan for normal growth over the first half of 2012 underlying revenue growth year-on-year in CIS would have been similar to the one we saw in the second quarter of 2012. EBITDA increased 28% from organic basis driven by one-off adjustments in Kazakhstan and the incidental strong mobile revenue growth in Uzbekistan.

EBITDA margin in the quarter increased to 49%, improving 3 percentage points over the previous year. In Kazakhstan, the largest CIS markets we saw revenue decline marginally as a result of the competitive environment and a limitation of tariffs introduced by the regulator last year which led to an average price per minute decline. Nevertheless EBITDA grew by 6% supported by one of positive effects of $12.5 million in the third quarter. In Uzbekistan, VimpelCom strengthened its market position in the quarter after the first closure of a competitor’s network. The revenue growth was 88% year-on-year and normalized to the growth level of the first half of 2012 still have been strong with the growth of around 35% year-on-year.

With this, I'll pass the floor now on to CFO; Henk van Dalen who will discuss the group’s financial more in detail. Thanks.

Henk van Dalen

Thank you Jo. The third quarter results in US dollar were significantly impacted by the appreciation of the dollar against the local currencies in almost all of VimpelCom’s operating businesses compared to the same period of last year. Overall revenues on an organic basis increased 3% year-on-year. As such, excluding reduction of MTR goods, in Italy the organic growth would have been close to 5%. On an actual basis, revenues decreased 6% driven by a significant depreciation of the local currencies against the US dollar. EBITDA on an organic basis increased 8% year-on-year while the reported EBITDA declined 2%. Excluding the MTR cut in Italy, EBITDA would have grown organically around by 9%. EBIT grew 17% driven by the declining amortization pattern applied to intangible asset class management and discussed before. Profit before tax increased 136% due to higher EBIT, a higher gain from the investment in Euroset in addition to neutral movement in fair value derivatives in the third quarter of ’12. So these were showing very negative movements in the third quarter ’11. In addition, we recorded the net foreign exchange gain of $36 million this quarter compared to a loss of $137 million last year. as income maybe tripled, as a result of the higher profit before tax, and the lower effective tax rate this year compared to the third quarter 2011, uncertain net operating losses incurred that we’ve not recognized for tax purposes.

Then on to the debt, cash and the various ratios. On consolidated basis, the actual net cash from operating activities in the third quarter was $2 billion. Positive re-impacted by the receipt of $119 million related to the monetization of an interest rate swap and a positive working capital movement partially offset by higher interest and tax payment compared to the same period last year.

Growth was stable in the quarter of $26.6 billion mainly due to foreign exchange movements and repayments and refinancing of global loans and euro loans improving the repayment of the final part of the bridge loan in Italy. Net debt increased to $22.7 million leading to a net debt to the last 12 months EBITDA of 2.4 times at the end of the third quarter. We ended the quarter with a balance of cash, cash equivalents and deposits of $4 million.

Turning to the debt maturities schedule, this remains reasonably well balanced over the coming years, there is peak and the maturity profile in 2017 caused by the (inaudible) which we plan to refinance this before that date. However, this will not be completed before the end of 2014 and finding we’ll of course depend on market circumstances. Gross debt process at 26.6 at the end of third quarter with an average rate, an interest rate of 8.6% in the quarter. Our balance of foreign exchange exposures in growth remains diversified across the euro ruble, US dollar and other currencies. At Russia we repaid a small bank loan of 7.2 billion ruble, partially refinance that as well and in Italy we paid the final part of the bridge loan for the amount of 250 million euro with cash available and parts absorb (ph) on revolving credit facility. Furthermore and as you can see also on this side we have substantial undrawn committed revolving credit facilities in place for a total of $1.3 billion as per September 30, 2012.

Then the final slide on the financial situation, the slide that I have shown several times before on the structure, legal and financial structures group. The first block on the slide is debt related to Wind Italy. There is a circle that you see on the right hand side $14 billion of debt. That block of debt is ring fenced in the sense it has no recourse on VimpelCom Limited or any of the other companies in the group. Second block of debt amounted to $1 billion sits in the local subsidiaries above the edge and has no recourse on VimpelCom as well. The third block of debt has to do with OJSC VimpelCom and VimpelCom limited. The block you can see on the left hand side, totaling $11.6 billion is a portion of the debt that services to VimpelCom Holdings and a portion to OJSC VimpelCom. From the VimpelCom group level, as you know also OTH is from that intercompany loan.

Within this third block, the cotton junction related to the first claim puts a temporary hold on its streaming dividends on cash from OJSC VimpelCom to VimpelCom Group level. Therefore as Group level and OTH, we focus on available cash sources within these operations and dividends obtained from the Ukraine. The available liquidity is about $1 million at these levels and it is a solid position for our operating requirements and obligations going forward.

I will now turn the call back to Jo for his final remark.

Jo Lunder

Thank you Henk. I think on the last slide, overall the performance of our operations in the third quarter to a large extent reflects the implementation of this tragedy that we presented a year ago with focus on operational result and cash flows. We have yet to date deliver solid profitable organic growth. We see in the table growth in revenues, growth in EBITDA, growth in margins and we have all sorts in growth in cash flows. In fact, I am quite pleased with the way the new group operates and perform and we are to a large and larger extent becoming one company and one aligned management team. This still left side of course from continued disciplined implementation of programs on operational excellence, the capital efficiency and profitable growth and I think this is the key to create to shareholders value going forward and for that reason; this is the main focus for the company also in the quarters to come.

This is basically everything we have planned to present this morning or afternoon and with this, I'll open the floor for questions and turn back to the operators.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from JP Davids of Barclays Capital. Your line is now open.

JP Davids – Barclays Capital

Two questions from my side please. First one just on the operational excellence program. The line here in the presentation looks similar to last quarter, ahead of schedule. Could you just give an update of exactly what sort of run rate you’re on at the moment in terms of cost savings and third quarter and what we could expect in to 2013? Then the second question is just on your portfolio analysis. In 2011 you presented us three buckets of assets. I was just wondering if there has been any change in the way you’re looking at assets. Certainly there is some pressure at the moment suggesting that a couple of the CIS countries are falling with in bucket three. Thank you very much.

Henk van Dalen

Thank you. Let me start with the operational excellence programs. Of course these are now programs that we put in place in all our business units and operating entities and it’s a holistic view basically on the business and for example, in Russia, these are organized in six main work streams where you have marketing, you have support financing, financial and support, you have business to business, you have business to consumer, you have the technical side, you have the IT (inaudible), these are basically 117 projects right now that is organized in a big program and the CEO in that business unit (inaudible) resources is responsible for and the order of this operational excellence program and the first phase of this program in Russia was basically to save 4 billion rubles this year and then this year ahead of schedule, it basically means that we will save more than 5 billion rubles this year on that program and right now we are adding more and more activities to that program and for that reason we want profit operational excellence programs to be more an ordinary course of business that are other than program that measured quarter by quarter. So we need to make this an ordinary course of business to a large extent.

The phase for example now in Russia, will be on the effect in that of the headquarter and the regional headquarters, as an example and we will keep sort of analyzing the business not only in Russia but all our business units with the mindset that it’s possible to reduce cost and growth more effectively. Part of this could also be a lot of initiatives eventually on that sharing and that kind of things. So that's the general answer on operational excellence and we’re not in the position to give a fixed target for the next quarter or even the next year in terms of savings. But if you look at the operational cost in Russia, Ukraine, you see that in absolute numbers its quite good achievement with 1% deviation from the same quarter last year.

On disposal, I think the answer there is basically that if we take one step back and focus on what we said a year ago that we would focus on increased cash flows. We have lots to talk in terms of operational performance on that promise I would say but at the same time we also said that we will do a contribution analysis of the asset portfolio and assets that is not contributing to growing cash flows for shareholders. We would like to find a solution to and this is really an ongoing process where we view on regular basis the different assets and there is no pre-defined deadline for when we would like to reach a consolidation. This could be, the decision could be to any market conclusion and take us more ownership somewhere.

It could be to exit somewhere. It could also be to keep the assets and it’s clearly not so that we want to exit for example one region because we don't believe in the region. It’s clearly focused on the quality of the individual assets and we believe both in the developed market and in the emerging markets and we believe there are good and less good assets in all these different regions. For that reason I think just have to be patient and allow us to announce the different decisions we will come up with on the different assets when we are ready to churn on something and there will be disposals that will be market consolidations and there will also be assets where decide to keep. So it’s not the project with a pre-defined date where we will mix our assets that if it’s for sale, it’s an ongoing process that supports the overall trend to grow cash flows.

Operator

Our next question comes from the line of Alex Balakhnin of Goldman Sachs. Your line is open.

Alex Balakhnin - Goldman Sachs

I have two questions if I may, first is on your CapEx in the Russian market, it is slight below that of competitors and my question would be do you have enough net recorded reserves to get attractive increase without quality deterioration and like at the current level of investments and somewhat related to this is how many base stations do you have connected via fiber so that would be like the first question and my second question would be you mentioned that in the Russia plant is LTR roll out in a number of regions. Can you give us like an update on how you will be doing this whether it is going to be partnership with (inaudible) or you plan to do it yourself and how the situation with frequencies available her is awarded. Thank you.

Jo Lunder

I will take the CapEx question first; I think we have done some good work this year on the technical side in Russia actually. We have strengthened the team first of all, we have organized ourselves better and we have taken a much more holistic view on how we apply CapEx and roll out new network elements et cetera. So I’m much more comfortable with the quality of the work now than what we have had in the past. So it's part really with quality and process and people and then I think we still have a little bit of catch up to do on 3G and we are ready to do that and that’s part of our process that’s been discussed now whether we need to put little bit more resources and money into the CapEx problem in Russia to do a final catch up. I think we see good results right now in terms of network quality and at least see the indicators that we are measuring. So we think we are moving in the right direction but we understand that we might have a little bit of catch up to do and clearly we have less 3G base stations and MTF still I think are on the 18th powerful and (inaudible) 24 and to your question on fiber, I think the 30% and 40% for the base stations are connected via fiber and I think we have a new plan to go about and do this going forward. On the LTE side I think we have managed to bring ourselves in a good position frankly speaking. I don’t expect LTE to be a big commercial I think at least not next year, I think after a bit maybe 14-15 less handsets, right now in 13 will be the year of roll out and early adoption for that reason we have taken Moscow and fixed our big cities and we will start rolling out our LTE network and open them for commercial use next year and this will basically be just an extension of the 3G and 3G plus networks that we already have.

So I’m not concerned about the migration to LP and feel good about that frequency wise. I think also in the year to call no issues on our side and then of course there might be effective ways of doing this and for that reason you’re also looking into possible models for corporation with maybe joint roll out and maybe shared networks and also if that other comps available for getting faster access or faster access to our key resources as we can provide them to our customers so a lot of these questions you feel been debated and negotiated but in general I feel much better about the way we are organized, quality processes people and I think as a result of that we will also allocate a bit more CapEx to make sure that we want to some put more catch up on the quality of the network in Russia and in Moscow.

Alex Balakhnin - Goldman Sachs

May I just ask a little bit follow-up on this number of connect base stations? So you I mean how available the fiber is like New York be a base station so do you need to like ramp up investments when you start connecting them or you feel that it will be only a small incremental spending and you will be able to increase the connectivity with your base stations within the current CapEx plans. So without like any visible in place investments.

Jo Lunder

Alex it's clearly in the cyber scope of what we communicated earlier with respect to planned CapEx programs, there is no hidden, known defined or needs to invest that we haven’t already analyzed and been familiarized with of course it's going to be important to fiber to the base station to provide an effective mobile broadband for but this is all within the scope of what we communicated so far overall CapEx plan for the group. So that’s on tracking I think.

Operator

Our next question comes from Igor Semenov. Your line is open from Deutsche Bank.

Igor Semenov - Deutsche Bank

Just wanted to ask about the (inaudible) situation and the parts of scenario of the Moscow court listening it's in junctions. Would you pay let me see it in a minute, would you pay the by 20111 dividend this year?

Jo Lunder

It's really a decision for the supervisory board and my understanding is that when the fast claim is lifted and we hope that will happen before the 27th then the supervisory board will meet and it's decision, it's very hard for me to preamp that discussion and decision but it's clearly that supervisory boards sole discretion to make up decision and it's not to shareholder meeting decision in the case if it became.

Igor Semenov - Deutsche Bank

And can I just also ask in terms of the recent press reports on the potential spin-off the fixed line business in Russia, can you clarify this a little bit, are we talk about legal suppression or this is just the way you want to manage the fixed line business in Russia?

Jo Lunder

No plan to fall off or dispose the fixed network in Russia. We have an integrated network and we have spent a lot of time and efforts to integrate (inaudible) and we have we might organize the business in a way so that we take advantage of business the mobile business but there is no current plan to dispose the fix business in Russia.

Operator

Our next question comes from Ivan Kim of VTB Capital. Your line is open.

Ivan Kim - VTB Capital

Two questions if I may, first on the competitive environment in Russia so basically whether you see Rostelecom doing much on the mobile side in the moment and secondly on the margin performance in Russia again there was no increase in the margins or will the third quarter is seasonally strongest. So can you tell us which what was the readings for that and probably related to sort of self-accelerated and above data growth and function there? Thank you.

Jo Lunder

On the competitive environment there is real estimate (ph) on our side there it's very hard I think to predict exactly what the future will bring. There are different speculations here on Rostelecom; I see speculations on Tele2 and different possible combinations. I think what we can do is VimpelCom is related to shape our own house and our own business and make sure that we are ready to meet sort of the future challenges and we have no involved or more planned for sort of engaging in and around Rostelecom discussions. On your question of margin in Russia can you repeat that?

Ivan Kim - VTB Capital

The EBITDA margin in Russia was flat quarter-on-quarter although usually in the seasonally strongest third quarter the margin increases and I’m just wondering where there is reason for this specific reason for that and for your push mobile data which were the growth accelerated maybe something else I don’t know.

Jo Lunder

I don’t know exactly a reference but I think the EBITDA margin year-on-year we have 40% in the third quarter ’11 and we have 43.2% in the first quarter of ’12. I think see also the margin.

Ivan Kim - VTB Capital

Yes just comparing third quarter 2012 to second quarter 2012.

Jo Lunder

Okay you’re comparing, I think it's because of seasonality and because of sort of the different nature of the different quarters; I wouldn’t pay too much attention to the quarter-to-quarter. I have decided to focus year-on-year actually. There is no, I wouldn’t be worried about that from an analytical point of view.

Operator

Our next question comes from (inaudible).

Unidentified Analyst

I have a question also regarding your future plans in terms of CapEx and in terms of general economies of scale coming from virtually increased purchasing power as you now are been companied seasonally volatile during the world. Do you feel that’s you can right now starting to exercise from the economies of scale and CapEx and do you think that want to be shareholders Telenor could use the connection to help you in terms of the CapEx suppliers and just had basically with their exists strategic exit of Telenor from your shareholders, can you risk for your CapEx program.

Jo Lunder

So let recap to what we have said on CapEx, so far we have said that we would like to reduce CapEx to revenues as businesses matures and on the last investor day we have we said that we are going to target 15% CapEx revenues by the end of 2014 so that’s the latest updates we have CapEx to revenues which shows clearly a declining trend from the target for this year for the growth which is around 19% and then in January we might want to give you an update and revision of all those targets but we clearly would like to see CapEx to revenues coming down for the group in the next two to three years.

I think that the scale is important in telecom and we are benefiting from that now. We have good terms and conditions and the negotiate with our vendors, the synergy target we have for the Wind transaction is clearly met and that was a 2.5 billion at net present values, that’s clearly met already and part of what you see now the performance is of course influenced by that we buy basically more equipment for maybe the same amount of money or if you guy less equipment for the same equipment for less money. So it's already showing, Telenor’s plan associated with VimpelCom is of course impossible for me to comment on. It's a question for Telenor but I don’t think hypothetically if they should decide to sell down or exit VimpelCom, it will have zero consequences for our own procurement muscle and ability to negotiate good terms with the providers.

Unidentified Analyst

Okay and I also have a follow-up question on the competitive environment in Russia we have seen the third quarter that one way competitors increased the number of subscribers. So do you feel that the competitive environment in Russia starts to be more difficult for you as your competitors accelerate the position of the new subscribers because last year I remember we were in the just open situation we started to think and started to talk about the ease in competitive environment in Russia? Thank you.

Jo Lunder

I think what we have done this year in VimpelCom is really to change the mindset and transition away from targeting high gross additions, so we have moved away from that and focused on margins improvement, cash flows and quality subscribers and that’s why also seeing margin going up at revenue market share slightly decreasing and clearly subscriber market share going down as a result of this clean up. Going forward I think you will see a more balanced development probably where we take in terms of net additions, we take our fair shares because I have to kind of transition into the position we would like to be now and it's time to focus of course mostly on revenue market share but part of this will also be a growing part of the net additions and for the competitive environment my understanding is that our focus is shared by the market that focus on cash flows margins and quality of the services to customers are more important than focus on subscriber market share and gross addition so I’m quite optimistic in terms of being able to implement the tragedy we have for Russia and continue.

Operator

Our next question comes from Herve Drouet of HSBC. Your line is open.

Herve Drouet – HSBC

My question is regarding Italy, after Naguib Sawiris existing to that capital increase that will come from Italia. What is your view on each of that transaction goes through that will affect the Italian markets and specifically the Italian mobile markets and also do you see a potential risk at Wind Italy management for potential sort of management if a Naguib Sawiris is willing to change or maximum change of management from Italia side and if that risk exist do you have in place any mitigation but you can provide maybe with look up absent or management trouble.

Jo Lunder

I think my knowledge to Naguib Sawiris is that he is a very professional business person and is a rational business person. So I don’t expect his entry in telecom if so happens to change the market dynamic much for Wind, I would welcome Sawiris in telecom, see a very limited effect on Wind with respect to that transaction. I think we have done a little bit of changes in wind management already and there is a lot of loyalty and bounds now between group and the individual business units including the management team in Italy. I see very little risk in melt over effect from Wind to telecom as a result of such potential transaction and I mean if so will happen which as I said I don’t believe in the risk being high at all of course in a group like ours we will obviously have ways of resolving and dealing with this. So this is not my radar right now for the transaction or the issue you raised.

Operator

Our next question comes from (inaudible) of Deutsche Bank. Your line is now open.

Unidentified Analyst

Just a couple of questions if I may, the first is just a point of clarification. I think you mentioned that from a debt maturity profile 2017 is the year with big refinancing requirement and I think bulk of that is really due to Wind. I think you mentioned that you do not intend to refinance that is before the end of 2014 or before 2014 subject to market conditions so as a statement if you clarify that would be great and a quick follow-up on Wind accounts there is about 150 million of accounts receivable from Weather related to a plus well a transaction that happened many years ago. I just wanted to confirm that you know from Wind’s perspective that 150 million would be received in December ’13.

Jo Lunder

Recently I said before the end of 2014 which will respectively be same as we have said so far and the window to really start to make steps to restructure the depth profile of the meaningful may is after more or less the middle of 2014 and that of course it will be done on market circumstances which steps we are going to take, how are we going to take them and at that time we are going to take and that is why I indicated before the end of 2014 but vision so to say that nothing will happen before that time but there will be several steps to be taken as of a certain moment and of course we are not going to be very precise on the steps because that will immediately lead to preempting reactions in the market.

Unidentified Analyst

Understandable.

Jo Lunder

And then with regard to the Halo’s (ph) point it's expires at the end of 2013 but it can be extended, it isn’t something that we at the moment have very high on the radar screen.

Operator

Our next question comes from Evgeny Golosnoy of Metropol. Your line is now open.

Evgeny Golosnoy - Metropol

I have a question on your chart basically the reason I’m asking is because I couldn’t find the answer to this question elsewhere including the documents but given that you as a company is registered in Bermuda all right, in case one of your shareholders increase its stake for example above 50%, is there anything like, any provisions in Bermuda laws or in your chart that specify that ones the shareholder pass certain threshold he is obliged to make a tender offer to minority shareholders. For example North Shore there was such a laws regarding 30, 51 and 75% stakes in the company.

Jo Lunder

Yes I think you can find the charter actually on our website but just to be clear here if a shareholder is passing the 60% threshold there is a mandatory offer requirement for him.

Evgeny Golosnoy - Metropol

Okay and is that in your charter or in the country’s legislation?

Jo Lunder

In the charter.

Operator

Our next question is from (inaudible). Your line is now open.

Unidentified Analyst

My question relates to technology neutrality and LTE on the 1800 frequency. There was a postponement of a decision relating to this where work files should be done, are you participating in trial from this and is technology neutrality something that you would like given your investment in roll out on the 800 megahertz frequency. If you could give pros and cons around this it would be very helpful. Thank you.

Jo Lunder

I think our provision is that we are not the big supporter of national trial technology neutrality in Russia by (inaudible), at the 800 megahertz then would and the LTE license is they were basically received in bureau (ph) past 35 investments in the network and they were awarded for the operators over a period of seven years, there will be a lot of money going into these networks and we believe that allowing 4G in the 800 bandwidth without the same investment requirements for the operators is really not in line with the requirement from the bureau (ph) so we are not a big supporters of this tech mentality ID, I think that’s basically my provision.

Operator

And at this time that is all the time we have for questions. I would like to turn the call back to Jo for any further remarks.

Jo Lunder

Okay. Thank you very much everybody. I hope you were able to clarify the dynamic in the business and some of the bigger ticket that is around us. I can assure that management is working very hard and we are very passionate and dedicated to improve the performance of the business and also resolve the big topics and even though we didn’t have any of them to be announced today I hope maybe in future calls we will be also to bring more clarity on the big strategic topics but I think in the end is the fact that operations are developing in the right direction and we are able to grow earnings in the end if it's going to benefit this company and we will continue to work in that direction. So with that thank you very much for your interest, the questions and hope to see many of you soon. Good bye.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This concludes today’s program you may all disconnect. Everyone have a great day.

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