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VimpelCom Ltd (NASDAQ:VIP)

Analyst and Investor Conference Call

January 28, 2014 8:45 AM ET

Executives

Jo Olav Lunder – Chief Executive Officer

Andrew Davies – Chief Financial Officer

Gerbrand Nijman – Investor Relations

Analysts

Cesar Tiron – Morgan Stanley

Alexander Balakhnin – Goldman Sachs

Jean-Yves Guibert – BNP Paribas

Dalibor Vavruska – Citigroup

Ivan Kim – VTB Capital

Herve Drouet – HSBC

Marco Gironi – Credit Suisse

Anna Lepetukhina – Sberbank CIB

Operator

Good afternoon ladies and gentlemen and welcome to VimpelCom’s 2014 Analyst and Investor Conference. Before getting started, I would like to remind everyone that forward-looking statements made by management during the conference involve certain risks and uncertainties. These statements relate in part to the company’s 2014 targets, its anticipated future dividends, its outlook on the business in Italy and its plans to deleverage and improve its credit ratings.

The forward-looking statements are based on management’s best assessment of the company’s strategic and financial position and future market conditions and trends. The forward-looking statements assume that there are no unexpected adverse currency changes and regulatory actions and a stable macroeconomic environment in the company’s countries of operation. These discussions and assumptions involve risks and uncertainties and actual results may differ materially from those contained in the forward-looking statements.

For more information about the risk faced by the company, please refer to the company’s accompanying presentation, the company’s Annual Report on Form 20-F and other recent public filings made by the company with the SEC.

As a reminder, today’s presentations can be downloaded from VimpelCom’s website. This presentation includes non-GAAP financial measures and reconciliations of these measures can be found in the presentation on our website.

Thank you for your attention.

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Jo Olav Lunder

Good morning, everybody. Welcome to VimpelCom’s Analyst Investor Day both to the audience here in London and also to everyone following us on the Internet by our webcast. It feels really good to be here today especially taking the message that we sent up earlier today into consideration. I have three key messages that I want to – want you to remember and that I want to bring here today.

The first message is that the transition to data and the data traffic is going faster. For that reason, we need to invest for the future, and we’re stepping up our investments in all our markets. Number two, our relative performance is good, the markets that we’re operating in is less good. When we look at the weighted performance of VimpelCom in all our markets, we’re doing good. So it’s a lesser performance issue, it’s more a market issue.

Number three, we are announcing a new dividend today in order to deleverage and be able to invest in high-speed data network, because that’s our future. Andrew Davies is here today sitting over here. Sure, you will appreciate also his perspective on our business after joining VimpelCom as a Group CFO only a couple of months ago. Andrew will speak after me. I’m going to speak for 25 minutes I think.

We are committed to our value agenda. It looks very simple, but let me remind you what it’s about, because we announced this one in 2011, and this is the soul and the heart of VimpelCom. All the business units are building their strategy around this simple model, so is the Group. Our value creation model is based on increasing cash flows as the circle.

There are four pillars. There are four driving forces to do that in our model. The first one is about profitable growth. In VimpelCom that is about the data service, that is about new services like mobile financial services, that is about partnering like we’ve done the last year with Wikipedia, with Google, with Facebook, with Opera, and also with WhatsApp, and it is about all the new digital services. Maximo will speak much more about what we’re doing in Italy on digital services; we’re doing some great things there.

So that’s building block number one, how to drive revenues on top of the traditional voice business. Customer excellence, that is about our distribution strategy, that is about customer loyalty programs, that is about price management, capital efficiency when I was here a year ago. I said I believe our business would be able to drive CapEx to revenues down to 15% long-term.

The way we wanted to do that and the way we work on capital efficiency is about using our strength on procurement. It’s about network sharing arrangement, it’s about power sharing, it’s about site sharing, it’s about network modernization, and it could also be about spinning of powers. And operational excellence, which is the fourth pillar, is all about costs and how effective do we run our business.

When we announced this in 2011, we produced great results in 2012, because revenue we’re growing, EBITDA we’re growing, and we took CapEx down, for that reason 2012 was a great year in terms of cash flow generation. 2013 has not been a good year for us in terms of cash flow generation. The main reason for that is not operational excellence because when we benchmark VimpelCom in the Global A.T. Kearney Benchmark Study, our cost level is excellent; we are among the lowest – among the companies with the lowest cost base of the comparable blueprint.

So I’m very pleased with the progress we’ve done on operational excellence and cost. We’re also doing fine on customer excellence. Wind in Italy by far the highest net promoter score in the market and we have good progress in other markets.

The two problems we have is on profitable growth and is on capital efficiency, that’s where the challenge are profitable growth because we haven’t been able to convert and monetize data traffic yet and because 3G have been delayed in very key and important markets for us. And on capital efficiency, I think probably we underestimated to need for CapEx to build really high quality, high speed data networks we have to adjust to competitors. So for that reason this value agenda, this value creation model is still very, very valid.

If we are now move to the last three years’ financial performance, I would say that results in VimpelCom they’ve been reasonable, they’re not strong, they are not as strong as I would like them to be but they are reasonable and especially if you look at some of the challenges that we’ve faced in our markets of regulatory nature of macro economy nature, our results are fairly good.

The problem is 2013 again, we are slowing down in 2013 and we are even slowing down more in the second half than we did in the first half, our margins is very good, 42.6% EBITDA margin, you don’t find that in many telecoms today, because our cost level is under control. But because we need to prioritize investments and making sure that we have networks that could compete on data going forward, CapEx to revenues are growing in 2013 and they will have another step up in 2014. For that reason we’re not able to deleverage, you see leverage increases this year.

So that’s the background, that’s the back curtain for a lot of the things we’re going to talk about this afternoon and also tomorrow. So when you’re investing in VimpelCom where is the growth drivers, where is the growth pockets in my view there are three growth pockets mainly in our portfolio, number one that’s the old growth model subscriber growth, we operate still in markets with low penetration, we have 87 million subscribers in Asia and Africa. The average penetration in those three markets Pakistan, Bangladesh and Algeria is still 60%.

So we’re going to benefit from increased subscriber base and the revenues from the traditional way that telecoms were growing. The second basket is revenues from the new data services, but then we need high speed networks that actually can deliver the products that customers were asking for and the last part is really since telecom is milk and bread these days, a general recovery in the economy will probably also help the demand for our services. And frankly speaking some of the markets that we’ve been operating in, the macro picture will have to change sooner or later. So I think there is an upside related to that as well.

We are an emerging market player, Italy is in our portfolio and it represents a great upside for investors, but we are an emerging market player, 70% of our revenues are in emerging markets.

Last 12 months we generated almost $16 billion of revenues from emerging markets. We generated almost $7 billion of EBITDA, and we generated $4 billion of cash meaning, EBITDA minus CapEx cash to serve interest and to serve tax and shareholders. At the same time the leverage in the emerging market portfolio is about $1.2 billion. This is $8.5 billion of that if you isolate it. So we feel very good about this portfolio. This is the engine in VimpelCom.

And now I would like to walk you through highlights of the emerging market portfolio, and then I’ll move on to Italy and few other things a little later. Russia, if we go two years back, beginning of 2012, we have concerns on Russia. We have concerns on Russia, because we have been under investing. After the financial crisis in 2008 and the years to follow, we invested less than competitors, and we kept the high dividend payment. The task at hand for Russia in 2012 and 2013 was all about catching up and stabilizing the ship.

Now, we have more or less parity on network quality. Now, we are more or less parity on distribution reach. We have in 2013 invested and built 8,000 3G base stations in Russia, 8,000. We are going from 18,000 to 26,000. In the second half of 2014, we might be operating LTE networks in 60 regions in Russia. In 2013, we tripled the number of mono-brands. We grew from 400 mono-brands to 1,200 mono-brands, and we took down the cost level and fixed the margins at the same time. We fixed the basics.

Anton Kudryashov did that job for VimpelCom. He spent 24/7 18 months, 20 months in office during the work, this was stage one. Mikhail Slobodin that you will meet tomorrow has taken over, I mean, I’m trying to move Russia into the second stage taking advantage of fixing the basics. Now, it will be much more focus on customer excellence and changing the culture and really building a simplicity and a customer centric organization doubled our future positioning in Russia.

I’m not saying we’re through, there is a lot of challenges ahead, but we have now a starting position that make us more or less on par on the core products and the distribution reach. And for that reason, I think Russia will show and service well going forward. You will hear a lot about this tomorrow when Mikhail speaks.

Asia, Africa, great market for us. 87 million subscribers, clear market leader in Algeria, clear market leader in Pakistan, and a strong number two in Bangladesh. Let’s take a little bit about Algeria, because I know that’s a topic that a lot of people would like to hear about.

First of all, we’re still negotiating with the government, it has taken a long time, I admit that. In the middle of that negotiation, we were awarded a 3G license and the ban on importing 3G equipment was lifted. So we have a 3G license. We are allowed to import equipment, and the first equipment has been received and put in place. So we’re building a 3G network in Algeria now.

At the same time we’re negotiating, that’s our preferred solution. We would like to stay in Algeria, it’s a great market. We would like to partner with the government and find the solution, but not at any cost. The fallback has always been what we talked about International arbitration and this year it’s going to happen. There will be a hearing in the first half of the year and there will be a vedic at the end of the year.

So, at least we will have priority on Algeria during the year, but as I said our preferred solution is to negotiate a settlement that makes it possible to stay a long-term in Algeria it’s a great country, great upsides and we have also there of course 3G ahead of us.

The two other markets Pakistan and Bangladesh very good markets for us, good performance, stable positions and the penetrated good uptake on mobile financial service and growing cash flows. Both markets will show revenue growth this year and both markets – is showing us sort of that we can believe in these on a penetrated markets that we are well positioned in.

Tomorrow Ahmed Abou Doma our Head’s of Asia Africa and also CEO of Golden Telecom Holding will speak much more about it. I think there is a very interesting statistics of data in that presentation side I recommend to follow that.

Ukraine clear number one position 47% revenue market share strong cash flows. Remember Ukraine EBITDA margin of 50%, cash flow margins of 35% last 12 months and the clear market leader. Yes, we’ve had challenges, yes we’ve had challenges to move to the bundles our competitors has done a good job. The point here is that we have now a complete reload program for Ukraine. Igor sitting here will speak about it, we are addressing all aspects of the business, we are modernizing the network, we are changing people, we are changing commission structures and we are working really hard on loyalty program and I making sure that we also build there a business for the future.

I hope we will see VimpelCom are keep start turning the corner in 2014 that there has been a lot of strong good ground work happening without really results showing yet. The last part of the emerging markets portfolio is Kazakhstan, Uzbekistan and the rest of the CIS.

Market leader in Uzbekistan, strong number two in Kazakhstan, strong positions in the rest of the markets. In Kazakhstan actually we have been able to transition to bundles in a good way, we learned our lesson in Ukraine, we didn’t copy the mistake and we did it the right way in Kazakhstan, our market share is growing there now. And I think we can sort of take the box and say that we were able to turn the curve in Kazakhstan and started to deliver.

Uzbekistan is of course different, because in Uzbekistan, of course we have a strong performance, of course we have a strong position, but in a way we have been transitioned into that helped by the two player market and helped by the fact that MTS was forced to close it network.

So, exactly what’s going to happen in Uzbekistan going forward is hard to tell, but for sure right now there is a strong position for VimpelCom in that market. Rest of the CIS also strong positions, good mobile data growth held by an introductional volume based commissions in all markets.

So, when you add up the emerging market portfolio is quite strong, as I said $16 billion of revenues almost $7 billion of EBITDA, net cash flows of $4 billion at the low leverage. So that’s the core VimpelCom. In addition to that we see a great upside in Italy. We see opportunity for a strong value creation. Operationally Italy is doing fantastic, it’s really doing fantastic, relative performance is great, we are growing revenue market share, we have the highest growth to mobile data, we have the highest net promoter score, it’s really beloved brand in Italy.

So operationally very strong performance, very pleased with the team. So that’s not even an issue. I hope we have the worst behind us in terms of market development because of course the problem is Italy is not our performance, the problem is the market. I hope we have the worst behind us, but we are preferring ourselves that also 2014 could be a difficult year.

But this operation is too strong to jump into any short-term conclusions this is the eighth largest economy in the world, sooner or later marketable turn and we have strong operations, we have strong results, we will take advantage of that.

We see a number of long-term value creation opportunities, we are not ready to forego short-term interest savings on group level. We will keep Italy as it is, but we are carefully of course watching developments across Europe currently very strong capital markets, we’re also taking a long-term perspective as I said, we will continue to evaluate the options we have they could be financially driven, they could be strategically driven and we think at some point of time we will deliver value to our shareholders from our Italian operation.

We just need time, we need to be patient, we need to take a long-term view this is a very, very solid asset one of the most and well best performing assets in our portfolio. We will deliver value in Italy.

Shifting gear from the companies and the assets to the outlook, many of you ask for annual outlooks. We are delivering now annual outlooks on the right hand side you can see the targets for 2014. We think 2014 will follow more or less the same path as we saw in 2013 some companies and markets will grow others will not. On a blended group basis, we think top line will be more or less stable year-on-year.

We think also we will be able to deliver a stable EBITDA bear in mind that a lot of the cost elements have inflation elements that drives them, so when I talked about cost control on operational excellence we are putting in place a lot of actions this year to make sure that we come back that underlying a natural inflation and that we can deliver a flat EBITDA that corresponds to the flat revenue line and then we need to invest more in the networks, as I spoke about earlier and for that reason we don’t think we will be able to deleverage a lot in 2014.

As a result of that, we are changing our dividend policy and I know a lot of you have already seen this and comment on this. We see higher value right now in de leveraging, we see higher value for shareholders in increased investments in 3G, 4G high data networks, we think that is the best use of capital and that’s why we decided to adjust the dividend payments. We also think this decision will give us flexibility and strength to make sure that we guess the best possible solution in both Algeria and Italy which are two structural situations that we’re looking at right now.

So for that reason we think this is long-term evaluating this decision for shareholders, we paid already $0.45 in dividend for 2013, we’ve decided that we won’t pay the final dividend for this year, and our new dividend policy is to pay $0.035 per share per annum until we reach a net debt to EBITDA or 2.0. Andrew will talk more about this when he speaks and I’m sure there will be questions during Q&A and we can elaborate on this. We think this is the right decision we know it’s not a popular decision, many of us are shareholders in the company, so it is not a good short-time decision. We think it’s a long-term good decision for our business and we think the timing is right.

We don’t want to make the same mistake we did in 2009 but we paid dividend, we paid dividend and at the same time we’ve started to under invest in the network competitor reinvesting more and as a result of that we had a big structural and operational problem a few years later, we want to avoid that.

So I’m coming to my conclusion before Andrew comes up again it’s a strong emerging market portfolio, we recommend and we will invest in the networks, the dividend policy is changed until we reach 2.0 we think we can unlock value in Algeria by finding a settlement there is $1 billion, $2 billion of cash sitting on their balance sheet right now. We think there is long-term value in Italy, right now it’s highly leveraged, but it’s living within its own cash flow and maybe more important even though 2013 didn’t grow cash flow for shareholders maybe 2014 will not do it.

We remain very committed to our value agenda and committed to the four pillars that we believe will drive growth for shareholders going forward, so we will not change our view on how the value creation model in the company should look like and will be executed. You will hear much more details tomorrow from the business units, we have some good presentations for you and of course we will also answer any questions you have.

As you know Andrew Davies joined us as our Group CFO and he really brought renewed energy, enthusiasm into the company it’s good to have you there Andrew, in fact some of decisions today is influenced by Andrew’s experience and also belief in high speed data networks and also the focus on cost, and focus on return on capital. For those that doesn’t know Andrew he has a long solid track record within the finance function, he has 12 years of telecom experience and his last job was CFO of Verizon Wireless. After Andrew finish we will do a Q&A session that the two hours together and we will address any questions you might have but, thank you very much for the attention this afternoon.

And with that, Andrew the podium is yours.

Andrew Davies

Thank you. Okay, good afternoon all. Thanks Jo for your kind introduction and a warm welcome to all of you. So, as Jo just mentioned. I’ve recently joined VimpelCom in early November and I have since learned a great deal about potential of the business and I will share many of those insights with you today. However, I want to start my discussion with my view of finance resumption and how I see finance contributing to the value agenda.

So fundamentally I think that the role of finance is to create shareholder value, now that sounds obvious and I’m sure all of you agree with that, but too often finance is actually much more focused on just protecting and pursuing existing value rather than actually creating shareholder value.

To create value finance has to get involved in influencing strategy and involved in commercial decision making and in order to do that it needs to be robust, confident and commercially and customer focused.

Now, I’m going to discuss some of these attributes in a bit more detail on the next slide. So this in different forms is a slide that I’ve carried around with me for over a decade in my half and it’s a philosophy which I continually practice and preach. In my view the role of finance is to provide proactive support to decision making while remaining the steward and conscience of the business and its assets. So what does that mean, well obviously we have to be able to do with the basics really, really well from both in effectiveness and in efficiency perspective.

That means complete integrity in transactional processing, the reporting of results, and the safeguarding of assets. In addition, we must be able to develop, maintain, and monitor robust systems of internal controls, okay. But just as the foundations of a house are pretty invisible to its occupants, these values and these attributes should be so well ingrained in us that actually they’re largely transparent to the rest of the business. And the business should have complete confidence in our capabilities in this particular area.

So then you move onto business partnering and being able to influence decision making. So clearly we need to be able to see other functions as our internal customers, but we’ve got in turn, we’ve go to earn their trust. We can only do that if we show that we are customer focused, credible business partners, who challenge constructively and impartially and actually provide alternative solutions rather than just putting up a stop sign and saying no. We’ve got to be able to mirror and drive the culture of the business, be analytical, and data driven in our approach. And finally and most importantly and most relevant for today, we’ve got to be able to make those tough decisions and be accountable for them.

In summary, to be a real true business partner, we need to have a delicate balance of being a policeman, a coach, and a supporter, sometimes all at the same time. Clearly, communication with the markets is very important to us. And we need to be open and transparent, so that we share with you all our avenues at the relevant moments in time, whether it’s good or not so good.

So here at VimpelCom, it’s clear already that we have a pretty strong finance team that works well across the Group and within the business units. However, we’ve still got some room for improvement. We can significantly improve both our effectiveness and our efficiency by standardizing and streamlining all of our core processes, for example, by implementing global reporting platforms and similarly integrated planning architectures, potentially even with greater utilization of shared service centers.

So in finance, I know we’ve got some great people with real passion for the business, and I’m confident in our ability to play a leading role in creating shareholder value. So let’s now turn onto our historic financial performance. Over the last three years, we’ve had decent profitable organic growth. And in total, the Group has increased its revenues by 3% on average and EBITDA by about 2% on average. However, if you just focus now really on the emerging markets portfolio, you are going to see much stronger growth rates of about 5% on average on both of those metrics.

As Jo has already mentioned earlier, in 2013 our revenue and margin trajectory stalled, as a result of macroeconomic conditions and regulatory issues. In fact, due to the severe intense price competition and MTR reductions in Italy, we actually experienced margins – margin declines there. Cash flow generation while remaining strong has declined in the last 12 months, both due to the lower margins in Italy and increased investments in some of our all emerging market assets.

So if you look at margins and compare with our peers, you can see that we develop or we generate significantly higher EBITDA margins than most of our global peers, which has estimated as Joe mentioned earlier to the operational excellence program that we have in the Group, coupled with the ability that we have to derive synergies. So if you look at how we add value as a Group, one of the greatest benefits that we have is an international diverse telecoms operator is our ability to scale.

You might recall that as a result of win telecom acquisition, we generated $2.5 billion of MPV in synergy benefits from that. In addition, as Jan Edvard showed last year, in certain instances we’ve been able to generate 50% price reductions on equipment procurement, both as a result just of larger scale and also other procurement synergies. We also established a centralized procurement function to benefit from the scale and in many instances we now get far better prices than other local competitors from global suppliers. As an example, we’ve recently signed contracts for USB modems, anti infrastructure another billing platforms, which have yielded 15% to 25% savings versus prior contracts.

As Joe has already shared with you, we signed a considerable amount of global partnerships Microsoft, Google Play, Opera et cetera and most recently WhatsApp all of whom are attracted to our diverse portfolio of assets. Centralization of roaming contracts has yielded tens of millions of benefits in 2013. And finally, we’d attracting top talent to the group and would able to develop that talent by rotating cross cell footprint, so they learn from diverse experiences and can grow their careers. So sharing best practices is something that I find that VimpelCom does really, really well.

And we’ve got many examples; I am just going to pick out a few with them few today. So, sharing experiences on MNP implementation from markets such as diverse as Georgia, Italy and Pakistan as informed the MNP program that we’ve developed for our Russian business unit. The learning’s from our 3G and LTE launches in our more mature markets and now been deployed in our planning for similar launches in the less mature markets. Improving our customer experience programs in Ukraine and Pakistan by leveraging learning’s from Russia and final example on this slide. Incentive schemes for our corporate sales teams that were originally developed in Ukraine and now being deployed in Algeria and Italy.

So let me now address what we’ve achieved since last years on listen investor conference in the way of financing savings. So we’ve executed the first internal funding flows by the in-house finance company, which has delivered tens of millions of P&L benefit in 2013. As announced with the third quarter results, we’ve increased the distributable reserves of VimpelCom in Russia by about $3 billion which will provide through the funding for the in-house finance company over time.

Lastly, we are in capital improvements. So although we have a very cash generative we are in capital cycle, but were through the factor we are primarily a prepaid business we are still so value in launching a pretty big project on 2013 and through the first nine months of 2013, we actually delivered a 10% through the improvement in working capital and we have expire to more in 2014.

So some of the things that we have done or doing there would be optimizing payment runs, integrated sales and demand planning just improving terms and conditions with vendors, aligning payment terms, optimizing handset inventory and just – just focus on improving receivables.

Finally as you may recall we’ve secured external funding over – just over $2.5 billion in the unit part of 2013 at an average cost of roughly six in the quarter percent. So you might remember this Slide from last year when we first introduced the concept of – an improved funding model for the group. There would in-house bank which were use the time was a little confusing for therefore that we would actually even the lends to other corporate only met by it was there will going to be an internal financing company which is common to many other multinationals

The principle is behind and actually relatively simple. We just used the dividends flows from our cash generating businesses to fund our Luxembourg based in-house bank which then funds our CapEx programs across the rest of the group and over time our goal is to move more, more funding towards this optimum model.

To date we're already provided $1.7 billion of funding internally by this model through the end of 2014. The model will ensure optimum capital allocation within the group and also enable tax optimization. Today our effective tax rate is in the mid-30s should much higher the most multinationals and for utilization of this model we’ll get that ETR down closer to the levels you see in other multinationals. And to give you an idea of the size of the prize just purely from a tax perspective every $1 billion of funding that we flow for this model it was roughly $15 million per year of annualized cash tax benefits.

We also believe that our financial profile can be improved. Currently we need to maintain our BB rating but over time we want to improve this BB plus or BBB minus as we both delever and generate increased operating cash flows. Clearly we have an intent to deliver to less than two times net debt to EBITDA at which point it would probably going to become investment grade and not then would allow us more flexible access to funding on capital markets and all over overall cost of funding.

Last year, we provided financial improvements in operating force and cash flows from financing activities. So we still believe that the savings and the benefits from the last three categories are broadly achievable in the same way and the same content that we described last year. However the savings from the in-house finance company are very dependent upon Italy. Conservatively to the extent that Italy remains self financing, the savings from the in house finance company would be approximately $50 million per annum and under that scenario the total amount of financing savings that we could generate would be roughly $400 million per annum. So as Jo discussed earlier Wind Italy remains a valuable asset for the group and we intend to unlock that value.

Our decision regarding value creation in Italy depends upon the macro economics, the comparative and the market situation and environment, our operating performance and the potential for financing savings that we see. So we see significant savings if conditions are right but as Jo said we are going to make old decisions based on what we think is in the best long-term interests of the group and we will not be influenced by any short-term factors. So let’s turn to the dividend.

Our track record of paying dividends has been very good, supported by strong operational cash flows coupled with the cash conversion in April 2013, we returned $5.3 billion in cash dividends to our share holders over the last three years including an interim dividend of nearly $800 million at the end of 2013.

Returning capital to share holders is fundamentally important to us, but so is insuring that the business is supported for future long-term growth. Based on my prior experiences, I’m a very strong advocate of the need to invest in high speed data networks to capture future growth potential. I am not coupled with the need to deliver means that we see more long-term value in cutting the dividend and revising our dividend policy to support future long-term growth.

So our board made the decision to implement a new dividend policy with immediate effect for the right reasons, we will not be paying the final dividend for 2013. And going forward as Jo already mentioned we will maintain an annual dividend of $0.035 per share until, we reach that target leverage ratio up two times net debt to EBITDA.

So let me wrap up, I see clear opportunities for finance to contribute greatly to the value agenda by optimizing have operating models and structures and just being generally more influential in strategy and in decision making. Also give me some clear examples of how we unlocked value from being a large International telecoms operator. Despite the difficult environment that we operate in we still generate robust margins and solid cash flows.

However, today we’ve announced a tough decision to revise our dividend policy, to support deleveraging and to be able to invest sufficiently and high speed data networks as we think this creates the best shareholder value in the long run. With that I will hand over to Gerbrand Nijman our Head of Investor Relations.

Gerbrand Nijman

Thank you, Andrew. While we are presenting preparing ourselves for the Q&A session with Andrew and Jo, I will would like to take you through the program of the coming two days for a second. Now, clearly all we have been able to read is disclaim, so we will not read this out to you, but what is the program? So we will have a Q&A to a roughly 5:30 today, and thereafter there will be drinks and dinner in – here in the building with senior management and there is actually only one follow-up. And tomorrow we will have all the business units presenting at 9 0'Clock. We start with Russia followed by Italy, Africa and Asia and Ukraine.

Each business unit presentation will be followed by Q&A, so that will and should give you sufficient time to ask all your questions of those interesting presentations of the business units heads. And then around 1 0'Clock, we will conclude the whole conference and they all usually have the opportunity to mingle with management during a lunch.

With that, I would like to ask Jo and Andrew to come on stage as well and then we will take your first questions.

Question-and-Answer Session

Unidentified Company Representative

[indiscernible] please could you file for state your name and company before asking a question, and if you could limit your first round of your questions to two. Thank you.

Unidentified Analyst

Thank you. I’ll even limit it to one [Indiscernible]. So I’m going back on your remarks on your Italian operations and opportunities to potentially reduce the cost of financing there. And then you added to whatever decision we make will be based on a launch and focuses, suppose to a short-term focus. Can you – I mean perhaps more details behind your thinking there?

Unidentified Company Representative

Yes, okay, thanks for the question. So listen there is a lot of alternatives and a lot of options available to us in Italy. It doesn’t take a rocket scientist to kind of look at what they are. The notion I would dispel is that anyone of those alternatives is mutually exclusive to anything else. And I think that’s not – that’s the issue that’s not well understood. So what – basically what I’m saying is, you could surely pick a number of different things, and when you realize that what you then quickly realize actually is that, there is a lot of complex – there is a complex set of independencies between the various options that are available to us.

So we need to very careful in our full process this year, and actually how we consider what the best options are, and how we actually play our way through that. So it’s going to take a little bit of time to actually come to some firm decisions. And that’s why I said it’s – we’re not going to react to anything short-term, we’re going to make sure we make the fundamentally the right decisions for long-term value creation as opposed to are they trying to take advantage of the short-term opportunity all be overly swayed by other short-term factors.

Unidentified Company Representative

I think also just add to that that what we do now is really to create options for ourselves and, for example, to import Italian risk onto VimpelCom’s balance sheet and to reduce interest expense, that option is not going away. That’s there six month from now, it’s going to be there nine months from now. So for that reason the results are a little bit of as Andrew said how you play out to different options. So we’re just trying to make sure that we keep good option alive and that’s why I was saying long-term. We think there will be shareholders value created here, but just need a bit more time to allow the different options to play out.

Unidentified Company Representative

There was a question here. Cesar, I think you wanted to question. Mick away, mike is coming.

Cesar Tiron – Morgan Stanley

Hi, it’s a Cesar from Morgan Stanley. So I have two questions actually. The first question will be on Italy. I would like to understand if your commitment to create long-term value in Italy, why not focusing on this short-term could still mean that you could announce something in 2014, or whether it could take you many years to find the solution? That’s the first question.

And the second question would be on one of your slides, which shows the cash flow potential from financing improvements. It says in the footnote that you assume the resolution of Algeria. Can you please tell us what is your assumption there, whether you assume that should be selling 50% to the Algerian government and for how much? Thank you.

Unidentified Company Representative

I’ll pick up the first one.

Andrew Davies

Yes.

Jo Olav Lunder

It’s really hard Cesar, to give a timetable on this kind of things, it could be not too long and it could take longer and that’s kind of – that’s the difficulties because I would also very much like to be able in front of in audience like this to give a precise timetable and sort of give a set of priorities in term of how we would like to create values in Italy. The problem is that so little bit of a moving target and there are as Andrew said I think everybody here can more or less define the three, four options that is there, but we don’t know in which already going to play out and exactly what will be the timetable because in some of them it takes more than one to tangle right.

So we don’t know exactly how the different opportunities is going to develop and for that reason it’s impossible to say if this is something never happen quickly are if it something that we’ve decide that should happen later. And that’s why also said that the deleveraging and not paying dividend earlier today is also giving us flexibility and strength because we can go into any type of conversation with any stakeholders related to that decision and be strong.

We don’t need a decision tomorrow, we can wait a year, we can wait six months, but we want a decision that we believe is in the best interest of our shareholders that since I can’t give you I know I am not giving you the answer you want but that’s please just I think just allow us to make that judgment and we will deliver value for you guys.

Ahmed Abou Doma

On this Algeria question its not predicated on selling the business for say the assumption now is that the $2 billion to $2.5 billion of cash that’s on the Algerian balance sheet gets pay that in the form of dividend and not get goes to pay down gross that levels.

Cesar Tiron – Morgan Stanley

Just a very follow-up question on Algeria and global telecom is there a risk that the shareholder loan that’s you have made to global telecom will not to be a rolled over in May?

Unidentified Company Representative

I don’t think it’s appropriate to commit on that right now.

Operator

Next question please. See again that’s coming.

Unidentified Analyst

Its [indiscernible] from Ontario Teachers Pension Plan in Toronto and so the increase in capital spending versus last year can you maybe break it down where exactly is coming from and what is cause that increase? Thank you.

Jo Olav Lunder

There is a – lets divide this into a few baskets because when we talk about CapEx to revenues we also excludes license fees right. So for example a last year we had a license fee in Bangladesh when we’ve rewarded a 3G license there in the first half of this year we expect Pakistan to grant 3G licenses and there will be a fee related to that outside that CapEx to revenue number we gave we will also potentially have Canada, should – question about Canada but just to make sure that when you look at CapEx to revenues you look at really the CapEx that is going into designing and developing a high speed networks.

In addition to that we might also have investments related to licenses, we might have investments to for example of project like Canada must suggesting unnecessarily that we will do Canada, but because we are not part of the auction, but the growth from 2013 to 2014 is partly because we’re stepping up investments its partly because Algeria was delayed we were planning on that we gave guidance for 2013, that we would a lot of stuff in 2013 that falls into 2014 and in addition to that as I said there are certain licenses payments et cetera so that’s were 2.3 leverage at the end of 2014 is coming from.

Unidentified Analyst

If I can follow up on that what part of this increase was not predictable last year?

Unidentified Company Representative

For 2014 or 2013?

Unidentified Analyst

2014.

Unidentified Company Representative

Well, whatever the part was that is causing the increase that was unexpected I guess.

Unidentified Company Representative

I think the fact that Algerian moved into 2014 was just a conservative assumption, because we have to assume that we would have a solution. So when we said we expect the cash up in Algeria in 2013, that was based on a conservative assumption didn’t happen, it moves into 2014. I would say that we were underestimating in the beginning of 2013 a year ago, we were underestimating the need for CapEx spending to make sure that we had high quality network, so there was also an element of not the best judgment in there, so part of this is also realizing and accepting that we need the state-of-the-art network alongside with others. And I think that’s basically the two things that is driving the division.

Unidentified Analyst

Thank you.

Unidentified Company Representative

Next.

Alexander Balakhnin – Goldman Sachs

Alexander Balakhnin from Goldman Sachs, two questions if I may. First is a follow-up on Italy. During your presentation you outlined a few benefits which the status of the global company gives you including the best practice sharings, some procurement benefits. How – and also you outlined that there maybe three, four options. So in considering those three, four options, how important is for you to keep Italy as a controlled operations within the consolidated circle like consolidated business for VimpelCom?

And my second question is, on the new dividend policy going down from $0.80 to $3.5, why did you stay with dividends at all? Why just didn’t eliminate the dividends, because it’s like $3.5, which probably cause more to pay than like not to pay. If you could share some thoughts, what was behind this number, it would also be helpful?

Unidentified Company Representative

On the Italy first – it is the benefit for VimpelCom to have Italy as an integrated part of the group from a procurement point of view, from a knowledge and experience point of view, and from talent and people point of view. So the Italian asset is playing an important role for us when we’re trying to develop VimpelCom in 20th National Telecom Operations. So that is important, is it so important that it can’t be resolved in a structural situation, probably not, but yes, it is important.

On the dividend, on the size of the dividend when the Supervisory Board discussed this, this morning. I think they basically wanted to send the signal that we’re still a dividend paying stock. And that – it’s really a kind of a suspension and that we want to deleverage and that we want to go back and pay dividend again. I think [indiscernible] basically sending the wrong signal, but 3.5 really sent the clear signal that it’s not half pregnant, now we are going to deleverage and we are going to invest in networks, but we do plan to come back paying dividend later.

Alexander Balakhnin – Goldman Sachs

Thank you.

Unidentified Company Representative

Behind you, there is no other question.

Jean-Yves Guibert – BNP Paribas

Thank you. This is Jean-Yves Guibert from BNP Paribas. Two question, first one on the – Joe, you completed your remarks on the EM stating that’s where core markets should imply that Italy is no longer core market and should I read therefore into your strategic opportunities at the disposal of Italy could be amongst the possible options and then trying to reconcile that with your opinion that you can see long-term value in Italy, should we be looking at sending the business in the short-term. Do you believe that you will be able to capture those long-term opportunities in short-term disposable business and then my second question is on the CapEx, your six percentage point increase versus your previous guidance, how much of that should we expect in 2014 in Italy? Thank you.

Unidentified Company Representative

Yeah, I can take that.

Unidentified Company Representative

Yeah, do you want to start with that?

Unidentified Company Representative

No. I don’t want to start.

Unidentified Company Representative

Yeah, start with it, okay. I did not mean to say that Italy is not a core asset. I meant to say that 70% of the asset base and the cash that we’re generating right now is coming from emerging markets. Italy is a very highly leveraged asset. It lives within its own cash flow and selling Italy now for VimpelCom would not be an option, because we don’t think that it’s going to create the value that a longer-term solution in Italy would generate.

And then there are different options that that might play out and we said we’re looking at financing options and we’re looking at the capital markets and the terms and conditions there. We’re looking at strategic options and structural options, and we’re also looking at waiting for the market to turn and do organic play in Italy and just take time until that market matures and eventually will develop into, I think some kind of a consolidation.

So Italy is really key to us in terms of the long-term value creation. And I did not mean to say that it was not a core, I meant to say that right now it’s the emerging market that is generating the cash flow and then there is a very strong and interesting equity upside in playing our cards the right way in Italy.

Jean-Yves Guibert – BNP Paribas

Okay. And then on the CapEx questions you just a little bit of a correction, so the 15% to 21% that’s a bit apples and oranges, because we will have 15% by the end of 2015 that was the guidance, it’s actually only up 3% to the nearest percentage points year-on-year. Having said that the Italian CapEx is broadly going to – it’s going to be broadly flat year-on-year?

Unidentified Company Representative

I think also frankly speaking that the way we do now by giving guidance on an annual basis is a better way of guiding, because of course, we can take CapEx down to 15% in 2015, we absolutely would like to do that. So we could deliver on the guidance if we absolute felt that was something we had to do, but the point here is basically that it’s probably not a wise long-term decision.

So I think we need to see this a little bit on an annualized basis now and see how the different markets that develop. But I think it’s also still built in tomorrow, for example, for Russia is when we explain and talk about we’re not allocating X billion dollars for investments in Russia next year, we’re allocating investments for an expected development in the market if there is a slower uptake on LTE, if competitors are doing something different, we want to have that flexibility to increase or to decrease.

So we’re sort of monitoring also the market very carefully, but we want flexibility to make sure that when we have closed the gap, we’re not reopening a gap.

Unidentified Company Representative

Some more question here as well, okay Dalibor, please.

Dalibor Vavruska – Citigroup

Thank you. Dalibor Vavruska from Citi. I have one question, you’re sitting here last year and we were talking about similar things, I think as you said today, you are now more optimistic about data than you were before and this is one of the reasons why you are increasing the CapEx.

In the mean time, because you were less optimistic about data last year than some of your competitors I think, you have some catching up to do as well. Meanwhile in your core markets the – which are emerging markets, the macroeconomic situation isn’t necessarily very certain at this point.

And when we talk to your competitors, they are actually scaling back their expectations just to give one example Russia, I think voice revenue will fall for everyone next year most likely, and in terms of data you can play with smartphones, but there is a risk that the smartphone purchase is basically discretionary spending and the – that makes slowdown, the economy slows down et cetera, and still you’re now going and basically substantially increasing your CapEx at the expense of dividend.

I’m just wondering what is really driving this, it appears that it’s a catching up gain, but I’m just wondering if there is anything more to it, because it could potentially create a risk that the market will actually get over invested and you may not see the demand that you’re thinking about also in this respect I think there is more talk in the industry now about OTT as the smartphone penetration guys are wondering how you see that and also in Russia there is lately a discussion about the WiFi substitution, when people who are stressed for income because I think now you have 20%, 30% smartphone penetration, so you’re really selling the smartphones to the average person in the street and the average person in the street doesn’t have substantially growing disposable income what happens it that they may buy a smartphone and just won’t sign up for the data package et cetera.

Is there something that is troubling you with when you’re thinking about this substantial CapEx increase do you think this is the right time to actually go with this very aggressive spending?

Jo Olav Lunder

Andrew you can tell me here because I know you have a view on are you have a high quality network or you don’t so it is…

Andrew Davies

Yes.

Jo Olav Lunder

Really not anything in between but Dalibor I think what I try to say when I answered the previous question was basically we’re not going to drive our investments. So we are not turning into completely new mindsets saying that now it is all about investments, what we are simply saying is that it is really hard when you are number one, number two player in these large markets not to have high quality network and it is really hard to compete if you don’t have high speed data networks if the take up is lower than expected investments will be lower.

WiFi I think is just an offloading concept that everybody will adjust to and integrate, it might limit some of the growth for the mobile operators, but I think in the end it is just an integrated product of wireless services, so it is what it is we also see pressure on voice in Russia next year. And I think our investment philosophy will basically be based very much on demand and making sure that we have the same quality, we are not communicating today that we’re building superior quality, we don’t communicating today that we want to have higher quality network than MegaFon in Russia.

And frankly speaking VimpelCom has not been the one over investing in Russia if there has been and our investment, I think we have been probably too careful and under investing from time-to-time and the message today is that we have catch up and now we will make sure that the quality product is equal to the main competitors and that competition will move to simplicity, customer excellence and innovation and other things that normally drives competition in the marketplace. So as Andrew said in his last answer we – when we talked about CapEx last year we said 15% CapEx to revenues by the end of 2015.

Now we’re guiding on a high CapEx number for 2014 compared to that 2015 number in 2015 and I’m not going to be tempting out to start making guidance for 2015 and we’ve just said that we are now going to make annual guidance, but our big industrial shareholder Telenor is talking about CapEx to revenue levels, different markets of course but they talked about 12%, 13% some years ago and now they talk about 10% to 12% Russia is different because of the nature of the country. So it’s really going to be hard to drive it down to those levels.

Russia is a big part of our business, but I think long-term CapEx to revenues should be lower in much your business model for mobile operators. So I don’t think VimpelCom needs more than 20% CapEx to revenues in the longer-term perspective. I think we are stepping up right now we have 3G ahead of us in Algeria and Pakistan and Bangladesh potentially in Ukraine. We have LTE in Italy, we have LTE in the Russia, we have some catch up between Algeria so. So, I don’t think the guidance if you made last year necessarily is completely off I think maybe the timing was not of, but we underestimated a little bit of the developments.

So, I’m still believer in the profile that this is an EBITDA margin business about 40 and long-term CapEx to revenues numbers closer to the once we discussed earlier when we really take a long-term view. And I think we need to a long-term view. These networks will last for 10 years 15 years and we need to see through sort of the next 12 months and take the short-term pain to deliver long-term solid positions when add I think.

Andrew Davies

Yes, absolutely. So, I have been clearly we’re going to be economically rational and we’re go to as Joe’s mentioned. We will insure that the network expansion and deployment and rollout will be the cadence that will be based on what we see in terms of revenue growth and market demand that et cetera. But there is also – there is just a certain level of entitlement that you need to have, which is a question of regional philosophy quite candidly. From my own experience is in kind of Japan and the U.S. I have seen both sides of the coin of what happens in the marketplace when certain competitors don’t invest sufficiently in high quality, high speed networks.

I kind of separate from that in Japan and its not funny and you can’t do anything to catch up, if you don’t have good networks and I’ve been on the complete other side in the U.S. and then so how many competitive networks allows you to do all these other things the customer excellence and distribution and operational excellence programs is a layer on top of those. If you don’t have the basic competitive positioning right of having a high speed, high quality data network all of that other stuff just becomes increasingly peripheral.

Unidentified Company Representative

Move on to the next question. Dalibor could pass on.

Dalibor Vavruska – Citigroup

Yes.

Ivan Kim – VTB Capital

Yes, thank you. Ivan Kim, VTB Capital. One question is Jesse [ph], so basically drags on for a while now it seems like there is stumbling block there. So should we assume that’s the international arbitration now is a best case and that’s it will began for more. And on the second thing on potential term or conversion so if and when Telenor decides to converse should we assume that their proceeds will be use to reduce the debt. Thank you.

Unidentified Company Representative

Our preferred option on Algeria is to negotiate a settlement and we traveling up and down, we are meeting people, we having meeting on high level, we have shareholders involved there is still a few issues that is not resolved. But, we work under the assumption that we will reach the settlement and that we will have a long life in Algeria and develop that 3G networks and team up with local content providers and others and really have a strong position in Algeria that’s still the preferred option that’s what we working for.

It’s hard to know exactly how these processes develops, the fact that we are getting closer to the arbitration it might be helpful it’s hard to say, but we’ve said two years ago that we will not enter into anything that we don’t believe is in the best interest long-term for shareholders and that the fallback is litigation refer on the position. As I said preferred option let’s agree, if you got agree, let the panel decide. The second question was…

Andrew Davies

Yes. So on the Telenor perhaps, so clearly I understand why you’ve ask the question, but just in response, I mean, I’m not going to comment on hypotheticals particularly when it involves our strategic shareholders. I’m not going to have anything misinterpreted on their behalf that would be inappropriate.

Ivan Kim – VTB Capital

That’s the decision for the Supervisory Board really if that money is coming.

Unidentified Company Representative

Okay. Next question over to you.

Ivan Kim – VTB Capital

Just three questions on the kind of government accounts for pioneer, hopefully an easy one Andrew, in terms of rating target and investment grade rating, in your view, is that really possible when you have an operating company Wind, that’s CCC rated at the peak level.

And second question again related to Italy, you mentioned the short-term distractions that you don’t want to be banned by, just to be clear are you saying that you are presumably I guess an open secret that you are looking at financing options at the Wind level, which enable you to get past January 15 when again the common view is that the company kind of afford to pay the cash coupon at the peak level in January 15, is that what you talk about when you talk about, is that what you are thinking when you are talking about short-term distractions?

And second just in terms of CapEx and interests and possibly I’ll talk about Russia, but again in relation to Italy, it was more free cash flow available at Italy, I think granted that the management team has done a fantastic job there in a tough market, but if there was more money available for CapEx presumably there are things that can be done there to do an even better job.

Unidentified Company Representative

Okay, I guess I’ll take all three of those. So first of all your observation on the rating I think is pretty accurate clearly. So I was talking about from a long-term perspective, it’s not going to happen overnight. So yeah, clearly, we would have to resolve that. And then the second question, so the – this presumed January 2015 have a pseudo deadline that people believe we have, that was one of the, yes, that was one of the fact that I was alluding to. And then the third question, I think actually we are pretty happy with our overall levels of investment in Italy. And I actually don’t think that we be investing materially more money if the free cash flow generation there was higher.

Ivan Kim – VTB Capital

Okay. And then just a kind of follow-up in terms of the Jan 15 deadline, so there are options or in your view you have options to do some kind of Wind level refinancing that freezer free cash flow presumably you need some covenant waivers at different levels for presumably that they could be gosh, you can do some kind of refi the buys you more time just to see how the macro develops and whatever else develops in terms of M&A?

Unidentified Company Representative

As I just said, I’m not going to comment on hypotheticals. I mean clearly, it’s one of the options that’s available to us. And – but we’re exploring all options, it’s not the only thing that we could do to mitigate that particular issue that you referred to.

Ivan Kim – VTB Capital

Thanks.

Unidentified Company Representative

In the back of room, Drouet behind you.

Herve Drouet – HSBC

Thank you, Herve Drouet from HSBC. Just compare with last year what was the key trigger that make you think basically you had to change your dividend policy maybe accelerate or focusing onto deleveraging, is it more some concern about the cash flow originations coming from emerging markets, where you think it’s more at risk for either macro or currency potentially a movement verus the debt, which is more in hard currency.

Is it more the – it’s a factor of you feel you need to gain to become more competitive and therefore have to increase your CapEx potentially significantly, but at least starting maybe potentially to outspend some of your competitors, which historically maybe quarter of concerns you haven’t done, or is it because you thought sums of the cash inflow that may have come in some – from some opportunities may take a longer to come. So I’m more thinking of what really was the key thing that make you think now maybe we have to change it now?

Unidentified Company Representative

Well, let’s – I’ll start and then and confirm in. I think starting with the networks, I think we realize that historically we have been under investing compared to competitors in quite a few of the markets. Russia is one example, I think some of the portfolio follow the same path ever that reason to making sure that we have high quality networks has led to know higher CapEx program for 2014 than what we looked a year-ago, if you add that to macro environment in Italy in 2013, it has not been as good as we hoped.

Ukraine right now is difficult, we know Russia is slowing down next year still growing but substantially less than what we may be hoped 12 months ago, Bangladesh political turbulence and difficulties, Pakistan a number of Government interventions. So when you add all these things up a little bit of under investment, macro regulatory potential currency risk and you look at that in a basket, it’s been a difficult year we have behind us and for that reason you see revenues plateauing, you see EBITDA plateauing and especially the second half of 2013, we’ve seen these things happening and then it’s a little bit of a difficult decision to make because you decide to invest more in markets with weak macro and difficult regulations.

But we try to see through that next 12 months or 18 months or how long it’s going to last and stay that let’s take a long-term view unless make sure that we create our networks the right way and do the job now when we’re doing network swaps, when we’re doing the modernization, when we’re going to start building 3G from scratch, when we’re going to start building LTE from scratch, let’s just make sure that we do it right from the beginning now and look through the macro and look through the regulations and build something that can grow and deliver cash flows in the future. I think that’s the best answer I can give and it was difficult to seize some of these developments, I think 12 months ago.

Andrew Davies

Yeah, I mean let me just add on to that so everything that Jo said is absolutely correct and the realization for us was you saw the guidance that we’ve provided earlier for 2014 and just want to be clear, we said that in by the end of 2014 our leverage ratio will be pretty stable with weather is today and I assumed the new dividend policy okay, so the realization that we had which was flat EBITDA trajectory the need to significantly increase our CapEx year-on-year to the tune of $800 million across the emerging markets portfolio with contributions from every single country towards that meant that our leverage ratio is going to stay the same coupled with spectrum purchases et cetera. So [indiscernible] we would almost have to increase our leverage ratio 1:1 for every dollar of dividend we pay-out that just intuitively did not make sense. And not just that last factor that kind of crystalized all the thinking.

Jo Olav Lunder

What’s the next question here Igor? Okay then you can pass on to [indiscernible].

Herve Drouet – HSBC

So, I’ve a question for Andrew here so I’m looking at the slide that Hank [ph] put up last year on the benefits from the in-house bank and there are couple of lines which are quite different can you maybe talk about that, what has changed since last year?

Andrew Davies

Major change as I mentioned in my discussion is that with just with regard to the in-house banks in the top line that assumed all of the financing for the entire group is going to be provided by the in-house bank. Okay, the numbers I’ve presented earlier conservatively assumed as I said that Italy remained self financing so Italy does not – in my numbers Italy does not at all funded via the in-house finance company. That is the single biggest difference in the assumptions.

Herve Drouet – HSBC

Okay and last year I am consumed that was going to change.

Unidentified Company Representative

Yes

Herve Drouet – HSBC

And then there is the other thing which is the gross that reduction.

Unidentified Company Representative

Yes. Well that assume that we will get down to our two times net debt-to-EBITDA ratios just through organic means but the end of 2015 and all are – we’re assuming right now is that we free up the $2 billion of cash that we got on Algeria.

Herve Drouet – HSBC

Okay thank you

Operator

Okay next question over there.

Marco Gironi – Credit Suisse

Hi this is Marco Gironi from Credit Suisse. Looking of the financing side I just want to clarify with regards to, where use to call the RIM fans so that across the fault between Wind and the VimpelCom that. Once the strategic options, the M&A options have been explored for Italy and if the conclusion is nothing to status require. I just want to clarify is the board of Wind happy to create one credit pool and therefore go for the full synergies of inter savings and tax savings or its even in that scenario basically post strategic options explored is that still out for debate, is that still not decided.

Jo Olav Lunder

You mean inside that the Wind right

Marco Gironi – Credit Suisse

I'm saying basically if one should explore the strategic options for Wind.

Jo Olav Lunder

Yes.

Marco Gironi – Credit Suisse

Whether then you’ll be happy to break the RIM fans and create one credit pool would across the fault between Wind’s patented and the rest of VimpelCom’s that would implication would have on the overall credit rating.

Unidentified Company Representative

Yes, I think this is the type of question that is really hard to give a precise answer to because you would not designing one potential scenario and I think if that scenario plays out and that become a reality I think we need to make a very conscious decision then at that time how is [indiscernible] doing how has Wind been doing in the mean while, how is been VimpelCom will doing with in this emerging market portfolio to refill comfortable keeping Wind’s as a fully owned asset do we have strength on VimpelCom limit this balance sheet to integrated do you think that is a good solution for shareholders is then Wind growing will it contribute to grow but that the point is that we – we don’t need really to make that decision now if it has different optionality and this might be one and then we will make a good long-term decision – if we are in a excellent position in the emerging market if Italy is doing fine again if Wind this growing if nothing happen on the structural side of course we will do it and reduce that cost of capital.

Unidentified Company Representative

But let me come back to you on that then will you're saying is that a pretty big pillar of your value agenda is not within your control is on trying to say is that once you take out to the equation what is not in your control which is the broader picture the M&A the sale whatever which is the broader picture if we strip them out then you're kind of saying you still – you still don’t believe this within the control of VimpelCom to execute the full value agenda execute the full think of because it still depends on how bunch of other factors.

Unidentified Company Representative

That’s your way to looking it I won’t argue that it is 100% under our control and our decision and we could decide to do this and integrate the two systems and create synergies on tax and interest and new Wind as an integrated part of VimpelCom Limited that is our sole decision. We could make that decision to more if you like, but we would like to look at a few other options before we have to decide that right. It is so and that’s the – that’s the meaning of today’s decision we are not going to force to do anything. We have strength we can wait we can - we have flexibility and then we will make the right decision when one time is there.

Operator

Okay next question please.

Anna Lepetukhina – Sberbank CIB

Thank you. Anna Lepetukhina, Sberbank CIB. You mentioned that you underestimated the need for CapEx spending but at the same time you are saying that your network at least in Russia is now at part of your comparators, but at the same time we haven’t seen increase in market share and we went through some decline. My question is don’t you think that now you are underestimating the need for OpEx spending and given that in Russia for example you have the issue of perception and you need to send this message to customers, you need to increase course rather than to reduce course and therefore may be your guidance on EBITDA margin being flat is overly optimistic?

Jo Olav Lunder

I think that’s a very reasonable question to ask because there are time lags here and when I talked about catching up I also referenced 3G MegaFon clearly is ahead on LTE because of their latest acquisition. So there is also a catch up to do there for both MTS and VimpelCom, so we are not fully there yet even on LTE we’ve done it on 3G. And I think you are right, I think there is actually a perception issue that has developed over the last years in Russia on the line subscribers and we need to change that and we all know is not done like that it takes time and it might also as you said b that we need to invest a bit more on the OpEx side to make this happen. But so that’s why I’m saying that, we haven’t sort of tick the box and said that now we’re going to grow exactly with the same speed as competitors.

We clearly, we have deep respect for the challengers still in Russia, but what we are saying is that now we have catched up on 3G, we have the same distribution reach, we have the same cost level and now we can start investing in customer excellence, in simplicity, in brand building whether that’s going to take another 12 months before we are there. That might be I can’t give guarantees on that, but I think we have good plans in place, I think we understand the challenge and I think what we’re doing now is a 100% the right thing to do. If we had under invested in 3G, under invested in LTE, under spent OpEx in Russia right now, I think the problem could have been much, much bigger a year or two from now.

So this is really to secure values and build for the future, but of course 2014 could easily become a challenging year in Russia, but they remind that revenue market share in 2013 will more or less stable actually at least according to our statistics underway we measured revenue market share and that is service revenues, that is not total revenue but then you look at services revenues, it’s not been a huge sort of movement on the revenue market share compared to MTS and MegaFon, we’ve lost because Tele2 still been growing but relative set to among the big 3 is not been a massive movement in 2013.

Andrew Davies

Can I just add a couple of other observations to that so first of all, there is a pretty large cost tool in Russia and so when you – it is a $5.5 billion to $6 billion cost tool, so that gives us the ability to actually move money around within that cost tool to as Jo said kind of focus more on distribution, focus more on the brand and the messaging to actually educate customers and above the network quality and then change perception, the other thing I would say is again learnings from my own experiences the vast majority of any mobile operators costs are in the customer facing processes.

And when you start looking at when you talk about operational excellence programs there’s no – there should be no trade off there, so when you are doing your process re-engineering in the right way then when you do the right thing for the customer by simplifying that, that experiences says improving that experiences at the same time you pretty much also guaranteed that you’re simplifying your internal processes and you’re going to generate cost savings as a result. So this is the two of the observations I would make.

Jo Olav Lunder

Let me pick one more point because we are not now implementing and making short-term decisions, let’s take a practical example in Russia. Some of the revenue streams that the Russian mobile operators are having are revenue streams from certain content services et cetera that makes customers unhappy. We are now foregoing those revenues, because it’s more important to have customer satisfaction long-term and rather take a small hit on some revenues that you need to forego. And so we are now going to fix – we are trying to fix behind Russia in a fundamental way. We are not trying sort of to satisfy the next quarter or two quarters, we’re now we’re taking a long-term view.

Unidentified Company Representative

All right. I think given the time we have probably time for one or two questions, now we have time, there is a question over there.

Unidentified Analyst

Thank you. And the first one was just to clarify the dividend. So ones you hit your two times net-debt-to-EBITDA target, does that mean you go automatically back to the $0.80 or will it be a board decision of a new dividend policy going forward?

And the second would be we have heard quite a lot of questions asked why have you reduced the dividend, let’s turnaround if value creation in Italy happens this year and thus you except Algeria happens this year, what’s the dividend cut you suddenly overcapitalized and what happens then now we’ve been talking in a special dividend, so how would that be? Thank you.

Unidentified Company Representative

Okay, so I’ll take both of those. So, in answer to the first question the – you should not automatically assume that the dividend will go back to $0.80 per share once we reach our target leverage ratio. I think the way I would think about is that having a fixed amount per share as a policy for relatively long period is pretty unique in telcos. And clearly, it will be a board decision at the time, but we will frame our thinking around the new policy more around a direct linkage to business performance whether that’s net income generation or free cash flow generation coupled with ensuring that we maintain our target leverage ratio.

And then back to your second question clearly if we have a structural solution to some of these issues that we talked about then clearly we would get to our target leverage ratio quicker rather than later and that would then cause us to crystallize our thinking on a new divided policy much sooner than we currently anticipate. But I would not expect a special dividend or anything of that nature.

Unidentified Company Representative

Okay, I think we did run over time a bit. But I think we had a good discussion. I would like the people here in the room to join us for drinks in the referred rooms. But people on the internet, we hope to see you tomorrow at 9 0’clock in London time, we’ll start again. Thank you for your attention.

Jo Olav Lunder

On behalf of all the business units that’s here and there is going to be for dinner. So I hope you can join us as many of you is possible.

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