VimpelCom's CEO Hosts Analyst & Investor Day 2013 Conference (Transcript)

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VimpelCom Ltd (NYSE:VIP)

Analyst & Investor Day 2013 Conference Call

January 16, 2013, 08:00 am ET


Jo Lunder - CEO

Gerbrand Nijman - IR

Jan Edvard Thygesen - Deputy CEO & COO

Anton Kudryashov - Group EVP & Head of Russia

Maximo Ibarra - Group EVP & Head of Italy

Ahmed Abou Doma - Group EVP & Head of Africa & Asia

Artem Nitz - CFO, Ukraine

Henk van Dalen - CFO


Cesar Tiron - Morgan Stanley

Dalibor Vavruska - Citi

JP Davis - Barclays

Herve Drouet - HSBC

Gavin McKeown - Pioneer

Igor Semenov - Deutsche Bank

Alexander Vengranovich - Otkritie Capital

Sergey Goncharov - Sberbank CIB

Stanley Martinez - Legal & General Investment Management

Barry Zeitoune - Berenberg

Vivek Khanna - Deutsche Bank

Jo Lunder

Good afternoon and a warm welcome to our Analyst and Investor Day, our annual event. I am very happy to see all of you and I am very honored to have you here. I hope you will enjoy the day. I think we have put together some very good presentations for you and it’s a great opportunity for me together with the senior executives of the company to present our plans.

The theme of today is value creation. How we plan to create value for our shareholders going forward. A lot of the things we are going to talk about is going to be forward-looking. But if you allow me before we do that, let me take one step back first and look at what we said on our last Analyst and Investor Day, November 2011. We said that we are committed to a mid-single digit growth of revenues, mid-single digit growth of EBITDA, that we will reduce our CapEx spending to 15% of revenues and as a result of that that net debt to EBITDA will reach a level below to and all this by the end of 2014.

I think if you look on the right hand side, we have delivered on our promises, an organic revenue growth of 6% so far in 2012 and EBITDA growth of 8% by the third quarter of 2012. We are started our descent to 15% CapEx to revenues, 19% last 12 months and also deleveraging improvement from 206 to 204. And in the middle of all this, we paid our dividend commitment and I am pleased in general with the progress that we have made the last 12 months and that we have kept our promise. We have also seen a good growth in our subscriber base; 7% growth, because we still are operating in under penetrated markets. Our customer base now is 212 million. The group improved EBITDA quarter-on-quarter during 2012 and reached 44% EBITDA margin in the third quarter of this year.

All the five business units are performing well. To start with Russia, over achievement on our operational excellence program that we announced, strong cost control, strong growth in mobile data, reaching an EBITDA margin of 43.2% in the third quarter of 2012, the best margin in a long time. We have a much better position in Russia today than we had 12 months ago, improved operational performance, improved market position, improved financials.

In Italy, good performance, difficult market, but we are growing our mobile revenue market share; by the end of the third quarter above 20%. Management is showing good cost control in Italy and the most important thing is basically that we are outperforming competitors quarter-after-quarter. We are pleased also with the performance in Italy having an EBITDA margin in that difficult market still above 40%.

Asia-Africa, strong performance in Pakistan, strong performance in Bangladesh, strong performance in Algeria. EBITDA margin approaching 47% for the whole business unit and a clear profile where EBITDA is growing faster than our topline.

Ukraine; Ukraine has probably been the most difficult market this year or in 2012. We have now done a successful migration to bundle. So 75% now of the customer base is on bundles. We have been able to keep the EBITDA margin above 50% during the year and we think we have turned the corner now in Ukraine and you will have a good presentation on Ukraine outlining what we believe the future will bring there.

And the fifth and last loss business unit CIS, double-digit organic growth; impressive revenue growth and impressive EBITDA growth.

In addition to the strong operational and financial performance, I think also 2012 has shown progress on M&A, on governance and on the partnership initiatives that we announced earlier. We have exited Vietnam. We are in the process of acquiring control of the business in Canada with OTH and negotiations with the Algerian government has shown progress, not with the speed of light during 2012, but we're still in process and we're still optimistic to reach a conclusion in Algeria beneficial for shareholders.

On the governance side, we have now a fully functional HQ in Amsterdam with 130 people. I have done three senior recruitments since last time we spoke, Jan Edvard Thygesen has joined us as Chief Operating Officer, Deputy CEO; Jan Edvard has many, many years with Telenor; I know him for years back. He is one of the people in the global telecom universe that I respect most and he is adding a lot of value on the operational side. We have recruited Anton Kudryashov as our new CEO in Russia; Anton has had an excellent first year with good performance in Russia explained earlier and we did an internal recruitment of Maximo Ibarra appointed him CEO of WIND, Italy. Maximo has been instrumental in developing the business we have in Italy, leading the consumer business earlier and now given the responsibility to head the whole company. So I see also the senior management team much stronger today than what it was only 15 months back.

Shareholder dispute is resolved, the FAS claim is withdrawn; Altimo has expressed that they are going to convert their preferred shares to common shares, so another uncertainty is off the table. And just before Christmas we elected a new Board of Directors in VimpelCom. We still have nine directors and we have still two independent directors. And as we also said, we would like to partner with the OTTs and the famous brands that you see on the slide behind me is giving us enhanced customer experience, is giving us ability to innovate, is giving us basically more customer loyalty and we are also very pleased with the ability to work with this famous company.

So in summary, I think we have walked the talk since we spoke in November 2011 on the financial area, on the operational area, M&A, governance and partnership. Okay, so now let's shift gear and talk about the future. So what is going on in our environment? It’s clearly changing, that being said, for me its easier now to understand what the next years will bring than it was two, three years back. I think we have more answers and less questions.

Yes, there is a global economic recession clearly and I am not going to comment on that, there are multiple people and experts on this probably in the audience and elsewhere, what is clear to us is that the telecom sector is less vulnerable to the overall economic recession that we see. I think the services that we providing are covering such basic needs that it’s almost as you can group them now with bread and butter in terms of needs, and for that reason we see less sensitivity on demand in a very difficult global recession period; I think that's a general good news for the industry.

The OTT players are challenging (inaudible), a trend is there, whether you like it not, it’s there, so less like to it instead of asking ourselves that is on the continue what kind of affect it’s going to have, its there and we need to expect it. Regulation is clearly having affect on business; I have spent a lot of time the last year meeting different regulators in all different markets and I see and hear a little bit different pronoun than a couple of years ago. I think also regulators to a larger extent now want to regulate for incentivizing investments in infrastructure and not so much one sided focus on regulation for increased competition. And we see also very different sentiment and mindset in different markets we are operating in. So the risk related to regulation is clearly there, is still there. But I would say and I hope that this risk is lower now than what we saw a couple of years back.

The movement from voice to data is obvious, nothing to discuss, its there, let's relate to it, monetization or mobile data, biggest challenge for the whole industry, we got to talk about how VimpelCom plan to address that problem later today. Basically, we think moving to bundles to protect voice and SMS and to a larger extent pricing speed of access to the internet and also pricing capacity in accessing the internet are probably the future price plans for the industry if the industry can follow that path we think that the whole industry will be able to monetize on a tremendous growth that we will see in the mobile data in the coming years.

And of course the last trend is the requirement of capacity investments in a very failing situation where the traffic is growing probably 15 to 20 times over the next five years in the networks. So against this we believe that the best position to put yourself in, the winners, tomorrow winners, are the operators with the right cost base and the operators with the best CapEx and most effective CapEx programs. And that's why today we are not announcing any radical news. There is not a shift in our strategy. We haven't invented a genius way of reengineering the value chain. We are basically saying that our value proposal is built on the value agenda that we announced 12 months ago and it starts in the yellow circle in the middle.

Our value proposal to our shareholders is to focus on increased cash flows. There are four building blocks of how to increase cash flows. You see them centering the circle. Profitable growth, is going to be all about getting your price models right on data. Operational excellence is going to be a hard execution program for keeping your costs under control. Customer excellence is going to be a lot about dealer commission and also their price excellence. And the fourth building block capital efficiency, how do we increase network sharing, how do we optimize our capital structure.

This is our value proposal basically to shareholders and I'll return to putting some numbers on what we believe is possible to do over the next three years, but before I do that, let me also remind you about our business model, because I think our business model is built for the reality that I just described and its different from many of the big telcos that you see in today's world. We have a fundamental belief in a decentralized business model. We have 66,000 employees on the lowest layer. We have 212 million customers that we interact with every day. We need empowered people. We need strong CEOs that can develop and maintain 10 very, very famous brands that you can see on the lower side.

We have 130 people sitting in Amsterdam; 130 people out of 66,000. We don’t want a big expensive headquarter. We don’t want a big bureaucracy where people on this level is going to fight with people on this level, with metrics and bureaucracy and decisions that will take weeks and months before they can be executed. Here we have brainy, experienced senior people that can interact with local management effectively and be part of making the right decisions. We focus mainly developing synergies from roaming, from procurement and Henk will explain an in-house banking concept that we're launching. Those are the synergy areas.

Aside from that, we focus on performance management. We focus on portfolio management. We focus on people management. That’s the role of the headquarter. And then we try to wrap everything in a VimpelCom way of working. What is recognizing a VimpelCom leader? What is the role models that we are highlighting and what are the heroes inside our company. Our heroes are the passionate, professional leaders; passionate, we have a desire to win professional. We said always customer first, and we have a deep understanding of what the operational excellence programs is all about and a leadership is all about empowering people and is about execution; that’s the model, that’s the culture, that’s the company we are trying to create without spending again a lot of money on unnecessary layers and bureaucracy.

I said I will go back to the numbers, so basically now there are two big baskets where we can generate cash in the next three years. The first basket is operational improvement. If we look at EBITDA minus CapEx in 2012 and we compare that to EBITDA minus CapEx in 2015, we think we have an annualized improvement in cash generation of $2 billion; $1.5 billion is going to come from profitable growth initiatives that the management team will talk about later today, operational excellence initiatives and customer excellence initiatives.

Here, Anton in Russia knows exactly how much of the $1.5 billion he is going to help to generate. Maximo knows it, Ahmed knows it, Dmitry knows it, Igor knows it. We also know how much is going to come from data, how much is going to come from distribution concepts etcetera, etcetera. So here there is a very detailed matrix plan and project how that $1.5 billion is going to be generated. The remaining $0.5 billion is going to come from CapEx efficiency. Same there, country and initiatives. We also have a balance sheet in VimpelCom and a history in VimpelCom that has an upside in terms of creating also improved cash flows from financing activities; Henk van Dalen our CFO is going to end the session today before the Q&A, he is going to walk you through this much more in detail, but basically what we believe is that by establishing an in-house bank, by optimizing the debt, by reducing the gross debt we are sitting on a lot of cash right now and by a corporate restructuring, making it possible there are more tax efficient structure, these all could add up to as much as $900 million on annualized savings.

Again, if we look at interest and tax in 2012, we implement a lot of initiatives related to those four building blocks. Let's look at what interest and tax is going to cost us in 2015; cash improvement of $900 million in a three year period. In addition to all this, we also think and that's quite obvious I think that if we are able to deleverage and if we are doing all these things, of course also the average cost of new debt and refinancing is going to reach lower levels and that comes on top of the $900 million I spoke about.

So we feel good about our own situation. We think we have been able to move the company in the position where we can start talking about these numbers and for that reason we also confirm today the same level of ambitions that you saw in November 2011, objectives, mid-single digit CAGRs on revenues, mid-single CAGR on EBITDA; CapEx to revenues, we commit to the 15% and net debt to EBITDA less than 2%. These are levels at the end of ’15. The true lighter the CapEx to revenues under net debt to EBITDA we talked about end of ’14 a year ago.

The reason why we believe it’s the best thing now to delay this for the year is basically that we will launch a catch up program in Russia in 2013 that will also melt a little bit into ’14 and really once and for all close the perception of quality of the network.

We have the right team in place. We have the right people in place and we feel very good about spending our money on making sure that our network in Russia is having the same quality perception as the other two big players and of course we also hope that Algeria will be resolved and for that reason that we can invest money into Algeria this year and with those two catch up programs we think it’s the right thing to delay our CapEx to revenue to ’15 by the end of ’15.

But I think these are long investment cycles and we believe more in the direction than in the accurate date where you reach these levels. And again, we commit to the dividend guideline that we have announced earlier to pay at least $0.80 per common share amusing the 1.628 million shares we currently have.

So this really ends my intro this morning. We think the whole world is going mobile. We think LTE will be an enabler and a game changer for mobile broadband. We have spectrum both in Italy and Russia.

We think smartphones will completely take out computers, PCs. We think small screens will take out large screens and we think traffic in the mobile networks will grow rapidly. So we believe we have an excellent position to take advantage of all this and for that reason in our strategy when we talk internally we make it very clear, we are a mobile company.

And we will allocate our resources and our investments to mobile capacity and coverage and we will limit our investments in any fixed networks we have. The value creation model for shareholders is increased cash flows. 2 billion is the potential from operational improvements; $900 million is the potential from financial improvements. This adds up to a potential improvement of 2.9 billion, three years from now. And all this needs execution. All this needs the right people; all this needs a passionate performance culture.

I feel very good about the team. I have around me. I feel very good about the country teams we have in all our markets now. I've traveled a lot the last 12 months. I've met with employees, I've discussed with employees. We interact with my direct reports almost on a daily basis.

I feel very good about the quality of the people and I think again this is a people business and I think we have the right people to deliver on this strategy. So I hope we will be able to quantify the numbers. I hope we will be able during the course of the day to explain how we are going to do it in Russia, how we are going to do it in Italy, how we are going to do it in Asia and Africa and how we are going to do it in Ukraine.

Again thank you very much for paying attention this morning. Thank you very much for coming and I think I will give the floor to Gerbrand to walk you through the problem of the day so that you can see the timing and which one to expect.

Gerbrand Nijman

Thank you, Jo. (inaudible) from me warm welcome here for everybody in Newland but also to people who are following us on the internet, which is by quite a few people as well. I'll walk you through shortly through the program but as you can see, there is no Q&A here with Jo; Jan Edvard, but Jo and Jan Edvard will join Henk after his presentation for his shared Q&A.

However, after the business unit’s presentation you will have time to ask questions to the heads of the business units. There will be two breaks, one after Italy and one after Ukraine and after the closing remarks of Jo, around 5’o clock, we will have drinks downstairs where you will have lunch as well and there you will have also the opportunity to ask management the questions you still have and have not been able to ask yet. There was one practical question, that I've put your mobile phones on silent because that might be good and then that leads me to introduce Jan Edvard Thygesen, our Deputy CEO and Chief Operating Officer, Jan Edvard?

Jan Edvard Thygesen

Thank you, Gerbrand. I must say, it has been an exciting 14 months joining VimpelCom after 40 years in Telenor. I would like to spend the next 15 minutes explaining how we're going to improve our operational cash flow with $2 billion in three years. First of all, I think a new mindset is needed for us and the industry and to be a winner we need to get our cost base right. We need to improve our basic business processes and we need to move from a roll out focus today network utilization and (inaudible) the asset focus.

And as we deploy and this year smartphones and tablets into the market, we also think that still the bulk of revenue will come from mobile access with always on anytime, anywhere and data speed on the access as the basic killer applications. Site lease and energy together with maintenance are major cost drivers and due to that tower, site and [ground] sharing is vital to lower the cost in the industry.

And you take (inaudible) like speed throttling and priority, access priority for high value customers in a highly loaded or congested networks will make it more easy for us to differentiate on quality going forward. Anything that over the top services and licensing with over the top players will be a necessity, a qualifying factor but not necessarily a differentiating factor.

So it’s about creating value and over philosophy in creating this is in a very lean headquarter, it’s in a philosophy of performance management and empowered business unit leadership. So it’s not about controlling details, it’s not about boundaries to initiative and micro managing these initiatives.

It’s about driving performance, monitoring performance and rewarding performance. Centralizing is only what we are doing when it really matters and where it matters is when we do global procurement, we use central procurement model, which I will come back to later and we have established [roaming] company to get better group deals and have a bargaining power to watch other operators.

And how do we will be perform this, we will use what we call [OPCO] or business unit performance boards as a governance to that means myself and some of my colleagues travels to the business units and not vice versa, its not about business units travel to the headquarter, we have to go out there on the site with the business unit management going through the performance in monthly or by monthly meetings.

And then we will of course monitoring and going through the operational and financial KPIs but its also specific deep dives into areas like pricing tactics and strategy about distribution concepts and tactics, commissioning, its about operational excellence program and over time we find several areas where we can use our common competence to really find good solutions.

The framework which we work inside is based on a performance management report which has three margin levels. It’s the service margins where we use the cost of traffic and the cost of content or whatever and move the service margin as high as possible. It’s about isolating and understanding the commercial cost and get the business margin and it’s about an EBITDA.

So, on the cost of traffic part and the revenue part it’s about smart pricing and driving revenue and improve the service margin to bundles and on net promotions. And we see a difference in our operations from a margin of above 90% to down to 70%, so it’s a big improvement area for some of the operations here.

When it comes to commercial costs, it’s about adjusting and optimizing the distribution and promote new services to minimize [churn]. And of course operational excellence as structural OpEx focus is vital to end up with an EBITDA north of 40% to 45%.

And then of course we also have deep dives into CapEx efficiency where we utilize our bargaining, global bargaining power and drive the mindset towards network utilization and [sweating] the assets. So let's go into the different levers of driving the cash flow. When it comes to smart pricing, we know that voice SMS will be applications in the data stream going forward.

And due to that it’s important to introduce proactively big buckets of voice and data bundled with buckets of voice and SMS, bundled with data and then customers buy these big buckets. APPM isn't that relevant anymore. We see typically that minutes of use for a customer during a month increases from about 200 minutes of use to about 500 minutes of use where it seems that we end up then the customer doesn't have to think about the cost of a call.

The parameters in this pricing scheme will be then the size and the structure of this in buckets of voice and data and the elements of data speed and data volumes in the bundle. And in addition, we can also introduce elements like prioritizing on access for customers that are willing to pay for that when their network are heavy loaded or congested or is also about a number of terminals in the bundle or in the account and we can see that this type of pricing has already been introduced in other operations especially in the United States.

They think that moving towards data we have more parameters to play on and differentiate on than we had in the current the pay as a goal model that we have used historically. And we also can see them convert it to this big buckets and bundle pricing that this seems to be more resilient to the downward price spiral.

Our second lever is churn reduction and mobile data revenue. Our intention is to reduce churn by moving our distribution from third-party distribution more towards mobile brand and to move towards value based and ARPU based commissioning.

So that means that we will share ARPU with the distribution. And this is one of the main drivers to reduce churn going forward. When it comes to mobile data we will have four guiding principles. We want to drive tablets and smartphones into the market during through strong local distribution. And we will not promote dongles. This will be only be promoted if we have excess capacity in the network because dongles for large screen consumes so much data that pricing on what we receive on the pricing and the revenue is substantial lower than for smartphones and the tablets.

And we will of course promote [time] pricing and bundles and we will partner with over the top players and promote carrier ability and attractive services like Facebook and Opera Mini both of the services to create value also and a binding to the customer to that. And not at least we want to improve and adjust the network quality so what is on par with the quality that are expected by the local brand and due to that, we have a gap to fill in both in Russia and I think in Algeria going forward.

Our third level is a vital importance to improve our operational cash flow with $2 billion in the next two years. We have introduced an operational excellence program in all other business units and we are monitoring that extensively.

There is we have a holistic approach covering all the company’s processes and we see when we go into the different areas that are typically impacted in the range all 10% to 15% of our cost reduction. And I think a continuous improvement culture has been established through that, where we, it’s about building brick-by-brick or stone-by-stone, month-after-month, year-after-year.

In addition to monitoring the performance in this area, we are also a part in (inaudible) global benchmarking and we can see that Group VimpelCom is already among of best or ranked among the top 30% in this benchmarking. So we have a good position which we want to improve even further going forward.

And then not at least is about CapEx efficiency which is where we have seen several operations and at least also from my time in Telenor. There had the biggest improvements and that really impacts cash flow when you do it right.

We have started a process very focused on outsourcing a lot of our operations. We started with the field maintenance which is fairly simple way of outsourcing and I think most operators has done that already and we are moving towards a more complex outsourcing and for the moment we have one contract we established using managed capacity. This is a much more complex way of outsourcing. This needs both deep competence and extensive experience, building contracts so that we can handle this in the dialogue between the suppliers and the operator. And we think that and what we see so far is that we can achieve even better CapEx or lower prices, because we share the interest in some of the parts of this with the global supply.

Our global or simpler global procurement we have in 2012 been able for some of the global units or network elements being able to reduce the prices from 30% to 50% and what we do is that we issue a tender in one operations and then we get to that price level. We can use that price level for the rest of the group and then step-by-step we end up lowering the prices for the group overtime. And this has been the case for the last year.

We use our global bargaining power to get lower prices on our network elements, but we also want to improve our utilization of the network. And historically, that has been difficult for top management in telecom operators and in mobile operators to really understand and see the correlation between CapEx and market impact on a certain CapEx level. Our intention is to develop KPIs that can help deciding on investments and we also see that due to lack of cooperation between the technical part of the organization and the commercial part of the organization, there has been too much roll-out and capacity focus and pricing has often led to unbalanced network utilization.

So these KPIs that we are developing will help us to decide whether there is a -- or that we should invest in capacity and coverage or it could be a competence issue, setting the parameters under the sign of the network. It could be a pricing issue that affects the utilization and balanced utilization of the network or it could even be a site sharing issue that the planning system of the operator doesn’t focus enough on site sharing with competition and it could even be a frequency reforming issue also. It has a longer time impact.

And what we see here is that our network utilization has improved. We have more older sites that are loaded at 80%. We have more better utilization in older sites in the busy hour. We have better improvement and see the variation during the day. It's more flattened out due to better pricing. So we have better utilization of the network and at the same time, we improve the quality of the network. So its four areas we focus on in our management reporting and in our digitized and dialog with the business units.

So the conclusion is that mobile access is still the bulk, we will have the bulk of the money. We have a mobile data and (inaudible) reduction as priorities. We develop a performance culture and of course an empowered business unit leadership is core to do this. We will sweat assets in a better way and in the end improve the operational cash flow to get $2 billion extra in 2015.

And then I’ll leave the table to Anton Kudryashov who is the CEO of our Russian Operation.

Anton Kudryashov

Thank you, Jan Edvard and good afternoon, happy to see you all. Today is the day one year since I joined VimpelCom Russia as a CEO and I am very proud of what we achieved in this year; I only have 20 minutes to tell you about our achievements and to what we are looking forward in the coming years.

Taking the cue from what Jo was saying, the key strategic theme for us in the coming years is profitable growth. How we are going to achieve growth by focusing on the fastest growing segment of the market, mobile data, in particular prioritizing small and medium stream. How are we going to achieve profitability by rigorous control of cost through our operational excellence program and the rigorous control of efficiency of our investments. And the foundation of our business strategy is focused on achieving superior customer experience in the market and today I will tell you what are we going to do to deliver on these commitments.

But before that, let's briefly remember what kind of market we operate in. Russia today has a mature telecom market with the mobile service penetration of about 160% and the dynamics in the market I expect it to be around 3.5% annual CAGR. The majority, approximately two-third of that growth is driven by mobile data which we expect to grow at 30% annual CAGR. In 2012, we expect the growth to be around 35% plus. In three years the share of mobile data in total telecom market will double from around 7% to about 13%, 14%. The next growth driver is fixed broadband which we expect to grow at approximately 7%.

The overall operating environment, well, as you all know, we have top three players which dominate the market at about 85% combined market share and with only minor deviation between them from year to year. This year we have seen them much more benign compared to this environment; we have seen less competition on the prices which is reflected in the slowing down of the decline in the voice from about 14.5% in 2011 to around to 13% last year; also we have seen the positive dynamic in ARPU; in Q3 the mobile ARPU growth in the market was around 3.3% while we at VimpelCom in Russia delivered about 6% mobile ARPU growth in Q3. We also see that such mobile, such benign environment manifested in a more cooperation between large operators in the areas of infrastructure, network sharing and we will talk about more today.

Fixed market is an important component of our revenue stream. It’s about 20% of our business. In the fixed market the competition is fairly stable with about 40% of the market in the hands of state income with Rostelecom. I guess another aspect of the market environment which we will mention is the regulator environment. There was much talk about it today already in Jo’s presentation and I'll say that regulatory agenda is heating up in Russia after several years of relative calm. I guess one of the most important topics coming up is MNP. Earlier, we were expecting MNP introduction in Russia in first quarter of 2014, but now the new date has been announced for the 1st December of 2013 which will require investments from us, which will require even increased focused on cementing our existing subscriber base in short, but its also a greater risk to the competition as well.

The other items on the regulatory agenda include potential technical neutrality for one of the spectrum bands in OT. There is a discussion about abolition of internal roaming charges in Russia. There are attempts for a greater regulation in the SIM distribution and also in content services to mobile subscribers.

How we perform against this background? Standing here today I'm very proud to be a part of the impressive operational turnaround we have seen during 2012. Some of the numbers to illustrate it, EBITDA margin in Q3 2012, 43.2% which is the highest level since Q4 2010; since the beginning of this year we reversed the 11 quarter long period of negative EBITDA dynamic, negative EBITDA margin dynamic by delivering positive EBITDA growth and improvement in marginality quarter-by-quarter this year. A number of areas of costs we managed to maintain costs flat or even down such as S&B, G&A, and some of the most significant improvements we have seen in the reduction of commercial costs. This was, we were able to deliver those results by focusing on fastest growing segments of the market and on implementing rigorous operational excellence program.

More than a year ago, we made certain commitments to what we are going to deliver during 2012 in terms of improving various lines on the P&L. Today we can say that we delivered maybe even over delivered on all of these commitments. If you look at the mobile data, the mobile data growth in Q3 was 38% and for the first nine months of the year, we have grown in mobile data faster than the market overall. This was due to our focus on small and medium screen, which are the fastest growing segments of the market where we are delivering growth over 50%. In the work screen, referring to what Jan Edvard was saying earlier, we look at the segment on the opportunistically where we have excess capacity. Demonetization of smaller medium screen is obviously is much more attractive. The price per gigabyte is about eight times higher in small and medium screen compared to large screen.

On service margin, if you look at the service margin for new sales, we increased it from 58% to 64% and this is on the background of declining APPM in the market. And another area of our focus on revenue side is churn. We managed to decrease the churn from 66% to approximately 61% and we have comprehensive churn reduction program in place and committed to continue reducing churn going forward.

On cost side, we have introduced at the beginning of the year operational excellence programs which touches all the key processes and functions in the company which has started as a project but has become, an essence of cultural mindset for the organization. Some of the examples of our significant achievements in operational excellence concern with commercial costs, we managed to reduce commercial costs if you look at the Q3 numbers by 20% or approximately by 8% per each SIM sold. This was done due to two initiatives; one is transitioning of our distribution to value-based revenue share model and the second one is increased focus on contribution margin where we look at dealer by dealer and optimizing the sales mix with towards the dealer mix to maximize contribution margin.

On the technical side, we have done some ground breaking projects in Russia; we have outsourced our network maintenance in three large regions in Russia, Volga and Far East and the Central to give you a sense of the magnitude the combined territory of these three regions is approximately equal to 25 (inaudible) and approximately 19 million subscribers are located which is about one-third of our subscriber base located in those regions. These programs have given us significant cost savings but also better way of managing our existing resources and this is the program which we will continue into coming years.

The initiatives include optimization of our headcount, unfortunately our IRS is not letting me give you much more details on that, but I must say I have been required a few headcount optimization programs. This one was one of the most ambitious and we achieved what by a variety of methods we used including disposal of some of the non-core assets, outsourcing (inaudible) and outsourcing in various areas not only technical but also looking at the core central outsourcing and other areas. Another example is moving some of the corporate shared services outside of Moscow to area with lower rental and lower labor costs. So this has been achieved during 2012, but I believe what we have achieved during 2012 is the sustainable turnaround, the emphasis on sustainable, and we believe we can continue this initiatives into coming years.

This is a slide which has Jo showed to us earlier, the four pillars of our value agenda was the aim of achieving profitable growth relying on operational excellence, capital efficiency and I believe customer excellence being the foundation of this strategy. Let me walk you through these main pillars; we will start with the customer excellence.

At the beginning of first year, we set ourselves, what I believe is a vary ambitious goal of gaining leadership in customer experience as a long term goal measured by MTS, measured by PRIM and it wasn't an easier task for us given that today we’re actually behind most of the competition in many of these metrics such as MTS and TRIM. This is due to a period of under investment to the network and other areas of our business which we now have to within a year, year and a half to quickly close the gap and achieve parity. What was important, what was one of my goals last year is to create a customer focused organization, to create a cultural mindset focusing on the customer excellence. We have developed a comprehensive program of improving customer experience. This month we will be announcing an appointment of Chief Customer Officer who will give direct report to CEO.

We have developed a set of KPIs related to customer experience which are spread through the organization and one of the key elements was the engagement of employees of the whole company for these goals. We've done a lot of research trying to identify what are the [paying] points. What are today's dissatisfaction points for our customers and we develop programs to address these points.

Not surprisingly, network which is our main product has been identified as one of the key paying points which we have to urgently address. We've done already a lot during 2012. We for example increased the number of our 3G nodes by about 20%. We significantly increased the percentage of our backhaul on IP protocol from a very modest 10% at the beginning of 2012 to about 40% at the end of the year and but we set even more ambitious goals for the next year, year and a half.

This is the window we have to close the gap in efficient way to achieve parity with our competition at least in the key regions of our presence. What are we going to do? We are going to increase the number of 3G nodes by 30%, in some of the areas the goals are even more ambitious for example in Moscow which is our most important market it was about 35% of total revenue.

We are going almost double the number of nodes. We are going to double the percentage of (inaudible) from 40% today to about 80% towards the end of this year and we are going to continue to invest significantly into our transport network with the aim of growing the [rents] for our transport network by about 45%.

Obviously when we have such ambitious network development goals your concern and our concern is on the efficiency of this investment. How do we deploy this investment in an efficient way and there are at least a couple of tools which I want to indicate to you.

One is the regional cluster approach, we in essence we divided all of the regions of our presence and where we have 83 branches across Russia into five clusters. The first cluster is strategic branches; nine strategic branches including Moscow, including St. Petersburg, the central region which combined have about 60% of total revenue.

And then four more clusters including leading donors, live donors small and potential regions and our investments are prioritized to maximize the return on investment and to the network and then within the region, within the branch, we use customer experience as one of the method of pinpoints in problem areas in our network. We are monitoring closely the customer experience with various tools including multiple quality agents, including [MPS] measurements, including the technical data we received from the base stations and we are addressing specific bottlenecks in our network.

Also, a lot of emphasis is put on network optimization where were the minimum investments we can achieve a lot by opening an existing bottlenecks. Two other areas of customer experience which we will be focusing on, which we also currently consider as the areas where we need to improve. One is related to distribution, the other is pricing.

Why distribution is important? In 2012, approximately 90 million SIMs were sold in Russia, which is ever shown for the market in excess of 50%. Therefore, the retail experience is extremely important for subscribers in Russia because a lot of our customers have to go through the retail experience during the year.

One of our focuses in this year is boosting our monobrand retail footprint. This is one of the area where we will lag behind competition. We've done quite a few things in 2012, starting from very modest 200 retail outlets which is 10 to 15 times smaller than the self-owned monobrand of our own competition.

We've already doubled it by the end of 2012 and we want to bring it up to approximately 100 monobrand outlets by the end of this year. It's still going to be less than competition but we do not necessarily believe but we have to match up the competition store per store at least within next 12 months, at least for two reasons.

One, we believe that the number of SIMs sold in a market will continue to decline. For example, in 2012, the decline was in the range of 80% to 90%. In our case, the decline in SIMs sold was about 20% and despite that as you know we increased the profitability, we increased the contribution margin by achieving high quality of sales. And going forward, we believe that SIM sales will also continue to decline. Therefore the role of a retail network for SIM sales will be declining.

Secondly, we believe that there are many untapped opportunities in online channels and self-service channels. One of the, or at least half of the reasons why customers are going to retail stores today is actually to get some basic service operations, to get the balance on their account, to change SIM, to change a tariff plan, a lot of these services they can do themselves with the self-service application.

Unfortunately until recently, VimpelCom in Russia lacked quality self-service application but this is now being addressed we have been working for most of last year on bringing to the market the best in class self-service application and self-service online experience which will be released in the first quarter and we believe that will take up a lot of load on from our retail network.

Also an important component of our distribution model is the strongest player independent player in Russian distribution Euroset you follow the news closely you know that we have recently increased our share in Euroset which gives us a much stronger corporate governance position in Euroset before that we had very limited ability to influence Euroset as a business.

Also, Euroset for most of 2012 remained the last segment of distribution which did not have a revenue share model. From January 1, we transitioned Euroset to revenue share model which we believe will being the same efficiency which we have seen in the rest of the distribution after we introduced revenue share, reduced commission level, improved lifetime value and improved and growing contribution margin.

Develop superior price and capability another area which obviously our customers often mention as area of dissatisfaction. What we are doing there often customers are confused with and overwhelmed with various tariff plans price points etcetera, what we have done during this year, we streamlined and simplified our tariff portfolio. We have five key tariff plans across the Russia which we support with our communication campaigns.

The focus in those in this tariff portfolio is on bundles. Now we sell about 7% in all new sales bundle sales. We started selling bundles basically at the end of 2011 beginning in 2012, the number of swaps and bundles now increased 10 times over the past 12 months.

In other priority tariff plans for us is on net. On net plans helped to cement the subscriber base to increased royalty which is in particularly important given the upcoming MNP and today about 20% of our new sales are on net and on net tariff plans and about 25% of existing customer base is currently on net tariff plans.

Going forward, we are going to introduce next generation smart pricing which differentiate by speed, by volume, by network availability. The bundles will start including 10 components, some of these price innovations which Jan Edvard was talking about earlier. This is all coming on stream for us in the second half of the year.

Profitable growth driving mobile data, we talked a lot about it today and how we are going to achieve it. The boost that retail footprint is one of the ways of how we are going to drive the smartphone penetration today; the smartphone penetration in our customer base is about 15% which is a little bit lower than the average share for the Russian markets.

So its important for us to catch up in a smartphone penetration and we believe that monobrand is an important way for us to chase smartphone penetration. Also we are now become the only exclusive operator partner of Apple in Russia, for us Apple iPhones is the majority of device sales and with its improved retail footprint we aim to capitalize even better on that.

Obviously LTE is coming. You know that we (inaudible) have a range of frequencies at the beauty contest last year. So we are starting cautiously investing in LTE. The first market where we are going to deploy this technology will be Moscow, which is our largest market in Russia, with the most demanding customers but also there are at least six more territories where we will have to deploy to fulfill a license obligations and to experiment with this technology in different markets.

Most of our discussion today was about growing in the core of our business which for years will remain the largest driver and the largest revenue contributor. However, there are areas beyond the core which today maybe account for less than 1% of revenue but demonstrating exponential growth and within three years to five years we believe will start making significant contribution to both top line and bottom line but also very importantly they enrich customer experience, they diversify our offering which we are bringing to the market.

The two examples of the areas where we are focused on is mobile financial services and OTT partnerships. In MFS we have our joint venture with one of the Russia’s strongest banks Alfa-Bank. We now have about 1.5 million customers. The growth in revenue last year in MFS for us was 240%. We aim to double the number of customers during 2013 and we are going to expand beyond remote payments which is our core product today in MFS towards proximity payments [ticket] in transport and towards micro loans.

In OTT, we have examples of cooperation with global leaders in this segments, we recently announced a partnership with Google Play where we are going to offer operator billing for Google Play App Store purchases for customers in Russia and earlier last year we have announced a partnership with Facebook where we offer free zones, zero zones success to the main pages of Facebook and also interestingly we have conducted television outcome joining with Facebook which was the first ever joint television campaign for Facebook globally.

Operational excellence, as I said earlier today it’s no longer a project. It's a mindset of the organization and we will continue with all of the initiatives which we have developed during 2012 and the result of 2012 initiatives. You may remember that more than a year ago, we announced an ambition of achieving 5 billion rubles in terms of operational excellence target. Today, we can say that we will at least double this number for 2012 and we have similar ambitions going forward.

Capital efficiency, network share and efficiency project. We will touch upon it today with ambitious investment plans which we have for the coming year or two, necessarily to close some of the key gaps in particular network gaps. We have to be very careful, very smart in the way we deploy our capital. I will talk about some of the tools we're going to approach. There are many opportunities in network share and for example today about 20% of our (inaudible) our base stations already on a shared basis as other partners.

During 2012, we launched 40% of new base stations which were also done on a shared basis. 95% of our transport network projects are done on a share basis and our ambition is to increase the percentage of infrastructure sharing with other operators. One of the ideas we actually discussed is a joint tower company and I think LTE has given another stimulus to operators to discuss various opportunities for infrastructure in LTE including spectrum sharing, active sharing and even potentially joint infrastructure companies.

To summarize, we have achieved a sustainable operational turnaround in Russia and our goal is to continue with the kind of progress we have seen during 2012. It is paramount for us to catch up a network quality in particular in 3G product in the key areas for us during 2013 may be a bit of 2014.

We are focusing on optimizing distribution by enhancing our own retail footprint and by further improving our commercial arrangements with independent distribution. Clearly, mobile data remains our focus with priority given to small screen and medium screen and the overall objective is profitable growth where we are not going to buy market share for the sake of it. We are going to focus on profitability which will eventually lead to create and maximizing value for us in Russia. Thank you.

Gerbrand Nijman

Thank you, Anton. We have a bit of time now to ask questions to Anton. There are two microphones, can you raise your hand but please state your name and company before you ask a question.

Question-and-Answer Session

Cesar Tiron - Morgan Stanley

This is Cesar Tiron from Morgan Stanley. I have two questions actually. You mentioned you wish to step up the CapEx roll out in 2013. Can you say if you are going to spend more CapEx in 2013 compared to 2012? That’s the first question. And when you talked about all these efficiencies you have achieved in Russia, have we seen most of this already into the numbers in 2012 or are we going to see this in 2013?

Anton Kudryashov

Well, I don't think Gerbrand will let me answer the first question in detail, but you can not make forward looking comments and projections related to…..

Gerbrand Nijman

It’s clear that next you will be…

Anton Kudryashov

Yeah, but you clearly from some of the things I said the ambitious on no deconstruction, the ambitions on, our position in the network, the focus on strategic branches, we need to close that accumulative gap and we estimate that the gap in competition is probably close to $2 billion to $2.5 billion accumulated over the last three, four years in terms of under investment to the network.

The good news is today we can close this gap with the lot less investment. The prices are coming down. We have new global sort of procurement leverage of opportunities and it was taken about, so we can buy a lot of free equipment cheaper. There is much more network sharing between operators. We have basic regional cluster approach, the customer perception driven approach.

We have a way of pinpoints in the areas of investments more accurately with the operational excellence program in place with the network outsourcing opportunities we have all of this gives us an opportunity to close the gap with less investment, but as Gerbrand mentioned the overall amount of CapEx next in 2013 this year will be higher than in 2012.

And your second question was about what extend the operational excellence efficiency are ready? Well, to start we reported only for nine months, so we will see what the results for 12 months, but as I said many of these operational excellence initiatives will continue and will generate comparable numbers, comparable results going to 2013 and on top of it there are new initiatives which we are generating to even increase the results of what we've seen in 2012.

Gerbrand Nijman

Next question. There was one here. [Foreign Language] Dalibor?

Dalibor Vavruska - Citi

This is Dalibor Vavruska from Citi. If I can ask Anton, you outlined the revenue forecast for the Russian market. I just want to check that's nominal in terms of local currency?

Anton Kudryashov

This is nominal terms, yeah you are right. In real terms you will see basically negative trends for the overall market, but you will continue to see positive growth for at least the data product.

Dalibor Vavruska - Citi

So I just wanted to check I mean you are talking about profitable growth, its basically profitable decline, right if we talk about the numbers?

Anton Kudryashov

No, I believe the numbers which Jo was referring to were numbers in dollars and therefore in dollar terms that will be a profitable growth. One example is if you take Q3 numbers, our revenue growth was about 7% but EBITDA growth was more than 13%, so almost double the revenue growth. So in terms of profitability improvement we aim to deliver real profitability improvement.

Dalibor Vavruska - Citi

Just, you seem to be living more cautious compared to your main competitors in Russia; I think on this so this is one point and the other point which actually is…?

Anton Kudryashov

In terms of market forecast or…

Dalibor Vavruska - Citi

In terms of this forecast I think…

Anton Kudryashov

Well, our market forecast in essence is based on the consensus forecast of the analysts with some of our own skew in terms of what we seeing happening.

Dalibor Vavruska - Citi

And my real, really the essence of the question is that now we have the three operators listed so they are all making statements about their strategy centers which is good for us. We can better understand whether it should be about thinking. And I found one discrepancy between our two main competitors I think with MegaFon focusing much more on building this ecosystem and thinking that this is actually crucial for the mobile operator to actually own the applications and develop some local applications whereas I think MTS is so far more focused on one type of application which is finance. But apart from that they will not focus on data. So I'm just wanting to see from your perspective whether you see that strategic options, polarized is which we said to use…

Anton Kudryashov

I don't think there's much discrepancy in this aspect. All three operators are looking at RCS type solutions with communications with them and we are probably going to develop a joint product or products based on a similar platform. Yes, we did mention our inroads into mobile financial services in our strategic operations, because we believe the most attractive opportunities currently in the market, but similarly to what Italy did recently WIND Digital we are envisioned on creating a special purpose vehicle focusing on in essence new growth opportunities in the market which I usually call digital opportunities. So there will be an increased emphasis on this area as well. In terms of magnitude of numbers these are still tiny. They call affairs initiatives etcetera, for us it’s all less than 1%. But I think what's key is the growth. Yeah, when you talk about 200% growth, this is where the attractiveness lies.

Gerbrand Nijman

Okay. The next question, there one the front row here.

JP Davis - Barclays

Good afternoon. JP Davis from Barclays. The first question is a top down focus on sweating the assets. How does that align or how does that balance with the customer experience which is also one of your goals i.e., they are not a bit of give and take here, sweat the assets and give up a bit of customer excellence? And then the second one is, just maybe you can comment on your experience of outsourcing your network, particularly you’ve gone the whole hog and outsource the entire network, specifically, what the customer qualities like, what the end, specifically what the cost savings have been from those? Thank you.

Anton Kudryashov

On the first question, I don’t believe there is any conflict in those goals. I think there is a way of exploits and assets more efficiently. That’s what our operational excellence program allows us to do. On the other hand, to grow the customer base, to retain high ARPU customer base, to focus our customer base towards data product, to increase their loyalty and therefore to reduce commercial costs, the striving for superiority in customer experience, we believe is the key in achieving it. So we think this could be complementary targets.

And the question on network outsource, within the outsource, the whole work is at the moment is three regions, large regions out of eight. We do intend to outsource probably two, three more regions. I would say that it took a lot of preparation in essence the first outsourced program took probably six to eight months of rigorous negotiations. We also stage and obviously tendering, we also staged this outsourcing programs was about four to six months between the next one being able to draw on the lessons and make adjustments to the next ones to the next program. But overall our experience was positive.

Some of the areas where we had most of the problems was with B2B customers which require more customized approach, but for the mass market the experience was overwhelmingly positive. I believe we do not comment on the exact amount of savings, but I think at least in some past presentations I remember referring that to the international experiences show that 20% to 25% annual cost savings are normally achieved in the circumstances and obviously in Russia we were aiming for at least as much as ambitious goals.

Gerbrand Nijman

Okay, sorry for the sake of time unfortunately we have to stop the Q&A here. Later you can ask Anton a lot of questions after 5 ‘O clock. And now I would like to hand over to Maximo. Anton thank you and Maximo will present Italy.

Maximo Ibarra

Good afternoon, ladies and gentlemen. Now it’s about Italy business unit and I will start from the strategy of WIND in Italy. I think this is the most important element because the strategy WIND has been implementing over the last years has been crucial and absolutely effective in outperforming the Italian market. The strategy is about positioning and the positioning of WIND this made by two different elements. One side the clarity transparency of its offering portfolio, it means an attractive offering that has been able to get for WIND the absolutely state of the art commercial figures over the last three years. And the second element is about the quality of service, that is made by superior customer excellence and customer operations mainly, but as well as the point I said by customer service and point of sale and on the other side of network, our goal is not to have the best network ever, but we have a network that is absolutely matching the most important needs of our customers, so a good network.

The combination of the two is what we call having a smart value for money positioning and this has been consistent over the last years. The result of this positioning is WIND in the last 20 quarters has always outperformed the Italian market, this is extremely important. And we have been able to grow in terms of value share from I remember 14%, 15% in 2005 till the current 20.5% if we consider mobile as a whole, but then if we look at the mobile consumer, the revenue share now is around 26% moving from 16%, 17%.

The other important aspect is that of course we are very focused on high margins and delivering positive cash flows, not only mobile, but as well as in the fixed arena, the fixed arena in Italy is extremely complicated because there is a very strong incumbent. And in order to do that as a reason Italy at pressure on the topline there is a revenue because there is a very mature market, highly penetrated, of course we have been putting in place very effective programs in terms of efficiency for both OpEx and CapEx, but without touching the quality of service that as I mentioned before is absolutely key in the strategy.

The last but not the least is about the lean organization we have put in place in the company. I think this is one of the most important competitive advantages; very lean organization, zero bureaucracy, every time we've cited those in terms of execution we are able to execute in a very short time and this has been of course crucial in our strategy.

Moving to the market, the market in 2013 will drop again and the main reason behind this is the mobile termination rate. Mobile termination rate has been hitting the top of value, the topline of operators in Italy and in 2013 there will be the last one. In July, the termination rate will go to €0.98 and I hope this will be the final one. Of course this termination rate regulation is driven by decisions of the European Union. And we believe that in 2014 the market will stabilize and will be back to growth in 2015. So this is the most important news. We will be back to grow in 2015.

If we take out the regulations negative impact then what we will notice is that that performance in terms of revenue is exactly the same. So it’s flat in the period 2012, 2015 revenues are flat excluding mobile termination rate negative impact. Mobile voice of course is declining as a matter of fact and is not only declining because of hog competition and economical downturn, but its also declining because the consumer behavior is changing and this is partially being offset by mobile data. Mobile data is growing fast and particularly is growing very fast for WIND as you will see later on.

Regulatory environment is one of the most difficult ones and as I already mentioned the mobile termination rate is something that of course we are dealing with and we have to deal with. On the fixed, the big picture is that there is a big income in Telecom Italia. There are different alternative operators. We have a brand there very strong one is Infostrada and then we have also Vodafone, TeleTu and Fastweb, but if we take a picture to the Italian market what we see is that 100% of the cash flows are in the hands of the government and this is something that we consider unacceptable, that's why we are really addressing this issue not only at the local level, but also at the European level, because we would like to have this LLU fee to go down from the current value that is approximately €9.28 per month per line to something that is more in line with €8 per line per month.

And we have a solid base case for that because recently also the Italian Antitrust has stated that Telecom Italia over the last three years in particularly 2009, ’10 and ’11 has put in place malpractices not only from the economical point of view, but also technical and this is something that of course the local authorities has to taken into consideration. And about the next generation network, the situation is the following. There is no any chance to have different alternative fiber networks in Italy, so we are very favorable to a third entity participated by both private and public shareholders with parity of access for all the alternative operators and at the same time operating in a clear and transparent governance.

About the competitive situation, the economy of Italy is not very – it doesn’t look so sexy, as you know, as most of the western European countries, but in any case, what we believe is 2013, probably the situation is going to be worse than 2012. In particular, if we consider customer consumption. Of course, the GDP will decline by 1.1% versus the minus [2.1%] in 2012 and the employment rate will rise again. This is probably the most worrying aspect of the Italian economy, but in any case, customer consumption is not going to change and we believe that this situation, in any case is favorable for WIND, but favorable for the positioning of WIND, because our smart value for money is of course something that is really matching this situation. So we still believe that thanks to this opportunity, we will be able to deliver also our results in 2013, ‘14 and ‘15.

There are also other important areas for growth of WIND because for example, in the northern part of Italy and in the segment of the small and medium enterprise, our value share is lower than the fair value share. So it's not only about positioning, but it’s also about opportunities and the opportunities for growth.

As I mentioned before, if you look at the mobile market share, the mobile market share is overall 20.5%. In 2009, it was 17.3%. And again, if we look at the consumer market, mobile consumer, it is approximately 26% and our goal is to get and to take the leadership in the mobile consumer market by between 2013 and 2014 of course our competitors are not very happy about that, but these are clear facts, so we are just simply continuing our performance in the market.

On the fixed, Infostrada is the most important player after Telecom Italia and that’s why we are very strict to profitability and to positive cash flows. And we are also doing our own homework, the homework is about focusing on the direct taxes and on the most profitable channels and our market share there is approximately 16.5%.

Performance; there is a big pressure on the topline, on the revenues, and so revenues on a year-on-year performance slightly go down and as well as for the EBITDA, but again, if we take out the mobile termination rate impact, their performance is absolutely stable and in any case much better than the one of Vodafone and Telecom Italia mobile as you can notice in the third quarter of 2012 despite a decline in terms of revenues WIND’s performance is much better than the one of the two incomings. We expect this to be the same also in the next quarters.

About the mobile subscribers, we have reached approximately 21.5 million customers despite the fact that in Italy the churn rate is becoming a high one, but our performance in terms of net addition has been absolutely positive because we got approximately 70% of the total net additions of the market in 2012 and at the same time if we take into consideration the mobile number portability balance for WIND is extremely positive and particularly in the last six months, so the churn rate is high, but is may be driven by the promotional pressure existing in the mobile number portability arena, competition there is high and thanks to again the regulations that are very strict in Italy, you can change operator in 24 hours.

If we consider the broadband as a whole, broadband fixed and broadband mobile because now the customers is changing behavior and is becoming seamless experience; now the total number of broadband customer as for the third quarter of 2012 is approximately 7 million out of which 4.7 are mobile broadband, and the remaining part is about fixed. We have a quite significant growth over the last 12 months.

What are the most important achievements of 2012? I will say apart from the outperformance in terms of revenues and in terms of value share, I think that the most significant aspect is that our growth in mobile data is year-on-year 43% and has been the same also in 2011, and this is by far the best performance in Italy in terms of growth of mobile data, so we are really executing a lot of actions and projects that are driving WINS to get this performance.

On the fixed as I already mentioned, it’s important to say that we are doing our own homework when we deal with the local authority, and the authorities not simply that we are just trying asking for, we are doing our own homework. The target is to be in 2013 positive in terms of cash generation and in order to get there, again, we are focusing on the ULL, which means value access, it means we are bundling the WLR because it is not profitable, just to give you an idea in Italy, the payback period is 44 months, doesn't make any sense that’s why we are bundling this and leaving this with incumbent.

On the other side, by focusing at the point of sale, we are practically having the acquisition costs on fixed. So the combination of these two elements is guaranteeing us the fact that in 2013 we will be positive in terms of cash generation. The pressure of top line ‘11 of course is taking us to a scenario where we have to work in a very straight way in terms of efficiency for OpEx and CapEx.

On the operating expenses, both commercial and technical. Commercial, we are optimizing our advertising expenditure, its something that we did in 2011. We did also in 2012 and we are going to do also in the next year, without compromising our ability to be attractive on the most important medias to let's say take drive customers to the point of sale and keep subscribing the current path.

At a technical level, we are trying to do as much as possible in terms of site sharing as well as for the structural OpEx we are working hard in order to contain external costs, real estate costs and all the remaining commercial costs. So there is a very hard job that we are doing there in order to get at the end of the game with increasing pressure on the top line.

The free cash flow that is perfect in line with the previous years. About the agenda, the four pillars are the pillars that have been mentioned before. I would really move to the customer excellence one because again we are talking here about positioning and the consistency of these positioning has been absolutely one of the most important winning elements and successful elements.

Every time we talk about customer satisfaction and superior customer experience, we look at one indicator which is the customer satisfaction index. And we are really devoted to this customer satisfaction because in 2012 we have been leaders in Italy. This has been the same story also in 2011 and in 2010. And this is something that anticipates the performance in terms of value share in the Italian market.

That's why we are really devoted to this and this is an index which is a combination of different factors of course advertising, reputation, pricing as well as customer service and operations in the point of sale. In terms of distribution, we believe that distribution and getting high quality customer is absolutely the key element in 2013 as well as in the next three years.

About point of sales, we are moving the less effective and productive point of sales to our national distributor just in order to be able to focus on the most important ones. We are having the mobile number portability commissions and at the same time we are very efficient every time we talk about incentive schemes, and incentive schemes are always 100% linked to the quality of the acquisition rather than on volumes and that's why in this moment if we compare all the different subscriber acquisition costs. We have the lowest in the market.

With the best commercial performance the lowest acquisition costs. If we look at the quality of customers and we move to the postpaid consumer where we were absolutely very low in terms of value share. We've been able over the last three years to grow and to reach approximately 800k customers there as well as in terms of point of sales we have reached the number of 7.7k point of sales, among dealers, franchising own shops, national distributor and large retail.

Looking at the fixed, this is the story about the homework that I already mentioned. So focus on the LLU, focus on inbound point of sales, no more push channels. They are very expensive. On the corporate, we're really changing this strategy because there our value share is low. This is one of the most important growth opportunities we have in the market and we believe that in the SOHO segment as well as in this Small Medium Enterprise, we can really make the difference in the next years and we're now ready for that because you know, that these segments are normally coming just after the consumer won.

Once you get the right reputation there and once you get the critical mass in the consumer market, then it becomes really easier to going after the Small Medium Enterprise and SOHOs. So we're ready for this job but in order to get really ready, what we're doing is just to focus our point of sales, that is an important asset and to leverage them also for the SOHO subscriptions.

So our most important offer which is the all inclusive [license] already starting from November 2012 for SOHOs. Agencies, we're focusing on the place a perfect agency in terms of qualities and the third element is about the 130 industrial districts we have in Italy. So we're just focusing all of our efforts in these areas where most of these small medium enterprises are present.

If we look at the point of sale on fixed, here is important to highlight that in 2010, point of sales were able to and accounted by 15% of the total fixed activations now they are 26%. So, this is exactly what we are doing on fixed and we will do also for the SOHO segment.

The value proposition is based on the all inclusive concept. As you know, we have two important brands one is WIND for mobile and the other one is Infostrada for the fixed, but over the last two years we have been able to create one convergent brand.

This convergent brand is a product brand it’s all inclusive. We introduced for the first time the all inclusive concept in 2009 then we have been copied and matched by competition by MegaFon and Telecom and Tele-Mobile sometimes we should probably ask for some royalties every time we do our products in Italy and we launch our commercial canvas, but in any case it’s important to say that the all inclusive now is present not only in the prepaid market but also in the postpaid consumer as well as in the mobile and fixed consumer and business.

So, it’s really the platform that we have put in place just to play in advance from all the other competitors and to really get the opportunities there, of course in front of us every time we talk about data because with the all inclusive concept we are able to manage the arbitration that the [customer] tends to do every time not that customer work with voice, SMS and Internet.

So it’s a future proof offer that now in this moment is becoming the flagship and probably the most wanted offer for our customer base and also for the retail market. As you can note this now in this moment we have approximately 2 million all inclusive customers and if we look at the Infostrada so the LLU approximately 75% of the Infostrada customers are dual play, so all inclusive customers.

In terms of data, again the growth has been impressive 41%, 43% in 2012 in the first nine months. It was above 40% or so in the previous periods. And this has happened because of, let's say three main reasons. The first reason is that we have covered 94% of the population with high speed mobile network.

The second reason is that we are really committed in order to guarantee the right quality intense with capacity and this is not only thinking of the maximum speed but it is more about the minimum guarantee speed. Now we know perfectly the customers really need something is in the area of 1.52 megabit as average throughput and we are really working in order to give this with the right IP, the calling and all investments needed in order to guarantee the right capacity because internet mobile, internet is really booming.

And the third element is that we are working in order to have the right segmentation for the offering and as Anton mentioned in Russia its exactly the same in Italy, the focus is on small screens and the focus is also on the right agreements and partnerships with the vendors in particular Samsung that is really doing very well in our point of sales.

There are of course a lot innovative areas that we are looking closely. Just to mention some of them in terms of mobile payment, it’s not about buying digital [counters] but it also about ticketing, ticketing now is booming and we recently we have received the authorization from the local authorities to buy with the top-up of the prepaid ticketing plus local transportation in Italy, so this is an important area where we can grow consistently.

The other area is that we recently introduced a new the organization WIND. This organization is called Win Digital and has the aim to address the digital native generations that want to deal with WIND through the online channels. They are customers and let’s say a big chunk of customers that are in the wave of not necessarily going to the point of sale the physical one but just in order to be with the company using all the different online channels with the right integration between social networks and the web channels.

Also, if we talk about customer service, it’s important to say that recently we have reached 1 million downloads of the MyWIND application, application for smartphones and this is extremely important because its one of the most effective steps in helping the customer service people to be more efficient as well as more effective in the next period.

Operational excellence, this is about OpEx. We have recently signed an important agreement with unions, institutions and with all the WIND employees onboard. This is the project called network transformation project. We have been able to reach approximately Euros 40 million to Euro 45 million in terms of per annum savings in terms of cost of labor and thanks to a new organization on the network we will be able so to in source some activities and this will help us in reducing external costs.

As I already mentioned, advertising expenditure is being optimized as well as we are really looking at real estate and power consumption. For this purpose, we also have introduced another organization that is called real estate that is looking at these important costs that are becoming extremely demanding in particular power consumption.

Above the network here it is more about site sharing. And we have grown a lot in terms of sites shared, approximately 40% year-on-year now there are approximately 2,100 sites shared but at the same time we are trying to educate the market for a more aggressive site sharing.

So we believe that there is enough room in Italy to have joint development of LTE network for example and there is to say other opportunities that we can explore. Above the network it’s also important to mention that we have run a free of charge organization from the 2G network to the 3G network. Again, we are optimizing the maintenance area and we are consolidating they build the network with only one vendor in order to be more effective for the next, in the next three years.

Summing up everything, I think that the story of WIND is the following: The Company has been able to outperform its peers. And at the same time thanks to all the actions that I’ve already described has been able to deliver a significant and very interesting and attractive cash flow in the period between 2008 and 2012. WIND has been able to deliver above Euros 1.1 billion of cash flows.

We have the opportunity to keep doing and keep outperforming the market thanks to the new opportunities we had. It’s important to say that we have this Small Medium Enterprise in the northern part of Italy where we can do much better in the next years and we can really leverage the experience we have reached in terms of mobile data and we can really keep outperforming also in this area in the Italian market. Of course it's a matter of execution. It's a matter of organization and we believe that if we're able to keep the organization committed and really focused on cash generation, this is going to be the reality for the next three years. Thanks very much.

Gerbrand Nijman

Thank you, Maximo. We have time for a few questions now. Can you raise your hands if you want to ask a question?

Question-and-Answer Session

Unidentified Analyst

(Inaudible). So how critical is it for you to get the right regulations on you alone?

Maximo Ibarra

Let me say, it's critical but because on the other side we have a big incumbent that has different agenda, but we really believe that we have a solid base case. Again, the anti-trust decision, recent decision is favorable to WIND. All the evidences that we've collected are extremely, extremely effective in this direction. So, it's difficult but it's absolutely not impossible.

Unidentified Analyst

If these networks spin out is going to be implemented, do you see that as a positive or a negative for WIND?

Maximo Ibarra

I see this as a positive decision for the reason that there will be one network with access for all the different alternative operators. The important thing is that there is a very clear governance. This clear governance can be guaranteed by the public entity or a private company with public objectives like the (inaudible) operated in Italy and again all the strategic decisions about the development of the network which is fiber to the home, fiber to the cabinet is something that has to be decided if this decision has been taken by this governance, but I see this as a very positive scenario.

Gerbrand Nijman

Next question.

Herve Drouet - HSBC

Herve Drouet from HSBC. First question is on Italy was this tough telecoms market you just mentioned to us. Do you see firstly a room for further sharing not on in sites but also on networks and do you think the operators are ready for it or do you think is still too sooner could there be any constraint you see that may inhibit that?

Maximo Ibarra

You mean sites sharing or you mean network sharing?

Herve Drouet - HSBC

Well site sharing I am more talking about the equipment sharing itself not only the sites but for your equip further?

Maximo Ibarra

I believe that for the equipment sharing is of course that theoretical scenario but I really believe that we should probably talk about the new network development. So the LTE there is room for this.

Herve Drouet - HSBC

And do you think other operators it looks like you are saying for you it’s something which you would relatively happy to do, do you see form your competitors some…

Maximo Ibarra

It’s an increasing interest they are a little bit shy on that, but I believe this is something that we can work at.

Herve Drouet - HSBC

And also do you believe that if the market remains tough for longer, do you think we might potentially see some consolidations depending on what happen also and the networks pin outs outcome but it is the fixed line broadband, how do you think there is room for consolidation there?

Maximo Ibarra

For the fixed broadband, I think the only clear scenario is the one we were discussing before is the separation of the network of telecom Italy and a new entity that could manage both copper and fiber network. In terms of consolidation of course there is always an opportunity, in this moment of economic downturn it’s difficult to take discussions like this.

Gerbrand Nijman

And we are having next question, there in the back.

Gavin McKeown - Pioneer

Thanks, Gavin McKeown from Pioneer. I am curious with such a challenging economic environment as you point out of the start and an incumbent that doesn't act rationally for incumbent on a much your price and policies with a much higher cost based, why you are so comfortable launching a pretty aggressive offering during the summer to what trying to send a signal back to TI or…

Maximo Ibarra

Every time we talk about pricing in Italy it’s always pretty thing. The one evidence and one fact is that WIND has been always very consistent with histology. Again, it’s a smart value for money. But again it doesn't mean only cheap offering but it means its overly transparent and you know what it is, just if we talk about the all inclusive is very (inaudible). What has happen recently is that the two incumbents in particular one Telecom Italia has decided to match most of our offers, sometimes being even more aggressive. But this is their strategy, it’s not our strategy. The important element in our strategy is to be again very attractive in terms of offering and superior customer experience in terms of service. And this has been paying off. We believe that consistency is absolutely more important rather than ups and downs in the price and strategy.

Gavin McKeown - Pioneer

Just on the strategy, if they have been trying to match you again and it becomes a race to the bottom?

Maximo Ibarra

Generally, if we talk about what is, if your equation is what do you expect in particularly in 2013, 2014? What I believe is that competition and pricing has been extremely in demand in Italy. I don't see 2013 to be more aggressive than 2012. I believe that the fact that in 2013 July the termination rate will drop to 0.98 this will be in terms something totally different because the strategy in terms of pricing will disappear a little bit. It’s just a matter of bundles. It’s just a matter of all inclusive bundles, almost everywhere and there is not going to be any more distinction between of net and on net. This will change a little bit in the market and probably will determine a situation where aggressiveness in terms of pricing will be a little bit over.

Gerbrand Nijman

Okay. Sorry, for the sake of time we would like to conclude here the Q&A. We will have a short break of 15 minutes. So I hope you can all be back here in 15 minutes at 03:20. Thank you very much Maximo.


Gerbrand Nijman

Hello? Could I ask you to sit down please so we can progress with the program. I hope you all had a good break. Sorry, so short, but we are on a tight schedule. I would like to introduce to you Ahmed Abou Doma. He is the head of Africa and Asia.

Ahmed Abou Doma

Thank you, Gerbrand. Good evening, ladies and gentlemen. So now this is Asia and Africa. For those of you who have been to Asia or Africa would understand, it must be hot and spicy. So, it's all about value creation and our contribution to the recipe of the value creation in VimpelCom is based on maintaining our leadership positions in the market where we operate, but also capture the most of the existing opportunity for non-voice revenue streams that I will cover more details later and certainly it is about optimizing our network expenditure and optimizing our cost in general because at the end of the day, in Asia and Africa, we operate in a different environment than what you have heard from my colleagues, Anton and Maximo before. We operate in markets where the ARPU could be as low as $2 per month. However, able to deliver north of 40% EBITDA with this kind of ARPUs.

A little bit of background on the portfolio of Asia and Africa business units. It comprises of eight operating companies. So it's a multi-optical business unit, different in the market evolutions or market development from penetration rates like in Algeria that are approaching 90% and as low as 20% in some of our markets like Burundi and Central African Republic.

With no further due, I'll start with the first market here, the Algerian market. We believe we have a great potential in that market and we have been successful over the last three years to maintain our market leadership there despite the ban and the regulations that are in place in Algeria. It's a very strong economy, very stable political system. The announcements by many government officials in Algeria says that they have more than $200 million of foreign direct reserves; I don't know many countries who have that much money in reserves. The regulatory body has announced that as soon as the Djezzy file is going to be resolved 3G is going to be coming with it, so it was good news for us to have somehow the link between the 3G launch and the resolution to the file of Djezzy at the end of the day as I said we are keeping our market leadership so we are still maintaining 56% of the market which is an amount of subscribers that the government cannot ignore when coming to launch 3G services.

The competition comprises of us, Mobilis and Wattaniya. Generally speaking, the company has shown resilience; I do not know of other companies in the world this size of Djezzy that has managed to maintain an operation without any CapEx injections for three years; that’s I think an industry benchmark in the world.

Once the file is resolved hopefully we have prepared a file for a network modernization, so a mega-tender will be put in place, the work of which has already started. We have our files ready to hit the ground running as they say as soon as the file of Djezzy is resolved. The performance of the operation so far has been showing a lot of resilience as I said not only are we able to maintain the revenues, but actually growing the revenues and maintaining very high levels of EBITDA at the high 50s.

The mobile subscribers as you can see are kind of stopping at the north of the 70 million, but this is due mainly to the capacity that we have on the network; we don’t want to push for more so we are balancing between the churn that we are seeing which is relatively low and getting the subscribers just to feel to the ceiling of the network. So we are managing that very delicately; it’s not everything we can get in Algeria, but that's what we can with the current capacity once the file of Djezzy is resolved, I think we have much more to get in Algeria especially under 3G arena.

The next market is Pakistan; a different market, a mass market here and we’ll talk about the 180 million inhabitants with also having the market leadership with our company there Mobilink with 36 million subscribers, a very big base. The GDP have been growing, so moderately it’s around 2.5%, 3.5% over the last few years. Some security and political situation remain tense and we got used to that actually operating in a market like this and we knew by now how to mitigate the risk related to this kind of political situation.

The regulatory there, the PTA has announced as well that 3G is going to happen in Q1, 2013. Our belief from the recent readings is that probably this will fall further into Q2, 2013, however 3G also represents a huge opportunity in this country given that one it’s a very young population; two, fixed line operations are very small or not very much penetrating in the market, and as well our position being the largest mobile operator with the largest based and the high end customers.

It’s a very competitive market with five players. We are having a 30% market share as of the closing of 2012. Mobile financial services have been launched a month and a half ago and mobile financial services is the third pillar of our strategy in Pakistan. The mobile financial services takes a certain dimension in Pakistan given the socioeconomic dynamics where young people go to the cities to work and then sent home back to their families, wives and kids the money. Here mobile financial services plays a very important role in the money movements inside the country and that's a huge business in Pakistan.

So Pakistan, 3G is upcoming, that's a great opportunity. Mobile financial services have been launched recently, that's another stream of revenue that we are looking forward to and by the end of 2012 we have finished our network modernization tender which was awarded to two suppliers. By that we are gaining/making two gains. One we are redesigning the network to be more optimized using better equipment that uses less OpEx, but at the same time making the network 3G ready for us to be ahead of the 3G license awarding.

The set of [PPIDC] in Pakistan also shows a very stable performance, revenues have been increasing, EBITDA has been constantly increasing and actually EBITDA in Pakistan has always constantly been increasing more than the revenue growth which is a sign of gains on operational performance. Mobile subscribers are coming under a little bit of pressure, that's not due to competitive pressures, but rather due to the government and the regulator putting more stringent rules on the sales of new lines for security reasons. Something honestly we do not mind giving that it gets the smaller challenges who are trying to create their mass base to be less active in the market at this stage. So we are seeing our gross additions becoming less but so is our churn. All of which adding to a better operational efficiency.

The next market is Bangladesh and Bangladesh is another massive market with more than a 160 million inhabitants. Low penetration rate still at the 60% level of penetration rate. But there we capture the second position in the market. Its one of the few countries in the world that for 10 consecutive years had GDP growth in the level of 6% or more. So Bangladeshis are having more and more money to spend, more affordability. Their purchasing power is increasing with time. A very young population again.

One more time the regulator in Bangladesh has also announced that 3G license awarding is going to happen in Q1, but in Bangladesh maybe the pace is a little bit faster, because the regulator has already approved and the ministry as well the guidelines for awarding 3G. So it seems like quite an organized process in Bangladesh with much less hurdles than the ones that might be in Pakistan. So we believe that this is going to happen quite soon in Bangladesh and again here we are very much positioned to grab the best of the 3G opportunity.

Again, it’s a country that has a very young population and fixed line is almost non-existent, so no competition from fixed line when it comes to broadband gain, but most importantly is that our brand has been originally positioned to target the youth, so banglalink grant in Bangladesh is very much appealing to the youth. We have the highest market share within the youth segment. All of which you know the youths are best positioned to grasp new concepts and new technologies and adopt them. So in Bangladesh 3G is coming.

Mobile financial services and value added services we have launched already mobile financial services a year and a half ago, but it is actually, it keeps increasing in terms of the roll out of the point of sales of the applications themselves that we offer to our customers. And last but not least, we're also doing a network modernization tender there that we started to work on and that should materialize hopefully within Q1. Again, setting banglalink to be ready for the 3G upcoming license.

The set of [PPIDC] in Bangladesh also have developed quite nicely, especially on the subscriber growth side. Again as we said, this is a market that has relatively low level of penetration rates, 60% only and it's a massive market with more than 160 million inhabitants. So a lot of land grabbing opportunities still there in Bangladesh.

On the next few slides, and I have met some of you in the last Investor Day a year ago. We promised some headlines and I thought here it will be nice to link the headlines that we’ve promised and show how we lived to the promise we have delivered a year ago. So for the first part profitable growth and here as Jo has titled Asia and Africa, with profitable growth, we have been constantly delivering higher EBITDA growth than revenue growth. So profitable growth has been really the theme we have embraced in 2012 and that was based on different pillars. One of them is voice and subscriber stream; we've managed in countries and markets that are very competitive such as Pakistan and Bangladesh to actually increase the average price per minute. That’s not an easy thing to do when you have very competitive markets such as Pakistan and Bangladesh and also very price sensitive customers as you can imagine. Also, our growth in subscribers in most of our markets were very solid within 2012 also leading to our profitable growth.

In VAS and data stream this is new streams coming so we have been as I said quite delivering on profitable growth within 2012. But if you imagine that some of the streams that are going to come next in the next slides we’ll show that those are streams we have not explored yet like 3G mobile broadband and mobile financial services in Pakistan and so on, but now we are talking about 2012 and here we have managed in a country like Bangladesh to have triple digit growth in terms of data subscribers and data revenues. And when I say triple digit growth it was about to be four digits, so it’s not on the lower side of the three digits, it was about to be a four digits growth in one single year. Of course, we are starting from a smaller base; we are talking only about edge, but for us it’s a matter of positioning, it’s a positioning strategy to be positioned as the data operator, so that when the 3G comes to the market we are seen as the brand or the operator of choice when it comes to data services. Mobile financial services have been launched in Mobilink also in November 2012 and as I said early that is going to present a huge opportunity for us going forward.

On the operational excellence a lot of activities have been done, but here I would like to may be concentrate on the OpEx optimization in Bangladesh, so turning a lot of our sites from indoor to outdoor meaning a lot of saving on the OpEx side and also the 11 month long project by which at the end we have came to conclude the network modernization tender, it’s a huge one over the next five years by which in Pakistan we will swap the whole existing network with more advanced equipment that will allow a better customer experience, a better OpEx management and certainly 3G readiness will be granted within that.

Also on the operational excellence we tried call center outsourcing which led very good result as well in many of our countries. We have manage to defend as we promised our market shares in Pakistan and Algeria and strengthen our position in Bangladesh. And as I said earlier the proof of all those theoretical things we have talked in about here is the delivery of EBITDA organic growth that is higher than the revenue growth within 2012 for the whole business unit.

Back to the 10 strategic initiatives that Jo has mentioned earlier today. For us to start with the customer excellence, we have three strategic initiatives on that, one of them is to create superior customer experience and the plan here, now I am moving to what we are going to do in 2013, we have set a touch point net promoter score and it became part of the KPIs set that we give to our Chief Commercial Officers and we are moving a little bit from the traditional marketing model of cutler with the four keys and the marketing mix to CEM customer experience management concepts in marketing, this is being done through a training and coaching to our commercial teams across.

On distribution, we are investing more money now in terms of training the point of sales because the point of sales that used to ask only to sell you some scratch cards or airtime and some SIM cards tomorrow is meant to sell you more sophisticated services, more sophisticated value added services and data bundles. So training and investment in distribution we believe is a long term strategy that we will pay off very well later. Also developing superior pricing capabilities and here we are investing money in developing below the line, BTL is below the line initiatives. You see in Pakistan and Bangladesh as I mentioned, we have 36 million subscribers in Pakistan, 26 million in Bangladesh together its more than 70 million subscribers as they say the fortune is at the bottom of the pyramid.

So what we are trying to do is implement systems by which we can segment those bases into very small micro segments and really tackle for every segment what they need so we talk about the off net users, the on net users, the day users, the off peak users and target each one of them with a specific promotion that is a short period promotion maybe only for two days but do a 100 of those.

Here there are many benefits; first of all we are not spending on communication. We don't need regulatory approval for this kind of initiatives but most importantly we don't ignite price force because the competition does not exactly know what you are doing. You don't have something above the line where you say I have this promotion with that price and in price sensitive markets where we operate you can imagine the price war can start.

So, what we are doing here is that we are taking strategic initiatives to enhance our capabilities in doing below the line promotions and I think this will be backed very well leveraging the big basis that we have especially in Bangladesh and Pakistan. And also new [IN] capabilities we are swapping our INs in Pakistan done, Bangladesh in progress, almost done, Zimbabwe is done and Cambodia is done as well. So all this is to get us more ready for the next phase to capture the data opportunity.

Profitable growth and again we have proven to be able to deliver on profitable growth in Asia and Africa, however, two streams are coming that we did not have before; mobile data now in the phase of 3G is going to be much bigger. Today, we are talking only EDGE and with that even we have managed as I said to increase our revenues two digits and three digits in some of course.

But we want to continue on that and that will be another stream coming to help us on our profitable growth path. The other one is of course mobile financial services and I talked about that already that represents a huge opportunity specifically in Pakistan. A third dimension is the operational excellence and we want here to have a strategic initiative of driving cost efficiency.

We talked about the BTL promotions however network modernization programs are going to be launched I talked about Pakistan that's done and awarded. Currently in process is another mega tender for Bangladesh and the work for Algeria is done meaning we are waiting for the issue of Algeria of (inaudible) to be resolved for us to proceed. We will not wait until it’s resolved and then start to say okay what are we going to do with the network?

We know this is a network that had no investment for almost three years now. We have started to work on a new design on swapping the existing network, make it 3G ready or this is ready waiting for to keep the ground running as they say as soon as the file of (inaudible) is resolved.

In terms of CapEx efficiency, so capital efficiency is of course very important in countries where as I said earlier we operate with ARPUs that are as low as $2. So we are leveraging of course the group size and procurement, the group with the size of VimpelCom helps get the best prices from our suppliers.

We enjoy that in our markets and network modernization tenders as I have mentioned earlier is a corner pillar of our strategy in capital efficiency and of course increasing the site sharing if my colleagues as well in Russia and Italy are pursuing that but it is even more important in countries where we operate to all operators and now we're sensing that in countries like Bangladesh and Pakistan, operators are feeling more and more the need to share more of the networks.

So now we're setting actually targets to our chief technical officers in terms of how much of the total roll out needs to be done through sites that are shared.

So in conclusion, Asia and Africa will is and will remain, I hope, the growth beating heart of VimpelCom. It is the land of opportunities as you might say. Many operations with relatively low levels of penetration. 3G coming in three major markets, Algeria, Bangladesh and Pakistan. Network modernization tenders done in the three countries, very young population. I think we are very well positioned for the next leap in these markets, especially riding on the 3G wave and the mobile financial services. That's it thank you very much.

Gerbrand Nijman

Thank you, Ahmed. We have time for some questions to you. Can you raise your hands if you want to ask the first question? You in the front row, JP?

Question-and-Answer Session

JP Davis - Barclays

JP Davis from Barclays. Two questions please. The first one on the Algerian resolution. There were some introductory remarks made by Jo on how that’s progressing. Can you a little bit more specific in where the negotiations are and what sort of milestones we have ahead of us linked to that? I understand there is an intercompany between Orascom and VimpelCom. Maybe just to discuss the terms around that when that needs to be repaid by and if it can be rolled?

And then the second sort of bigger picture question is you mentioned the opportunity on a lot of these countries for growth may be you can just talk about literacy as a barrier to mobile data growth particularly in countries like Bangladesh and Pakistan. Thank you.

Ahmed Abou Doma

Thank you very much. For the first part I am sorry I will not be able to really answer in detail as you can imagine because confidentiality is kind of a condition with negotiation we are having with the Algerian government. However, as a general comment the negotiations are still ongoing and once concluded we will have to be also presented to ask Orascom telecom for their governance to take place and look into the resolution.

So no much information I can really give here and but I can assure you that there is progress happening on the ground when it comes to reaching a resolution with the Algerian government. It’s taking may be a little bit more time than what we hoped for, but it is moving in the right direction.

For the literacy in the countries we are talking about the literacy levels are higher in the older generations. And as I said those are very young countries by nature, so 57% for example I think of Bangladeshi population are below 25 years old. The levels of education there is getting higher, I was personally surprised of the level adoption of value added services on mobile financial services in Bangladesh once we launched that they use them to pay their utility bills, their gas bills and so on.

So the new generations are more able to capture the new wave of data application that is coming and luckily enough good for us that we adopted a strategy originally to target the youth segments. We have a very good share of the used market, so our bases are younger on the average than the other competitors business that puts us in a better competitive situation when coming to adopting new value added services or data.

JP Davis - Barclays

One quick follow-up just on the inter company with the Orascom to VimpelCom, the terms I thought there was an expiry date sometime this year, does that go just rolled over?

Ahmed Abou Doma

Intercompany like the shareholder loaning?

JP Davis - Barclays


Ahmed Abou Doma

Where shareholder [loan] I mean one of the applications possible application of the resolution of the Algerian could be the payment of the shareholder loan from Orascom to VimpelCom but yet this needs to be decided on due time and depending on the type of resolution that will be achieved.

Gerbrand Nijman

Okay can we have the next question?

Herve Drouet - HSBC

Herve Drouet from HSBC. How much capacity that you have in your network (inaudible) to accommodate potential [subgroups] or increase of traffic, are you at fully, it has some room still or not what is your CapEx constraint?

Ahmed Abou Doma

I have to say that the management the team on the ground in Algeria has done a phenomenal job in maintaining this network up and running for the last three years. However, the more time passes, the more it becomes harder to manage however until now we have passed the most critical times of the year 2012 being Ramadan, the feasts and finally the last Christmas. Christmas is not very high in Algeria but it’s considered a peak as well. If you pass those three, you should be fine, the next real challenge will have because as you can from we are very much managing our subscribers and our tariffs not to really to inflate the traffic on the network.

However what you cannot manage is when the consumers change their behavior like in Ramadan or in feasts and those are the critical parts that we have passed. The next one should be in next June. I don't hope that we still are in this situation until next June but just to comfort to your question, I think we are managing.

Gerbrand Nijman

Next question please. I don't see any hand that is being raised. Oh Dalibor, you have a question?

Dalibor Vavruska - Citi

Maybe just a short technical question I think for the previous market, Russia and Italy you showed some expectations of growth for the markets, I mean would you have a rough estimates for Algeria, Pakistan and Italy as well like this CAGR numbers, just a rough idea where you are and how your or Orascom businesses would contribute consolidated?

Ahmed Abou Doma

Forward looking statements as you might know and you know, are something we would not do at least for the companies that are also Orascom companies because Orascom has this policy. So but I can assure you that given the 3G introduction it happens according to what the regulators have promised in the three countries. That will give you a boost in the first year of launch. So we have high expectations in terms of revenue growth in our major markets.

However also it needs to be understood that the network modernization tenders that we are working on are a major changes to your current structures and CapEx structures that you have in your markets and they pay back obviously on the mid to long-term. So those are the two variables that you need to consider to replace the forward-looking statement that I cannot give. Thank you.

Gerbrand Nijman

Alright, thank you I think that concludes the Q&A on Asia and Africa, I thank you Ahmed. I would like to introduce you, Artem Nitz. He is the CEO of our Ukrainian business.

Artem Nitz

Thank you Gerbrand. Very good afternoon to you ladies and gentlemen. I'm very excited to be here to tell you the story of how we create value in Ukraine and I'll start by saying that as you know in Ukraine Kyivstar is the clear market leader with 45% market share in subscribers and 50% market share in revenues.

As Jo has indicated earlier, we have had a transition year in 2012 going through pricing model to bundles and as was indicated earlier we feel that we have turned the corner and now going forward we see only opportunities for us ahead. And the opportunities for value creation in Ukraine are the following.

First of all, we are committed to maintain our leadership position in mobile driven by our continued focus on high quality services, on the highest quality of services in Ukraine supported with the improved value for money position that is driven by our bundles.

Second, we see a tremendous opportunity in capturing growth in data both mobile and fixed wherein fixed as a matter of fact, last October we have reached the number two position on subscribers in fixed residential broadband and we see opportunity to even further increase and strengthen our market position there.

We are also with this after having reached a critical mass in FTTP penetration; we have now become probably the only true integrated operator in Ukraine, really placing ourselves in a league of our own, placing us a part of our competition. We're also committed to have been historical leader in profitability in Ukraine and we're committed to maintain high margins as measured both in EBITDA about 50% and cash flow margins above 35% going forward.

In the presentation, I will describe how we're going to deliver the submissions but before I will briefly touch base upon telecom market trends in the following three years as we see them. Taken a conservatively probably pessimistic outlook of continued lack of wide scale 3G, in Ukraine, we see telecom market developing at a moderate single digit rate of about 4%.

The growth drivers are all usual suspect with data both mobile and fixed, driving the gross with fixed voice decline and being substituted with mobile. If and when 3G is available to the main operators in Ukraine, we believe that mobile data part of our revenues and the market revenues would be able to double from indicated 15% to probably about 30% in the three-year horizon.

Talking about competitive dynamics. In Ukraine, in mobile segments, we compete with MTS and Astelit and during 2012 we have seen competition being more rational, less aggressive on pricing, which is very good and positive sign. All market players were busy with improving profitability and we see this trend to continue in 2013 as well.

You see from this chart that Kyivstar is a clear market leader but has been losing revenue market share for the past several years. The reason for that is relatively simple, we were the last out of competition to introduce bundles which is currently the market standard that was a deliberate decision by us we were and are still implementing a more balanced cash flow focused strategy that stipulates more phased approach to capacity investments inside technology as 2G.

The bucket pricing is currently the new market reality in Ukraine and we have seen a tremendous increase in voice usage in mobile voice usage in Ukraine to now on average 500 minutes which gives Ukrainian customers a possibility to enjoy probably one of the best value propositions in the world 500 minutes for just $5.

In fixed internet, fixed residential broadband; this is a huge opportunity. The penetration is growing to now about 50%. We are leader in growth in FTTB. In October 2012, we have become number two in subscribers but as you see from the chart the market is largely dominated by small local area networks which basically gives an opportunity to consolidate and we will see probably further in the years to come a lot of consolidation in the market in FTTB.

Talking about operational performance in the recent period it is worth noticing that we did have certain downturn during the middle of the year which was reflected both in marginal decline in top line revenues and EBITDA. Once again the reason for that was simple. It laid in the mobile business driven by a temporary ARPU decline which was a factor of partial of our high value customers transitioning into the market level offers which put a pressure on ARPU.

Starting from Q3, as you see, we see a quarter-on-quarter and year-on-year improvement both in top line revenues and EBITDA which was driven by several factors.

First, expedited transitions to bundles, we now have three quarters of our base using the bundles. Second, we have implemented a vast majority and vast amount of price connections in mobile segment to support ARPU dynamics in mobile. And third, we have continued to execute a lot of cost optimization and initiatives to maintain EBITDA margin above 50%.

Once again talking about broadband FTTB to subscribers, they are continuing, our base is continuing to grow fastest on the market with about 70% growth rates. On the previous Investor Day we had announced certain commitments and apparently this is a very busy slide, but this is a very good news because we have done a lot, we have achieved a lot in 2012 and the most important achievements I'll just point out first of all we have done a tremendous job of transitioning in our subscriber base to the bundles which gives us a platform to grow in 2013 onwards. We have achieved number two position in FTTB and we are committed to grow twice the market base in 2013 as well. We have revised our distribution policy; we have changed our commission policy to link our commissions to actual ARPU of the clients and we have implemented a regional differentiation of our sales strategy. We have also successfully completed integration of our assets in Ukraine and we have achieved substantial cost savings in 2012 of about UAH200 million Hryvnia in the nine months period.

Turning to our value agenda, you have seen from my colleagues across the company in each business unit we’re focused on four pillars of the value agenda with 10 initiatives and I'll just briefly walk you through on what we do in Ukraine to support group value agenda. First of all, the customer excellence where we have three important initiatives that we are following creating superior customer experience, optimizing distribution and developing superior pricing capabilities.

In creating superior customer experience, first of all, we believe after having executed our transition to bundles which we are finalizing in 2013 and coupled with our efforts and investments to maintain the highest network quality and the market we believe we are delivering the best value proposition on the market which is the fundamental to maintain customer section, the fundamental to maintain the highest brand preference on the market.

We have also established a dedicated organizational unit within our company that we have called customer experience management that is specifically targeted to manage experience of our customers in a seamless way throughout the lifecycle of our customers. We are launching special IT systems, advanced business intelligent solutions to know more about customers, to know practically everything about customers with an ambition to execute 25 million individual campaigns, basically in executing a campaign to each individual client.

Talking about distribution optimization, as I've said we have executed adjustments to our commission policy; all our dealers and partners and distributors are currently using revenue share mechanisms that have specific ARPU targets which now already in 2012 has resulted in significant uptick of our growth rates by about 40% comparing to 2011 and contributing positively to improved quality of sales as well.

In developing superior pricing capabilities, in addition to our new pricing model, bundle model, we're also busy with making the next steps of that strategy which is absolvent of the low and medium ARPU clients after they have transitioned to bundles. We also continue to utilize our dual brand strategy with the smaller brand digital serving as our tracker brand or rather we use the juice to defend against any potential aggressive pricing moves of our competition. Also we're currently of in process to update our three-year pricing strategy which basically will look ahead, three years ahead, which among many other things will enable us to manage ARPUs of multi-SIM customers, to manage ARPUs of share bundles and so on.

The way we're planning to realize upside potential in profitable growth is through data as in many other markets, as in many other business units. First of all, wining in mobile data for us means first of all, increasing the usage of mobile data and increasing penetration of smartphones. In 2012, we have introduced special data packages, which for small screens were also focusing on small screens as in Russia, as in Italy, it is priority for us. In addition, we have aggressively push smartphones on the market which has helped us to increase the share of mobile data users to already 10 million out of the base 25 million and increase the penetration of smartphones in the network to 18% now. Going forward, we will be introducing special content and application bundles supported with specialized sales schemes and innovative distribution models for example launching own application store within Google Play.

In support of the value agenda growing beyond the core, in Ukraine for us it means that in addition to mobile, we are also continuing our efforts on fixed residential broadband. We have completed nationwide rollout; we are not rolling out any more network, what we are focusing on is penetrating the connected buildings. So we are focusing on maintaining leadership in net adds, we are focusing to deliver the highest quality of service and higher speeds to our clients and we believe that we will be outpacing, outgrowing market substantially both in customers and revenues with the projected revenue growth from FTTB next year of about 45%. We are also giving our FTTB subscribers an opportunity to enjoy video content in partnership with local partners. Another item of growing beyond the core is the financial services. We have at the end of the year launched mobile financial services to enable peer to peer money transfer and utility payments and so on.

The next peer review of our agenda which has received a lot of attention in 2012 and will continue to be one of the focus areas in 2013 as well is operational excellence which is about cost efficiencies. In 2009 Kyivstar has introduced operational excellence as a project and it happens to be, it continuous to be a dominant topic in our operations up until now. With this cost efficiency initiative we have been able to maintain EBITDA margin above 50% for all the years despite high inflation despite high traffic growth despite continuous increase in frequencies fees and regulatory charges.

In 2012, we have achieved a good result as well, as you see on the slide, we have achieved for the nine months period of 2012 we have achieved cost savings of about UAH200 million Hryvnia which is roughly 7% of the run rate mainly in the areas of network efficiency and HR. Building on this success we’re continuing with the program in 2013 as well where the most sizable initiatives would reside in there as once again in network; probably network outsourcing with this we are tackling to continuously growing network maintenance costs; network modernization, with this we are trying to maintain the continuously growing power costs driven by electricity rates increase. We are also focusing on promoting on net traffic in an effort to improve service margins. We are continuing with the efforts to right size the headcount in the organization, just to name a few specific areas for 2013.

The last pillar of the agenda is capital efficiency. As I have said we have completed roll out of FTTB network and with this completion our last 12 months CapEx to revenue ratio has decreased to a level of 15%. Going forward assuming no 3G investments CapEx to revenue ratio will remain on a relatively low level. The levers that will help us to maintain efficiencies, capital efficiencies going forward would relate to the initiatives we will focus on core mobile business. We will continue exploiting the high utilization rates in our core mobile equipment, core mobile infrastructure. We will be modernizing equipment to more advanced modern type. We will be introducing mobile data management systems and so on.

Talking about network sharing, it is less of an opportunity in Ukraine since there is no network roll out, when 3G comes there will be a roll out and network sharing will be more of an opportunity; despite that we have identified about one-fifth of our sites, about 2,000 sites that we have proactively offered to our competition for sharing as part of our ongoing efforts to optimize costs.

Summing up, Ukraine has been a very important asset for the group with regard to cash generation and we are committed to play that role going forward. The underlying components of this value creation will first be based on our continued maintenance of number one position in mobile with 50% plus revenue market share and best brand on the market. We are committed to capture growth in data, both mobile and fixed and in fixed we will be outpacing the market twice with a projected revenue growth of 45% in 2013. We will be maintaining high margins of 50% plus in EBITDA and 35% plus in operating cash flow margin, all of which is thanks to a unique performance culture that we have in Ukraine with highly engaged personnel that is focused on continuous improvements and value creation on a daily basis.

With this I will conclude and hand over to…

Gerbrand Nijman

Thank you, Artem. Yeah, we will do some Q&A with you. Okay can you raise your hand if you have the first question for Artem? Igor?

Question-and-Answer Session

Igor Semenov - Deutsche Bank

Igor Semenov, Deutsche Bank. Can you give us an update on the 3G license situation in Ukraine and last year I think there were sort of worked around to this situation if the regulator does not grants new licenses there were some discussions between you and MTS on certain M&A plans. So where are you these days with 3G? Thank you.

Artem Nitz

For the past five years, every year we are hoping that 3G is coming and 2013 is no different. We are hoping for 3G to come to Ukraine. We have tried various ways. We have facilitated process with the regulator. There is only one license available officially which is owned by a company, owned by Ukrtelecom. The company has been sold. We are part of the process, the process takes already one and half years. There is no conclusion on the process yet, but we're part of the process and I know MTS is also part of the process. That is probably all I can give you. The government keeps feeding us with the news that probably next year we will do some referent to free apps and capacity for you to use. That’s a continuous process.

Gerbrand Nijman

Okay, next question.

Unidentified Analyst

Just a follow up question to 3G licenses. Is there any progress on tech neutrality; can it be introduced in Ukraine? And also in terms of your forecast, the Ukrainian telecom’s market, I just wondered that you forecast that mobile voice will grow 3% over the next three years and it is more than in Russia and what will drive this growth because usage is already high. Do you intend to increase prices or what is the driver? Thank you.

Artem Nitz

Thank you for your question. Tech neutrality we believe will only happen if and when this 3G company is sold. There were only talks within the government on tech neutrality last year, but no serious intentions. Talking about revenues from mobile voice, yes we believe that the revenues from mobile voice will be growing, the bucket pricing is the underlying concept and fundament for growth. And yes, we will be managing prices upwards to enable that growth; we have seen all of our competitors focusing on improving ARPU; we have seen all of our competitors managing the prices last year and already in January 2013, our main competitor MTS has introduced price increases for most of their popular bundles. So the overall market is dedicated to extract value from the given volume of services that our subscribers are enjoying in Ukraine.

Gerbrand Nijman

Can we have the next question? And please can you state your name and company before asking the question.

Alexander Vengranovich - Otkritie Capital

Thank you. Alexander Vengranovich of Otkritie Capital; probably the last follow up to Igor’s question should and now I am referring to the growth of mobile data. So you said when you were talking about the market trends that this implies that 3G license will be finally given; if we’ll see another delay in terms of the 3G, what sort of implications your financials and what sort of implication your financial projections we’ll see in terms of the mobile data? Thank you.

Artem Nitz

In our plans we have assumed conservatively that 3G is not available, so there are no negative implications from lack of 3G license in the next year 2013 and three year horizon. In the market forecast that you have seen 15% growth in mobile data, this is EDGE based, mostly driven by growing penetration and growing availability of cheaper devices to surf internet, so it is rather organic penetration of the market; 3G is only outside, yes.

Gerbrand Nijman

Any other questions? Over there?

Sergey Goncharov - Sberbank CIB

Sergey Goncharov of Sberbank CIB. Just a quick question. Can you tell us how much cash Kyivstar has accumulated in its balance sheet after payment of dividends, and in dynamics compared to previous year?

Artem Nitz

By the way we don't disclose cash position for entities.

Sergey Goncharov - Sberbank CIB

Maybe some hint, so is that, well, at least am I correct in my understanding that Kyivstar continues to remain one of the main sources for VimpelCom Limited’s dividends?

Artem Nitz

Yes this is very much correct.

Gerbrand Nijman

Alright, we have time for one more question. If not then we have a short break and if you could be all back here at 4:30 then our CEO of the Group Henk van Dalen will present the Financial Value Creation. Thank you very much.


Gerbrand Nijman

Hello, I hope you all had a very good break. Can I kindly ask you to sit down again? So that our Chief Financial Officer can present the Financial Value Creation, the floor is to Henk van Dalen.

Henk van Dalen

Okay. Ladies and gentlemen, it’s a pleasure to take you a little bit through the financials. I will just stay very still here behind this desk to also prove to you that the financials are very solid in this company. What I'm going to talk about. I'm going to take you a little bit back to what was the situation in the last two-three years, show some developments, show the situation on CapEx, on the funding structure of the Group as it is today.

Then I’ll step into what is the value agenda for 2013 to 2015 mean from the perspective of finance and then come back at the end of this presentation on the objectives for the period 2013-2015 and give a little bit of color on assumptions and some looking-forward id.

Of course, VimpelCom has developed enormously over the last two years, three years and that purely already is reflected in the actual revenue as we always presented it. And that’s impacted by two things. Kyivstar coming in the company in 2010 and WIND Telecom in the company in 2011.

In itself, it's not that meaningful to look at it. So it's more meaningful to look at what is the pro forma development of EBITDA and revenue and the stable FX in the period 2010, ‘11 and ’12. And what you can see from these slides is that 2010 to ‘11 shows a good revenue growth but a negative EBITDA growth. So clearly in that period, we couldn't really speak about profitable growth in the company.

If you then compare the last 12 months third quarter, ‘12 versus ‘11, we see revenue growth and EBITDA growth and a EBITDA growth which is higher than the revenue growth and that was exactly what we were aiming to do and explained already in 2011 in the main focus of the company going forward.

And there is strengthening in the year-to-date figures. So if you take the three quarters in 2012 and compare them on a year-on-year basis with a stable FX through the first three quarters in 2011, we're looking at an EBITDA growth of 6.5%, which is of course still impacted by the MTR. If you take out the effect of the MTR in Italy, then the EBITDA growth organically is 8%. That in itself are figures which are quite extraordinary in the telecom environment at this moment.

CapEx. CapEx is hovering around 20%. So we're on the last 12 months basis on 19% but please bear in mind that this 19% does include a very low level of CapEx in Algeria. So, at the moment that it would normalize a normal situation of CapEx in Algeria that at 19% will be much closer to the level of 20% to 20.5%.

Now, the key point of course going forward is what will be in 2013, ‘14 and ‘15 CapEx be. If I just take it on the same basis then probably the 2013 CapEx level will be about 20%-21% on revenue. And then building down in 2014 and building down further in 2015 to a level of 15%. While it's good to show here as well is that depreciation and amortization on revenue is very close to the CapEx level that we assume and that we have.

Funding, you all know this slide now by heart. I have shown it several, several times. So there is three buckets of funding in the Group. We have WIND Italy which has a ring fence structure which in total has $14 billion of that, then there is a block number two in Orascom which is local entities also you could say ring fence because both do have no recourse on VimpelCom Limited. And then there is a block of in total $11.6 billion of that which is related to VimpelCom Limited OJSC VimpelCom and that that is also guaranteed by OJSC VimpelCom.

In this slide, you also see the intercompany loan that connects VimpelCom Limited to Orascom that intercompany loan in the meantime has a total value including accrued interest of about $3.6 billion. It is indeed possible to roll over that intercompany loan and it is true, what all is said by Ahmed Abou Doma that if there is a income, a result, a resolution from Algeria and cash comes into the company, it will first be used to redeem this intercompany loan.

This is little bit more on the debt structure. We have an 8.6% average weighted cost of our debt an interest rate and we have rate (inaudible) which are still on the high side but manageable however if you look at the ratio composition, when Italy of course has a relatively high level gross debt to EBITDA net debt to EBITDA, the rest of the business is much lower, the composition leads to the levels of 2.8 and 2.4, maturities show that in the next couple of use we will not have much of refinancing requirements but the pick of the refinancing in 2017 we of course will gradually have to take up in the years to come.

Now, I jump to the financial value agenda. This is the slide with a ten key initiatives and of course it’s connected to what you do from a financial perspective. Basically, the focus of the finance ranging can be concluded into three buckets. The first bucket is how to enable good performance reviews, good performance management and how to measure value creation. That is number one and number two.

The second bucket is about funding, about finance optimization, about having access to capital that is numbers three and number four. And of course when you run a company like this, it’s essential that you have an excellent risk management and control framework in place. That is bucket number three.

I will touch upon each of those with a couple of slides that we will follow now. First of all, how to enable good performance reviews, good performance management. This is a slide that Jan Edvard Thygesen showed and on all of these levels of the P&L, we have detailed report, consistent reports, a range of KPIs that are followed on a monthly, quarterly and from time-to-time even on a weekly basis.

Not to micro manage but to be completely transparent of where the performance of this company goes and where the potential issues of risk would arise. What the slide also shows to you is we have an ambition in terms of performance, in terms of margins, in terms of cash flow. But where are we today and we are still away from where we would like to be.

So that is the challenge for the next couple of years. Basically, you could say on the basis of this comparison we need to work on the area of cost of traffic, it’s too high in our perspective. The second thing we will remain to be operational excellence on all areas and the third very important thing to discuss and to work on is the capital efficiency.

And you have seen in all of the presentations a range of plans that will tackle these points. Our aim is to grow to cash flow of 30% which is EBITDA minus CapEx or revenue. And all elements of operations is working capital and you might think okay working capital you have heard it so many times, it was working capital if you give attention to that on very, very detailed level then it disciplines the organization.

Let's make sure that you always are looking at can I get my receivables any faster, can I pay my payables later and then we are making sure that they don't have too much inventory somewhere on the shelf that is rotting away. This is the fundamental thing we do in all of our key entities.

We have a negative working capital which (inaudible) but you want to make it more negative in other ways add more cash and increase the cash from working capital. The target there for 2013 is an additional $200 million to $300 million. And then there is returns. We don't invest because we like to invest. We only invest because we like to return. So we need to measure the returns and we can measure returns in several ways. You look at depreciated book value of your assets and then measure return; you look at the full growth asset base, assets invested. You see both mentioned here.

You can also look at return on equity, there are endless array of opportunities. But there is one thing which is very certain. We are in a highly capital intensive sector and a highly capital intensive industry and we're very much cash driven. So the best measure in this case is what is called the cash flow return on investment and the cash flow return on investment takes the original base that was invested in the company as the basis to realize return and compare it with WACC.

The WACC of the Group today is 12.4%. It's on the high side and overtime we need to reduce and then I will come back on that later on with a set of actions. The cash flow return on investments starts with the EBITDA minus the taxes paid. Taxes paid in our Group is about 9% of EBITDA, minus what is called an economic depreciation and economic depreciation is something else than a book depreciation.

The economic depreciation is taken into account the economic life time of assets and then investing an annuity during that economic life time which is returning an interest at the level of the WACC. At the end of that period, the total amount takes care of the replacement value of the tangible assets.

Our economic depreciation is 2.6% on the tangible asset base. If you take that as the basis, then divided by the total gross assets, we have a cash flow return on investment of 14.8%. The cash flow return minus the WACC times the gross asset base is the value realized, which is $1.3 billion that is realized over the last 12 months Q3 ‘12.

Going forward this measure will require refinements, but it gives a nice insight in what is needed from every 1 billion of investment, because every 1 billion of investment that we do should bring an additional EBITDA of at least $125 million in order to keep the cash flow return on investments stable. It’s not growing the cash flow return or not, keeping it stable. So that’s why it will drive these questions on return going forward.

Funding, the second bucket that I was talking about. Funding is always about flexibility. And there are two areas that we have been building up very fast over the last one and a half year that is having more access to (inaudible) financing at a group level and having more access to revolving credit facilities at the group level. That has two important elements. First it creates flexibility on the cash side, the second thing is (inaudible) financing is relatively cheap if we use that as an element into our inter-company funding we can of course earn a spread on that at an arm length basis.

We are in good shape with regard to the diversification of the funding structure and we will continue to work on that going forward. It’s also important to do that with the eye of financial standing, we are a [B] company and we want to become a double BB plus in order to have a better cost of capital and more flexibility on the access to the capital markets.

All other things that we are going to do and I am going to explain in a minute will help making that movement. So now we have the subject of finance optimization. We have discussed that in the previous session in November 2011 as well and of course you would expect from me to give a road map with exact timing of what we are exactly going to do with every bucket of debt in the company.

Well, I may disappoint you that is something that we are not going to do, I will give you the main components of finance optimization. The focus is on reducing the gross debt, now as you look at the company today, we have 26.6 billion of gross debts, we had 4 billion of cash at the end of the third quarter 2012 and at the end of the year there is of course more cash and lot more debt.

This is not a normal way to manage a company. Why would we have so much cash on balance sheet? There were reasons for it, and they as feel reasons for it, but if they were able to free up all those cash positions, we will of course already have the ability to reduce the gross debt that is one of the key focus areas because as everybody knows we don't pay interest on the net debt, we pay interest on the gross debt.

Then there is the need for restructure expense of debt then we have certain layers of expenses debt in our company. Restructuring that requires a lot of study and discussion how to do that in the best possible way with the best value creation for the group. We have a range of plans that are under development and in place, but I am not going to go in the details of that of course at this moment.

Researching also has to do with making sure that all of the debt that we have and the interest that we pay is fully tax deductible. If it isn't fully tax deductible then it isn't smart to pay interest in that environment. So we are developing steps to make that happen. And then of course in the company like ours we need to have free flow of cash. So maximize the dividend of streaming from the various entities in the company. That leads to three actions, one, more inter-company funding via an in-house bank. In other companies it’s called a financing company, an inter-company financing company.

Second is bring leverage in those entities where there is no leverage, because VimpelCom has certain entities with very good cash generation that currently have no leverage. And that of course doesn't leave to the optimum wreck for the group. And make sure that we reduce the legal entity layers because every layer of that is between runs the risk on your upstream dividends that you have to pay with holding tax on the dividends, so we have a plan in place to try to reduce that to the optimum level possible. Overall, it will bring the group weighted average cost of capital down. And by that increase the value of our cash flows.

The principles of an in-house bank very simple thing but take it a little bit more in detail for your background. Please go from top left, bottom left, top right, bottom right. Top left shows the principle, VimpelCom Limited provides equity through the financing company the finance company finances the operations. That's the fundamental concept; that means that as a basis the operations do not finance themselves. We first stream up the cash, then put it back into the operations. So in the first couple of years that might help effectively performing our cash position much better because this in-house bank that's a second point has a lot of tax losses so any interest income that is received by the in-house bank is set off against the tax losses that we have not utilized, so it is going to be net for the group.

Overall, it means that every billion of equity on an average basis use that inter-company will have a recurring effect of $16 million in cash net per year. So when we develop an inter-company flow of $13 billion to $15 billion you are talking about $200 million to $250 million of cash every year. Truly, by installing a much more efficient process of funding the company internally.

After we have gone through all the changes and this is the basic concept of the group, all of our operating entities are as close as possible to VimpelCom Holdings. Dividends are upstream, partially used for external dividends and used via the financing company, the in-house bank for inter-company funding. The in-house bank, the financing company is also the place where group debt is attracted and can be used from time-to-time. I gave you the example of the [EKA] financing that you can manage of course on a spread between the arm’s length interest we calculate to the entities and the interest we pay on a group level. That spread again is set off against that process and gives a plus.

So this is going to be the basic structure by 2015. Leading to this, $2.6 billion, $2.9 billion per year of improvement, which of course we need to realize over a period of three years, whether at the end of that period that is between this 0.6 and 0.9 of improvement realized on an annual basis and Jo mentioned that earlier. In house bank I already mentioned; debt optimization is basically taking out the very expensive layers of debt; gross debt reduction is a range between $3.5 billion and $5 billion of gross debt reduction and with all the tax saving, is an annual saving when we reduce the layers in the company, we don’t pay that much over to holding tax anymore, and every time I am talking about 5%, 10%, 15% on dividends. If you take it out, it just flows in to the cash of the group. So that’s the contribution. Of course, the average cost of that goes down and the average cost of attracting refinancing goes down as well because the structure of the group is changing considerably. At the end of the day, at least we’ll lower it and the total mix of our assets has a better return.

And then the risk management compliance and control. It is normally one of the more boring subjects because everybody thinks that has to do with modern rules and amplified statements, but that isn’t true. It has to do with really how to manage the company, talk about real risks and have mitigating trends in place and have the controls available on the level of the operating entities and of course there are audits, checks and balances around that. The key point for the group is it’s in the heart of what our companies do; it’s not a thing of the headquarter; it’s something that all o four entities find very, very important going forward.

That brings me to the financial objectives. It’s just a little bit of repetition of course because these were the group projectors, I gave you a little bit of background on some of the financial points. It’s important here to mention a couple of points here separately, because those objectives have certain assumptions behind them and one of them is a constant currency basis. So if the currency goes up and down we will always calculate it back to what rule have been under constant currency basis 2012. No major regulatory changes, so no sudden significant changes in the NTR projections for instance, we have the current asset portfolio which is stable in macroeconomic environment and we assume the dividend at $0.80 for 16.28 million shares.

It’s important to have that notion and finally we assume free cash availability in the group. so when we will for instance be again confronted with a fresh injunction, yeah of course we are limited that more limited in the movements we can make than without fresh injunction, so its important to mention that notion separately.

The cash returns to shareholders; we have been consistent 2011, 2012 although I emphasized to 2012 came little bit with a delay, but it is still had the return you otherwise would also have got, it’s now paid in the beginning of January 2013 as you all know and that is also our aim going forward. So a lot of interesting things to do a little bit of back of the envelope exercise, so I did some of that for myself and you probably did for yourselves as well, so you have a take the last 12 months Q3 on a normalized basis for interest and taxes, then we were looking at a $23 billion of revenue in the last 12 months Q3, 12, and if you apply a 4% revenue growth, CAGR over the period ‘13 and 15, we will end up with $25.9 billion around that figure so around $26 billion in 2015. It is not on slide, so I am just explaining my back of the envelope calculation.

On EBITDA we were at $9.5 billion last 12 months Q3, 12. If you apply 5% CAGR which is profitable growth, higher EBITDA growth, then there is revenue growth then we will end up with $11.1 billion of EBITDA in 2015. The mix of interest and taxes will be reduced from a level of 3.1 in ‘12 to a level of 2.9 in 2015, now you say okay how can that be because you just explain to me, the great processes of the financing, but of course when we are going to earn more money we are also going to pay more taxes. So there is always that balance in between as well.

And then CapEx is at 4.4 in the last 12 months of Q3 and will be on the 15% basis in 2015 at the level of 3.9. Overall, we are looking at free cash flow growing from 2 to 4.3, that excludes the impact of working capital and of course when certain steps still need to be done in 2015, it is not yet the fully annualized picture. Then there is a VimpelCom dividend of 1.3 which we show by this that the company will significantly on the basis of all the plans communicated today improve its cash flow position.

So overall, I think we are looking at a company which is today in a very good shape, has good plans for finance optimization that I just explained, has a range of plans for operational improvement, so there is a substantial cash flow growth potential. That's where I would like to leave the finance presentation.

Gerbrand Nijman

Thank you Henk. We will put some chairs on the podium and then we will have a joint Q&A. Edvard Thygesen and Jo Lunder will join Henk here on the stage. Again, if you have a question please raise your hand and if you have the microphone please state your name and company and then ask your question please. Can I ask you for the first question. If somebody here is really, he is feeling free to do Dalibor would like to take the first question.

Question-and-Answer Session

Dalibor Vavruska - Citi

I just want to ask a question about the savings target, is $1.5 billion operational and the $500 million CapEx. How should we look at those? I mean obviously my understanding is given the guidance is that you are not expecting growth to accelerate. You are expecting some catch up investments to be made maybe in Algeria and Russia and then CapEx will go down, but what does this $500 million actually mean, I mean is that just the CapEx will drop by run rate or that you will find some efficiencies and you will be buying the same equipment, but $500 million less and the same thing for the operational just to get a flavor what this $2 billion savings mean?

Jo Lunder

Dalibor, there is quite a few numbers, maybe floating around right now and Henk gave another back of the envelope calculation at the end, so I think our key message today has been that our strategy and our pledge to shareholders is really to focus on increased cash flows and in order to illustrate what the objective set forth mid single EBITDA growth, lower CapEx and in order to put a real number to that if you do 2012 EBITDA minus CapEx and into the same exercise in 2015, we think it's possible to grow on an annualize basis comparing ‘12 to ‘15, not repeating itself in ‘16 but comparing ‘12 to ‘15, we think it's possible to improve cash flows from operations by bringing up EBITDA, bringing down CapEx by $2 billion.

That’s the $2 billion and then we split that in approximately $1.5 billion related to the more operational related part and $500 million related to network sharing initiatives, site sharing etcetera that relates to the CapEx and then behind those $2 billion, there is, if you go into Russia, you will be able to reconcile Russia’s contribution on all four building blocks, the 1.5 and the 500. Same with Maximo, Ahmed and the other business units. So we have a consistent plan that’s built on the value agenda with the 10 initiatives behind and that adds up to an improvement around the $2 billion.

And then of course if you look to our objectives, I think we stretch ourselves, I think we put forward, we did that in November 2011 and we delivered, and I think we've done it again. I think a mid single revenue CAGR in today’s telecom universe is a stretch target. We think it's possible, because we believe in the data story. We believe in 3G in some of our markets, but at the same time, we also have an Italian market that will not offer much growth.

So I think the whole idea about today’s session has been to focus on the cash flows and have that as the main strategy for how to create value for shareholders and then give a stretched objective for the next three years on the revenues, EBITDA and what that will lead to in terms of leverage; that’s been the whole purpose of all these numbers that may be is floating around and people need to reconcile and please come with follow-up questions after the session as well if you need more guidance.

Gerbrand Nijman

Sure, but can you use a microphone?

Unidentified Analyst

Just in case that you mentioned Jo you have an idea how much of this $2 billion should come from different regions; would you give us a flavor about it?

Jo Lunder

The good thing about having a diversified portfolio is of course that in some markets we will do better, in others we will do worse than expected, so it’s not a very different weightening compared to the size of the businesses, so it’s not sort of a big hidden story in there that is a big surprise to everybody. I think it reflects basically the size of the businesses and what I think is also very important here is that and that’s why I like the focus on cash flows, because if for example, let’s take Italian markets, Maximo slipping on his topline even though he slips much less than his two main competitors. It compensates with cost cutting so that EBITDA is more or less stable which is a great achievement in a difficult market and then of course when we in the end are creating value for shareholders, we need to look at the cash flow and then in the end we will also have to adjust CapEx and be more effective in terms of how we use capital in Italy in order to deliver the cash flow that is there. So if you slip on your topline and you may be not being able to grow a lot to your EBITDA, I still think is possible to set forth the cash flow targets that we have now decided to give us our value creation model for our shareholders.

Gerbrand Nijman

Okay, next question.

Unidentified Analyst

Yes, I have a question for Henk. If we go back to the tax and interest numbers that you outlined. So 3.1 in the last 12 months going to 2.9, the interest savings should be significant but can you maybe breakdown how is going to be more between savings and interest and taxes going out?

Henk van Dalen

Yeah, that would then be very close to getting exactly where it is roadmap that I explain that I will not give, but at least one component out of that improvement is clearly the full realization of the inter-company funding structure. So the financing company in place between 13 billion and 15 billion of inter-company funding will take care, we could say a tax saving and to some extent this also link of course to the interest mix that we have of 200 million to 250 million, so part of that deduction is that what the rest is the mix of a holding tax, the exact mix that we’re going to choose with the gross debt deleverage and the leverage of the various entities in the group. So I am not going to bring more detail there, because that would be indeed to close to the roadmap which of course we cannot give you. And then there is an increase of EBITDA, so the increase of EBITDA which basically reflect more or less an increased of EBIT as a result of that, and that will lead to also a higher payment of taxes.

Unidentified Analyst

But if I would be to net it out just in general terms, I guess the interest savings should be I don't know $300 million plus or so, it’s roughly speaking and that means that taxes are going to go up. Isn't it the purpose of being headquartered in the Netherlands you know being tax efficient?

Henk van Dalen

Yeah, of course that is one of the focus for the whole Group to be tax efficient but if the taxes paid go up as a result of a higher EBITDA which is then mitigated by the fact that we have more efficient tax instruments in place and I am effectively very happy if the only thing would be the tax instruments and no EBITDA growth you would have a problem.

Gerbrand Nijman

Okay, next question here one and then we come over to the front row in the next side.

Stanley Martinez - Legal & General Investment Management

Yes thanks. This is Stanley Martinez from Legal & General Investment Management. Henk returning to the internal bank which seems there would I say a fairly ingenious solution to potentially optimize your after tax interest expense, maybe you answered this in your answer to the previous question but how much capital would you anticipate that internal bank would devote, would it be in the several billions of dollars up to including all of the maturities that you would anticipate up to 2017?

Henk van Dalen

To be very careful with say mixing external quotations with internal funding structures. On a consolidated level, this internal vehicle of course will be consolidated in the total of the group. So we will have an external deposition that is consolidated and we will have a cash all added up in the Group and how we route it in the Group does not have an impact of course on that. But the main thing we want to accomplish is to have about $13 billion to $15 billion of intercompany financing going through that vehicle and because you do that in a way that you bring arm’s length interest to the various operating companies, the operating companies fund their own requirements for expenses for CapEx from that amount.

You are able to collect interest income in the financing company. And that is being offset against a significant amount of tax losses that we have there. Of course at a certain moments you will run out of these tax losses and then there will be the new phase developed for the financing company. It’s a structure that can be on a continuous basis present.

Stanley Martinez - Legal & General Investment Management

If I can just ask two brief follow-up questions and Henk, first would you anticipate how much of a net interest margin so to speak would you anticipate earning internally within this internal bank or I might call an intermediate holding company between what you would be able to borrow at externally between VimpelCom and what you would charge to the individual operating companies and secondly, would this apply mostly to one operating company or to the whole range of operating companies within VimpelCom?

Henk van Dalen

We will of course try to utilize it for as many operating companies as we can but some areas in the world prevent intercompany funding for instance. So then we have to find other solutions or have limitations to that but we like to use it for if possible for all of our entities in the Group.

The second thing is that it's dividends up streaming. So you maximize the cash up streaming in the Group and then push it partially to external dividend and partially via the financing company in to the entity. So that’s more or less a cash round within between there is of course that interest being charged to the entities.

If you have direct funding from external into the financing company at a certain percentage, let’s say 6%, 7%, then the normal spread you have on that is not much more than between 50 to 150 basis points depending of course on the arm’s length levels that you have in other parts of the world and those can be impacted by the local circumstances very much with an average, I would say, between 50 and 150 basis points. That’s of course different, when you do you internal flow because then you utilize your cash in a different way.

Gerbrand Nijman

We move over here.

Barry Zeitoune - Berenberg

Hi, it’s Barry Zeitoune from Berenberg. I got three questions. First of all on the dividend, [0.8] flow that’s based on the current number of shares, which I believe is going to change, first to ultimate conversion. So should I be thinking of the 0.8 dividend flow becoming about 0.74 post to Altimo conversion? Is that the way that I should be thinking about it?

And then my second question is does your current net debt EBITDA forecast exclude the $1.4 billion injection from the Altimo conversion and then my third question is, if I simply take the back of a packet calculation that you did gets you to a 11.1 billion of EBITDA then it effects me even based on your current debt that’s almost a two current net debt as almost a two times. So if you are generating $4.3 billion of cash flow at that point with (inaudible) of $1.3 billion of dividend that’s a lot of cash can be put to work somehow and still get you to the net debt to EBITDA target pretty much. So how are you thinking of the excess cash at the moment in terms of capital allocation.

Jo Lunder

May be I can do dividend and then Henk can pick up the two other ones. Dividend is a supervisory board decision of VimpelCom and the policy you see now we put in place in 2010 after the merger of VimpelCom and Kyivstar establishment of VimpelCom Limited that was sort of a hard target on $0.80 per common share assuming 1.628 million shares and that policy is still in place and now with the 128 million shares being converted the supervisory board need to revisit that discussion and that policy and I expect after we have converted and revisited the discussion, we will announce an updated dividend policy and there isn’t all that many outcomes of that discussion.

I think you could look at this as a valuation on the nominal number because there are more shares coming in or you could choose potentially and more aggressive position saying that we keep the hard number meaning that slightly more dividend will be paid in the years to come.

I think that’s the judgment the supervisory board should look at cash versus value, but I expect that we will be able to update a guidance on the policy after the next supervisory board meeting we will have this spring and connection with the conversion.

Henk van Dalen

On the all points this amount coming in from the conversation of the shares is not taken into account into these objectives that we mentioned. And basically also and the moment that we made all those objectives this was not yet visible and in any case, this leads of course further discussion with supervisory board also. But it is in that sense also not that very important because as you made a calculation yourself, if you are able to deliver on the EBITDA growth leading to this 11.1 then today's level of net debt already then is been very close to the ratio of two net debt to EBITDA, if you taken the EBITDA 2015.

And then of course in the periods there will be relatively significant additional cash generation. So when I mentioned at the end of this finance presentation that we are provided that we deliver on all of our plans that we are in a very solid position with range of opportunities for optimization and I think that is underpinned by basically the analysis you made yourself.

Jan Edvard Thygesen

Let me take that, of course this is something that is involving, so we should also remind that for a sample 3G Ukraine and Pakistan and Bangladesh is not factored in as an example, there might be things and other things happening on our journey to 2015. So I still think that having the two target or below two as a guidance for late 2015 also is sending the signal of the debt level that we believe is sustainable and maybe also appropriate even though it maybe its not 100% reconciling with the lowest possible weighted average cost of capital. I still think that in the company like ours in the markets we are operating in that, that should be a debt level that is sustainable and maybe the right level also for giving the highest return on equity to shareholders.

Gerbrand Nijman

You raised your arm a couple of times, can you give a day off to JP.

JP Davis - Barclays

Yes I have two questions, given your joint ownership of Euroset which is MegaFon now can you please explain to us what changes are going to make to the business model and what could be the impact of such changes on your Russian margin and second I've asked Anton about Russian CapEx which he said would go up slightly next year how about the CapEx for all Group in 2013, will it go up or down? Thank you.

Jan Edvard Thygesen

Yeah. Let's take the CapEx first. Last 12 months it’s around 19%, CapEx to revenues. I think if we normalize it, it’s slightly higher. If you then add in the catch up lower CapEx to revenues in certain markets but also add in the catch up in Algeria and Russia. I think the estimate on a Group level for 2013 is around 21%. And then you will see a reduction in ’14 and I still think it’s possible to get to ’15 in 2015. I think Russia will be slightly higher than the Group level on the guidance for next year.

So that's where we are in CapEx to revenues in 2013. Euroset we have also wired Anton so if you want to jump in Anton let me just give sort of a short one first on Euroset because Euroset is quite interesting asset to be a shareholder in. So if we kind of leave the formula in terms of how we are going to drive the lower commissions down and how we are going to operate as a mobile company in Russia and only look at Euroset as an investment we sit on 50% of the largest retailer in interesting growing market and clearly now we would like to go in and try to develop that company together with MegaFon and see look at new revenue streams and use their fantastic presence in the market to see if we also can grow the value of that asset.

So that in itself is an interesting asset I think to grow, develop and own but of course and we need to have two thoughts in our mind at the same time. We need to have the thought I express now as a shareholders how do we grow that value of the asset and we will have a plan for that and we have discussed different ways of doing that and then we need also to look at Euroset as an important distributor that will have to sort of comply with the demands we have for lower commissions and more revenue based commissions and Anton can comment more on that but I think at least the governance model that we have now established in Euroset is taking these two dimensions into account and I think we have a good basis for both develop the company and deal with it when it comes to increase margins and appropriate data commission levels in Russia. Anton, you have been very much involved and personally negotiating so you can feel free.

Anton Kudryashov

Just a couple of remarks. Obviously the main intention is to move and the main achievement is the result of this transaction for us commercially is to move Euroset to revenue share basis. (inaudible) shipment is of 1st of January. Obviously, we cannot disclose the details of this commercial agreement which is confidential but judging from what we've seen from 2012, moving other distributors to revenue share model that resulted in a reduction of level of commissions and it resulted in an improvement in the quality of sales.

Obviously, we're expecting similar improvements for Euroset. The second comment is concerning the future, how this asset can evolve just to continuous what Jo was saying. It's important to remember that Euroset is the largest distributor of handsets in Russia and we believe that overall evolution in the market will be towards the share of smaller distributor is going to shrink and therefore the market share of the large nation-wide distributor such as Euroset is going to increase.

Therefore, we believe there is an opportunity for Euroset to increase its share in handset market and have a sort of a better bargaining power in this market. We are focusing in Euroset together with our new shareholder partner, MegaFon towards developing new revenue streams such as financial services. As you know in other [creator] in the markets (inaudible) has been quite successful in developing financial product use leverage of the distribution network they have to move the financial product also to move travel product to support their online commerce activity.

So these are all the areas we are looking to explore. So if you reset, we will see the reduction of revenue from conditions for (inaudible) from SIM sales, we would like to see it compensated by the revenue streams from other sources and primarily from the handsets.

Gerbrand Nijman

Cesar, can you use the microphone please.

Cesar Tiron - Morgan Stanley

A very quick follow-up, are you going to close the access to Euroset for MTS and the other operators?

Anton Kudryashov

The agencies has instructed us in Euroset to provide equal sort of in terms of access to Euroset but we had similar actually requirement from incremental agencies several years ago when Euroset was initially acquired by VimpelCom and I guess the game will be in creating commercial conditions which will motivate Euroset to sell our product.

JP Davis - Barclays

Hi thanks, JP Davis from Barclays. Two questions, please. The first question to Henk just on the in house bank, you discussed a lot of the opportunities may be you could just touch on some of the risks. I just imagine may be foreign exchange being one of them in a lot of these smaller markets, it’s very difficult to access capital?

And then may be the second question is slightly broader one, you delivered a very clear message on the value agenda here in cash flow growth, do you think you are taking enough risks to grow this business over the longer term and just as one example you talked through partnerships of OTT providers, isn’t there scope to stat buying some of those tool creating some of those yourselves? Thank you.

Henk van Dalen

Yeah, first of all on the risks, I think that the entity in itself that is going to be utilized as a financing companies the in house bank, that in itself being positioned in the (inaudible) area and relatively stable environment. We have gone to risk analysis of course, we do not see many risks in that part but of course if you start with intercompany funding, you always need to make the trade of between, what is the risk in the certain environment and we sure going to do the funding and how do you balance it with potentially taking local debt in the local market, if that debt is available.

And particularly I will say in our Asian markets, so in the larger areas Pakistan and Bangladesh we need to take that very carefully, other markets have certain limitations on what you can do by intercompany funding. So that will always be the balanced choice that you do on a case-by-case basis but the risks as long as you aware of all these points are all very manageable but for instance, if you do intercompany funding and if you have intercompany positions, don't forget to go for instance to the national banks and make sure that you have regard to the various approvals to do that.

So in that sense you think about risks and you meet if you think about the mitigation actions of that required but there is an important point and we do that basically every time.

Jo Lunder

And second question is of course a very broad important question and if anyone had the real answer to that have a high market value, I think first but and Jan Edvard can fill me in here, he knows this as well as I do, but I think our main product is the access product. We are building the infrastructure and nice cars coming out. Right now we know them as Facebook’s and others and I don't know which one they are going to be five years from now, but for sure our infrastructure will be there to provide transport for who ever content provider that is there that would like to use our roads and our access products. So I think its very, very important when you set direction over a big group like ours that we focus on something and focus less on other things and we have decided now to focus on mobile access being the core and focus on cash flow generation from that core product.

I see a lot of telecomm companies now launching initiatives to get with venture funds and the investing and technologies investing in content etcetera, etcetera. I have also some background from private equity. I know how hard it is to really deliver the return, when you look at the returns that Henk talked about earlier today I think we deliver a good return on our core products. So I think in VimpelCom we would be very careful to throw and allocate, not throw, allocate a lot of money into venture like technology bets or competent bets in order to fill traffic into our networks because that traffic will come from a variety of content providers and of the top initiatives and companies growing.

That being said, of course I can share with you a trip together with Ahmed Abou Doma in Bangladesh and Pakistan. We had very interesting discussions with the government representatives about the need also for local content and how can we develop local content as part of mobile health, mobile education, support for farmers that is a variety of course of possible content related concepts here that could be beneficial and I think we will be selective, we will be very mindful. I am not saying that we would never do a few bets on local content initiatives, if we believe it makes sense, but, and we also see that a lot of these concepts are growing at a much higher rates than of course the access product is growing right now.

But still I think we need also to be true and loyal and consistent in the way we operate and for that reason our capital will be allocated to access capacity coverage of wireless access and the core product going forward is access to the internet. So that's my best answer right now. I think its going to be very hard for any investor in the future to hit a Google or a Facebook or something like it, but to stimulate maybe local content could be at all, we would be considering with I would say limited capital allocation.

Gerbrand Nijman

Okay, we move to the next question there. We have time for one or two questions because otherwise we are running too far ahead and then after that Jo will make some closing remarks.

Vivek Khanna - Deutsche Bank

Hi, good afternoon everyone it is Vivek Khanna from Deutsche Bank. Thanks for your presentations. Henk, I had two questions on the structure, on the debt structure. One is about now and the other one is about then, but I won't be asking the roadmap in between. So the first one is just a little bit on process, you know how long is the in-house bank set up, how long would it take for that to be set up and up and running and I am assuming the equity contribute capitalization can be done over stages and then the second question is 2005 or later when you got a bet of an improved rating and lower leverage and when your structure is such that you do have a financing company in place, I was just wondering how you are looking at going forward at debt at subsidiary entities, not in emerging markets but some of more mature markets and if there is actually a need to actually have any debt at those entities at all on a longer-term basis. Thank you.

Henk van Dalen

On the first point on the financing company, so we're establishing that company right now and then over the next two years, two-three years it will be, let’s say the amount that this intercompany funding will be increasing to a level of 13 billion to 15 billion as I mentioned. So that is taking place effectively more or less as we speak.

The second question of course is a little bit having two elements. One is would it be from time-to-time be relevant to have local debt and not debt via intercompany funding in entities. I think I explained on the previous, one of the previous questions that indeed it might from time-to-time, be relevant to do so. And of course, there is always into discussion this question in VimpelCom, there is that point on (inaudible) debts and debt that has no recourse on the group, to some extent that is a plus for the total of the company. So we always will have to weigh the balance of plusses and minuses when we take a final decision on intercompany funding. But certainly local that will remain to be there from time-to-time.

Gerbrand Nijman

Okay, Igor there is that probably the last one but maybe it’s a short question.

Igor Semenov - Deutsche Bank

Yeah, just wanted to ask a question about the strategic reviews for the smaller and peripheral assets in line with your portfolio management approach, can you give us a comment on what’s happening in Canada and in smaller African units more specifically?

Jo Lunder

As we have said a couple of times the contribution analysis in that portfolio has not a strict time table linked to it. It will link this back to our strategy to again draw cash flows. I am very happy that we were able to exit Vietnam that was potentially an investment above $1 billion necessary to make that company cash neutral and I think that’s an example that’s a seven market players. We had a very small market share. There are reasons why we ended up where we ended up and I think that’s an example of an asset that is supporting big time, the strategy on growing cash flows. If we look to the small African assets if you look to Cambodia and Laos those are all more or less cash neutral, so there is no immediate need for firesale for an exit to accelerate anything with those assets so we have time if we need to develop them into a certain states before we want to consider an exit we can do that. If we want to go faster we can do that and these are different considerations, we are doing on the different assets. So there is no clear time table or path on any of these smaller assets that we can discuss or disclose today.

Canada is of course slightly different. Canada is first of all after the loan for an ownership changed in Canada, we have now put in place of [LTH] has put in place, certain actions to convert non-voting to voting to get a bigger control on what's going on in Canada and there are also a couple of other things that will come out of that process that allows us to our own decide sort of fate and the future in Canada.

Canada is clearly a market revenue to put more money in order generate cash positive business. At the same time, it’s the quite interesting market so I think we need a little bit more time to consider what is there what I think to do there but clearly also Canada is among the assets in the contribution portfolio analysis as described. So it was a vague answer maybe a little bit too general but no specific no clear time table, no urgent need to do anything but seven or our 18 of course the seven biggest ones are generating 96% of EBITDA and I think that's something.

Gerbrand Nijman

So, we'll have to apologize to a lot of people who still have questions. Yeah, we will have time to talk to management after the conclusion remarks with Jo. We will have drinks downstairs but I would really ask you to go ask the questions in and would like now to hand over to Jo for his closing remarks of today.

Jo Lunder

Okay, I think I'm going to spend just a couple of minutes actually. I think basically everything has been, we've said everything we want to say and thank you also for a lot of good questions. We have an attractive footprint. We have growth in many of the markets we are operating in. We haven't launched even 3G in some of the markets.

Our value proposal to shareholders has been said a number of times today. It’s about growing cash flows. We think we can do that from operations and we think we can do that by organizing our balance sheet and our financials in a different way so we think there is a big upside related to both those areas.

At the same time, we think we also we offer a good combination of cash returns and growth in earnings in the years to come with respect to the objectives that we’ve talked about earlier today and maybe as a final remark I feel very good about the management team, quality of people. I feel good about our business unit had some also the teams that they have around them and I feel very good about the team we have in Amsterdam with Jan Edvard and Henk adding to an important functions of course in HQ.

So I think we have the resources, the footprint under position to deliver and we will keep you updated on any progress that we are making so and we will hang around for a while downstairs as well and if anymore questions happy to take them. Thank you very much for taking the time today and all the best. Thank you.

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