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VimpelCom Ltd (NASDAQ:VIP)

Q3 2011 Earnings Conference Call

November 14, 2011 8:00 AM EST

Executives

Alexandra Tramont – FTI Consulting

Jo Lunder – CEO

Henk van Dalen – CFO

Khaled Bichara – President and COO

Analysts

Cesar Tiron – Morgan Stanley

Alex Balakhnin – Goldman Sachs

Alex Kazbegi – Renaissance Capital

Dalibor Vavruska – Citi

Alex Wright – UBS

Nadezhda Golubeva – UniCredit

Sanford Lee – Canaccord Genuity

Tatiana Boroditskaya – UBS

Harald Øyen – First Securities

Sergey Goncharov – Troika Dialog

Tala Boulos – Deutsche Bank

Marco Gironi – Credit Suisse

Dennis Ankle [ph] – Brevan Howard

Michael Galkin – VTB Capital

Jonathan Moore – BlueMountain

Operator

Good day, ladies and gentlemen, and welcome to VimpelCom Ltd third quarter 2011 analyst and investor conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host, Miss Alex Tramont of FTI Consulting. Please go ahead.

Alexandra Tramont

Thank you. Good morning and welcome to VimpelCom's conference call to discuss the company's third quarter 2011 financial and operating results.

Before getting started, I would like to remind everyone that except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties. These statements relate in part to: one, the expected profit growth in Russia; two, our expected future debt position, dividends and capital expenditures; and three, the company's value agenda strategy.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in: one, the company's press release announcing third quarter 2011 financial and operating results and the related presentation; two, the company's annual report on Form-20F for the year ended December 31, 2011; and three, other public filings made by the company with the SEC, each of which are posted on the company's website at www.vimpelcom.com and on the SEC's website at www.sec.gov.

If you have not received a copy of the third quarter 2011 financial and operating results press release, please contact Invest Relations at +31207977234 and it will be forwarded to you. In addition, the press release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented on this conference call can be downloaded from the VimpelCom website.

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

Jo Lunder

Thank you. Good afternoon for those in Europe, and good morning to our guests from the United States. Welcome to our third quarter earnings release presentation.

We are looking forward to discussing with you another solid quarterly performance across our business units. But, first, let me introduce the members of the team here in Amsterdam, who are with us today. We have Khaled Bichara, our President and Chief Operating Officer. Khaled will present the operational performance of the five business units. We have Henk van Dalen, our Chief Financial Officer, who will be covering the financials in detail. And, finally, Gerbrand Nijman, our Head of Investor Relations.

Moving on to the quarter, we are satisfied with the solid performance we have achieved across our business units, where we have achieved double-digits top-line growth and we have surpassed the 200-million subscriber mark in October.

Our cash flow from operations of $1.9 billion remains strong, increasing by almost 70%. However, our net results declined mainly due to non-cash items. Henk will explain this more in detail later in the call.

In Italy, we continued to outperform the market, and we maintained profitable growth across our operations in all other emerging markets.

In Russia, even though we achieved strong revenue and subscriber growth, this was offset by the increase in costs leading to a declining profitability. In line with our announced strategy, we will focus on cash flow growth in this market by tackling the key issues through an operational excellence program we have implemented and by leveraging the synergies of the enlarged VimpelCom.

The integration process with Wind Telecom is ahead of schedule and we will complete it by year-end. We have already secured synergies of $1.9 billion on a net present value basis out of the $2.5 billion committed on the time of the deal.

Looking ahead, we will maintain our focus on delivering on the value agenda by driving sustainable, profitable growth and improving our operational excellence and capital efficiency, leading to increased cash flows.

At this point, I would like to shed some light on the progress we’ve made during the third quarter as well as bring you up to speed on major developments within the group. First of all, I have by now, met all key employees in the Group. I'm very pleased with overall quality of our regional management, and I think increased empowerment to people would further unleash energy and motivations in the month and years to come.

In September, we introduced the key pillars of the value agenda, one, profitable growth; two, operational excellence; and three, capital efficiency. These three pillars are being implemented across all our business units and tailored to their operating environments with a clear objective to grow free cash flows.

We’ve also made significant progress in a number of key areas. The company was awarded spectrum in the 800 megahertz and the 2600 megahertz frequencies in Italy, enabling deployment and launch over the next wave of 4G broadband services in the coming years. In addition to this, we have renewed our license in Bangladesh, and we were recently granted a 3G license in Laos.

As part of the acquisition of Wind Telecom, VimpleCom entered into a value sharing agreement with Weather Investments II regarding Djezzy. The value sharing agreement gave VimpleCom the option to exercise a value sharing mechanism that would allocate the potential upside value and downside risk in value scenarios. Having considered all of the facts and the circumstances, VimpelCom Supervisory Board has taken a business decision not to exercise and to let expire the value of the sharing mechanism, and therefore, to retain both the potential downside risk and the upside value.

At Orascom Telecom, the company’s demerger into two separate entities is still ongoing. And, in October, the EGM renewed its vote in favor of this demerger.

Our integration process with Wind Telecom remains on track to be completed by year-end. As our first phase initiatives, we have over already secured synergies in the amount of $1.9 billion, again on a net present value basis around at least $2.5 billion expected in total.

A few updates from management changes. I'd ask Elena Smatova to join the headquarter management team so that she can apply her extensive knowledge and skills across the entire group. Elena will continue to manage Russia until her replacement is appointed.

As we announced this morning, Khaled Bishara is leaving us at the end of the year and Jan Edvard Thygesen is joining as Deputy CEO and Chief Operating Officer. Khaled has played an instrumental role in the merger and in integrating VimpleCom and Wind Telecom businesses and securing the targeted synergies within the merged business. I use this opportunity to express our sincere gratitude to Khaled for his dedication and achievements within the Group, and we wish Khaled a continued journey of success in his future endeavors.

I’m also, of course, pleased to welcome Jan Edvard in his new position as Deputy CEO and Chief Operating Officer. He knows VimpleCom well having served as a Member of VimpleCom’s Board and he has broad very senior operational excellence experience in all aspects of the telecom industry. Jan Edvard will focus on operational excellence in delivering on our value agenda. I am very positive about the future and I believe that we have both the right strategy and the right management in place to take the business into the next level.

Now, let me turn to some of the highlights. Our performance and execution in the quarter gives us confidence in our Group going forward. We have seen solid subscriber growths across all business units, surpassing the 200 million mark from mobile in October, and reaching 5 million subscribers of fixed line. We also achieved strong growth in fixed and mobile broadband in Russia, Italy and Ukraine.

Revenue increased 10% year over year, driven by organic growth and favorable FX movements. These favorable currency movements also impacted our strong EBITDA performance, which improved 4% year over year. Organically, the EBITDA remained stable compared to the same period of last year. Our net income came in at a $104 million, clearly lower than the third quarter of 2010 on a pro forma basis. The main drivers of this were FX related items with low cash impact for the Group. CapEx stood at $1.2 billion, and this is in line with our plans and expectations.

With that, I will pass the floor now on to CFO, Henk van Dalen, who will discuss the Group’s financial performance a bit more in detail. Henk.

Henk van Dalen

Thank you, Jo. As a reminder, we are presenting our results today on a pro forma basis, unless otherwise noted. We believe pro forma financials provide the most meaningful comparison of financial performance for the quarter. Accordingly, the financial information presented here reflects what the company’s results of operations would have looked like ahead of the company’s transactions with Wind Telecom and Kyivstar occurred on January 1, 2010. As a reference, the combination of OJSC VimpleCom and Kyivstar which resulted in the formation of VimpleCom Ltd occurred on April 21, 2010 then on April 15, 2011 the VimpleCom acquired 100% of Wind Telecom. And as a result of the Wind Telecom acquisition, the company owns indirectly 51.7% Orascom Telecom and 100% of Wind Italy.

Our formal financial information also assumes that all spinoffs that are prior to the transaction considerations for Wind Telecom would have happened on January 1, 2010, and of the sale of Orascom Telecom Tunisia also happened on that date. All financing related to the Wind Telecom transaction is assumed to have taken place as per the same date.

Additionally, Group financials are presented on a US GAAP basis. However, our Europe and North American business unit, as well as the Africa and Asia unit, excluding our operations in Southeast Asia are IFRS basis. On a consolidated level, the required adjustments of IFRS to US GAAP has been performed on the business unit level and the Group level. The results for business unit presented later by Khaled are expressed in their local currencies without such adjustments.

To take you through the third quarter financial highlights, the actual results for the Group first. As you can see, revenues increased by 116% to $6.1 billion and EBITDA increased by 87% to $2.5 billion, as a result of the combination with Wind Telecom in April this year. Consequently, EBIT increased by 56% to over $1.2 billion.

The effective tax rate came in at 73% for the quarter. However, as explained before from quarter to quarter, these effective tax rate is heavily impacted by the lines other financial income expense and FX in the profit before tax, as well as by the dividend withholding tax provisions that from time-to-time are taken. Correcting for these non-cash accounting movements, the earnings before tax is quite stable and the effective tax rate is more in the high 20s or in the low 30s.

Net income declined by 79%, mainly due to higher interest expenses, resulting from higher gross debt after the acquisition of Wind Telecom. I will explain more on net income in the next slide.

CapEx stood at $1.2 billion with investments related to the further rollout of the mobile networks in Russia and Bangladesh, Pakistan and the CIS, while in Ukraine it was mainly related to investments in fixed broadband. In Italy, we continued to invest in the rollout of HSDPA and in the backbone capacity to support the growth in data. Year-to-date CapEx was $2.9 billion, representing 17% of revenues.

Net cash from our operating activities increased by almost 70% to $1.9 billion, increasing our net cash from operating activities per share by almost 40%.

Now, turning to the financial highlights on a pro forma basis, revenues in the third quarter grew 10% to $6.1 billion, driven by 5% organic growth, as favorable currency movements. Organic growth was driven by revenue growth across almost all of our business units.

EBITDA increased by 4% to EUR2.5 billion, supported by favorable currency movements as well. Excluding these forex effects, EBITDA declined slightly by 1% compared to the same period last year. On an organic basis, we saw EBITDA growth in emerging markets of the business units Africa Asia and CIS, up 13% and 23% respectively, and flat organic EBITDA generated from the business units in Europe, North America, and Ukraine. This growth, overall, was offset by the year-on-year organic decline in Russia.

EBITDA margin for the Group stood at 41.6% versus 44.1% reported in the same period last year. It is due to a mix of higher margins in the business units CIS, Africa Asia, and low margins in the other business units, mainly related to the expected developments in the business units in Russia.

Net income from continuing operations was $91 million coming from $463 million pro forma last year. Net income attributable to VimpleCom Ltd came in at $104 million, being 77% lower than the third quarter 2010 on a pro forma basis.

The main drivers of this decline were: an unrealized forex loss of approximately $110 million attributable to the intercompany loan to Wind Mobile in Canada, which is denominated in Canadian dollars, due to negative movements in the exchange rate of the Egyptian pound towards the Canadian dollar.

The second point is, approximately $180 million due to movements in the Euro towards the US dollar rate opposite to positive movements in the third quarter of 2010. In addition, there was a non-cash loss over $110 million related to fair value adjustment of embedded derivatives in Wind bonds enabling them to enabling them to be redeemed at the fixed price. Due to significant decline in the price of the bonds, the value of this call came down. Should the price of the bonds go up, the embedded derivative value will increase as well. The combination of these downward factors was offset partially by positive movements mainly in income tax and profits from discontinued operations.

Then to the debt and the cash ratios and the ratio of normal [ph] debt; as you can see here on this slide, our financial position remains quite strong. On a consolidated basis, the actual net cash from operating activities in the third quarter was $1.9 billion, which is as I said, 70% higher than the same period of last year, is more than funded our quarterly investments which doubled $1.2 billion on a cash basis. Gross debt decreased in the third quarter from $27.4 billion to $26 billion mainly due to currency movements of $1.2 billion and on-balance of debt repayment of $0.2 billion.

We finished the quarter with the balance of cash and cash equivalents of $3.4 billion. Net debt was $22.3 billion, which led to a net debt-to-EBITDA ratio of 2.4 at the end of the quarter on a pro forma basis, an improvement over the previous quarter. Our last 12-month EBITDA-to-financial increment expense ratio remains at a comfortable 4.9 on a pro forma basis.

Then to the debt composition and the maturity profile, total gross debt as such to the $26 billion with an average rate of the interest rate of 8.6%. There is a peak in 2017 caused by the Wind Italy debt, but we plan to refinance this before that date I said before. However, this will not be completed before the end of 2013, although timing of those will depend on the market circumstances.

In Italy, Wind made the first spectrum payment funded by EUR182 million of cash and by a bridge loan of EUR500 million. A bank guarantee has been provided for the remaining outstanding amount which will be payable in five yearly installments. Our balance of foreign exchange exposures in gross debt remains diversified across the Euro, the Ruble, US dollar and some other currencies, compared to mainly US dollar and Russian ruble related basis at the end of the first quarter 2011.

With the capital markets being so volatile and complex as they are today, VimpleCom is also working on putting flexible financing sources in place in the form of a committed revolving credit facility. We are now finalizing discussions on a $500 million facility with 10 international banks at the level of VimpleCom Amsterdam. Typically, so its revolving credit facilities are serving as a cushion for short-term temporary refinancing requirements, but normally are just an unused desktop facility for the financing structure of the Group.

I will now turn it over to Khaled to provide an overview for the business unit performance.

Khaled Bichara

Thank you, Henk. Let’s go through the performance of our five business units.

Let me start with Russia. As you can see on the slide, our revenue in Russia increased 8% year over year and amounted to 69.6 billion rubles. The impressive growth in fixed and mobile segments has boost revenues and the consolidation of NTC accounted for only 1% of this increase.

On the mobile side, data revenue, a key growth driver in the segment continued to get worst, increasing 40% year over year to 4.5 billion rubles. You can expect a continued focus in this area. Fixed and broadband revenues reached 2.2 billion rubles growing by 55%, supported by a 46% growth in subscribers.

Despite top line growth, EBITDA was impacted by our marketing initiative, both on prices and distribution channel, as well as by the accelerated build out with a network resulting in a margin of 40%. The margin was also impacted by an increase in low margin handset sales, write-off in handset stock, and forex as the grow in the cost related to the calls in the CIS countries were stated in the US dollars.

Our operating expenses connected with the network rollout are also growing currently at a higher speed and revenues as we’re building a platform for our future growth in 3G.

To recover a ground on stability, we aim to increase gross margins to rebalancing our tariff plan in favor of more profitable products while continuing our push to attract new subscribers. In the meantime, we have successfully stabilized our revenue market position. We aim to balance our costs with long-term revenue growth starting in maximum efficiency to deliver solid cash flows. CapEx was at 20% of revenue in line with our construction schedule throughout the year.

Now, on the operational highlights; we are pleased with the growing subscriber in Russia and we will continue to develop our network and marketing activities to further stimulate usage with the greater focus on enhancing contribution margin from the revenue mix from our sales channels. In this quarter, we maintained our subscriber growth rate reaching 56.8 million subs, up 10% from last year, while mobile broadband subscriber increased by 59%. Our fixed line broadband business also continues to evolve with a strong growth subscriber of 46%.

We have launched IPTV in two additional cities, bringing the total number of cities where this service is available to 34 out of the 94 cities where we provide FTTB. The take-up of FTTB service increased during the quarter from 15.9% to 16.6%. And going forward, our service is to extract maximum value from our current coverage in 15 cities, as well as adding new location.

Overall, we’re pleased with the operational development in Russia this quarter and we intend to maintain this momentum going forward, supported by improved customer confidence. At the same time, we’ll focus on driving sustainable profitable growth in this market.

To achieve this target, we have highlighted a number of key issues where we would focus on. This include the decline of our average rate per minute as a result of highly competitive market and acceleration of annual maintenance cost and an increase in cost of sales. We plan to counter the pricing issues by simulating on the traffic and other initiative on the customer base to improve the loyalty and manage churn.

We’ve also kicked off our operational excellence program with the aim of delivering significant cost saving in excess of 5 billion rubles in 2012. This would entail a number of initiatives aimed at optimizing network costs, sales mix, dealer’s commission structures, and cash flash.

Moving to Italy, we continued to outperform the market. Wind total revenue grew by 2.5%, reaching 1.4 billion rubles, driven by 1% increase in service revenues and certain settlements with other operating bids. Total revenue excluding mobile incoming revenue which were impacted by the mobile termination rate costs were 5% year over year.

During the quarter, EBITDA increased 1.4% over third quarter 2010, as a result of the top line growth. Strong growth in fixed line EBITDA was partially offset by a decrease in mobile EBITDA. That said margin remained a very solid 40.5%.

In Italy, our operating performance in Q3 remains strong despite competitive pressure and unfavorable regulatory developments. Wind further strengthened its mobile market share and consolidated its position in the fixed line.

Our mobile subscriber reached 20.8 million subs, an increase of 6% over the previous period, driven by solid trend in net additions. Of note, mobile broadband subscriber increased by 16% over the previous year. ARPU in the quarter remained under pressure declining over the previous year, mainly as a result of the cut of mobile termination rates and increased proportion of data-only SIM cards which do not generate any voice revenue.

Our fixed line business continued to outperform firmly with voice subscriber growing 6% to 3.1 million subscriber, the majority of which our higher value direct of voice subscriber connected to our own network in unbundling areas. We also continued to deliver an exceptional performance in fixed broadband, where we grew our subscriber by 15%, while maintaining a growing ARPU of 5%.

Turning now into our Africa and Asia business units, we saw a strong improvement in performance driven primarily by increased usage of voice traffic and by focus on cost optimization.

Net operating revenue increased by 5%, driven by a 15% subscriber growth across all the countries. EBITDA increased by 15%, a result of management’s continuous focus of cost optimization, leading to a strong EBITDA margin of 45.5%.

To elaborate more on our main country-specific performance, our operation at Algeria continued to resilient. EBITDA increased almost 6% in local currency, in mostly in huge combination of revenue growth and the continued price management initiatives [inaudible]. As a result, our EBITDA margin remained stable at 59.1%.

In Pakistan, Mobilink was able to expand its subscriber base through ongoing location based and the reactivation promotion. Furthermore, cost efficiency measures and higher revenue boosted the EBITDA margin to 41%.

Our focus will remain on the youth segments through our dedicated products and offerings as well as promoting value-added services.

Bangladesh, we surpassed 22 million subscriber as a result of Banglalink aggressive acquisition strategy following the SIM tax reduction in the country. Revenue growth together with reduced SIM card costs had a positive effect on EBITDA which doubled in local currency year over year.

Moving to Ukraine business units where we continued to deliver healthy top line growth in the third quarter and maintained leading market positions. This growth was largely reviewed to our ongoing transition towards new bundled tariff plan stimulating an 8% increase in minutes of use.

Mobile data revenue grew 27% driven by increased usage of data services in USB modem offers and within the new bundled tariff plan.

Fixed residential broadband continues to show a strong growth as well with revenue increasing 94% year over year, driven by 117% increased subscriber, which reached 324,000 in this quarter. We continue to be the fastest growing alternative broadband provider in the country and are driving towards becoming the number one alternative broadband operator in Ukraine.

EBITDA declined marginally in Q3 as a result of a shift to off net traffic and higher OpEx. EBITDA margin was at 63.7%. CapEx was 664 million hryvnia, up 60% year over year due to the increased investment in fixed broadband, as well as in mobile operations. We will continue to focus on actively managing our market positions sustaining operating margin and cash flow through synergy derivation and cost control and aggressively building our fixed broadband business as the year progresses.

Now let’s turn to CIS business units where product quality improvement, efficient sales and marketing efforts helped consolidated revenue reach $430 million in Q3, a growth of 90% year over year. We remain focused on growing voice and data traffic which translated into an impressive revenue growth of a 108% year over year in the data service.

Despite intensified competition, we are able to improve our market position in all key markets. Our sales and marketing efforts are paying off with our mobile and mobile broadband subscribe growing 27% and 579% respectively.

In Kazakhstan, our largest CIS market, with a total subscriber growth of 23% and solid revenue growth of 12% in the third quarter. EBITDA remained strong, but declined slightly year over year, due to the new regional office and additional sales and marketing spending to retain our market position. However, quarter on quarter, EBITDA improved by 11% driven by revenue growth.

In Uzbekistan, the revenue increased by 36% and EBITDA increased by 58% year over year, due to our continued effort on subscriber based growth, regional 3G rollout and data development.

While economic condition in Armenia are challenging, we are also expecting that EBITDA margin in Armenia will stabilize at 40% level.

In the quarter, we increased CapEx two-fold as a result of acceleration of network rollouts of both voice and data traffic growth. Overall, we’re pleased with our CIS positioning and focus on continuing to grow our business in the CIS.

Now, I’d like to hand over back to Jo.

Jo Lunder

Thank you, Khaled. I think we’re getting to the end of our presentation, so I’m not going to repeat too much of what has been said already.

I think we’re getting our hands around this large company now. And when you look at the overall picture, very strong mobile subscriber growth. And the fact that we now have surpassed 200-million mark in October, I think it’s [inaudible] quality we have double-digit top-line growth. Even though part of that is FX, I still think we get all satisfactory.

We have organic growth in all of our business units. We see data growth across all business units. And I think also the integration of in telecom, the fact that is on track and finished by year-end gives us confidence that we were able to integrate those two large companies with different cultures and create one group with a well-functioning headquarter, closely cooperating with business unit management in different regions.

When we look at EBITDA, of course it’s declined due to the performance in Russia, that’s clear to everybody. I see that as an upside. Next step now is clearly to implement the plan that Khaled addressed during his presentation. We have a number of projects that we’re implementing in Russia. And, hopefully, we will now be able to convert the top-line growth that we’re seeing into improved margins and improved EBITDA in 2012.

Maybe the most important points to me is the strong underlying cash flow we had in the third quarter $1.9 billion and that benchmarks with a good margin to the $1.2 billion invested in the third quarter. So I think we have also strength and confidence that we can go on developing this Group in the years to come as well.

We have an Analyst and Investors Day tomorrow in Amsterdam. I hope you will be able to attend either in person or by the webcast. Of course, we will provide more details on the strategy and on the value agenda tomorrow. But we’re also of course now opened to turn this call into the Q&A session and answer any questions you might have.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Cesar Tiron of Morgan Stanley. Please go ahead.

Cesar Tiron – Morgan Stanley

Yes, hi. On the Russian margins, can you please say when the measures you described will start to positively impact EBITDA? And also explain in more detail, what you’re doing to curb churn, please? Thank you.

Khaled Bichara

Okay. For churn, clearly we see part of the churn is internal churn and it’s something we’re working on. So our – some of our new office are more favoring some of the new customers and that is something we’re fixing. Also we’re working on mainly commission structure, where it’s more incentivized quality acquisition versus quantity of acquisitions. So we’ve been very successful year-to-date. I think we’ve acquired 7 million more customers in that competition. So we’re moving now from a quantity gain where we need to get the volume to sustain our position now into a quality gain where we’re focused more on quality. We’re also looking at the value of the commissions. So we’re really looking at this market in rationalizing and we’d expect in our view thinking competition is doing in the same way. So I think there will be more pressure on commission for distribution and also on the quality of the SIM cards they sell. That’s on the commercial side.

Clearly on the network side, there is the synergies of that better price of equipment. We’re also giving a lot of support on how we run and optimize the network from other areas in the Group trying to reduce the network cost.

Cesar Tiron – Morgan Stanley

Thank you. Can I ask another very quick question? Just on the risk sharing agreement, can you please confirm me the decision not to renew it was the sole Board’s decision rather than the other party refusal to renew it? Thank you.

Jo Lunder

This was unanimous decision by the Supervisory Board of VimpleCom, including Independent Directors, Alfa Directors and Telenor Directors. And this was an option we have whether we wanted to activate or not and we decided not to activate unanimously.

Operator

Our next question comes from Max Loginov of Goldman Sachs. Please go ahead.

Alex Balakhnin – Goldman Sachs

Good afternoon. That's actually – it’s Alex Balakhnin from Goldman Sachs. I have two questions if I may. One is again on this value sharing agreement related to Algeria. You referred to a number of factors to which the Board Members considered. Could you these factors probably including the potential price VimpelCom would pay for a renewal and also what other factors were in the table so you decided that you had with a risk-reward balance related to Algeria? And my second question would be on your margin dynamics –?

Jo Lunder

Hello.

Operator

Our next question comes from Alex Kazbegi of Renaissance Capital. Please go ahead.

Alex Kazbegi – Renaissance Capital

Yes. I will ask my question, but I think the previous question got cut.

Jo Lunder

Alex, this is Jo. I think Alex, he was – I think Goldman Sachs was cutoff there. But it was a question on the value share. Let’s take that first and then you’ll – you can jump in after that since the last part or the second question I didn’t hear, was about margin, but he was cutoff.

On the value share agreement, I understand the interests – of course I understand the interest of giving more details on what kind of elements we weighted and how we weighted them and what kind of values we looked at et cetera, et cetera. Unfortunately, all I can say about that is that we have agreed with the Algerian Government that we will not disclose any details on the conversations we’re having or any details about the nature of the conversation. So I just have to ask you to judge and to review the judgment of the Supervisory Board sufficient to making a decision like this. And I think the fact that it was unanimous tells us that this is in the best interest of all shareholders and not a single group of shareholders. I can basically confirm that that we applied a very sound judgment I think in, whether to activate or not and such details, we will not provide to you. Alex.

Alex Kazbegi – Renaissance Capital

Okay. Well, I’ll just ask maybe a simple question in the sense that, it’s actually relevant to those markets I guess, Italy and Russia. But just looking at the mobile data, and I was wondering again your increases in the mobile broadband subscribers have been actually very modest. In Russia, they’re pretty much flat. In Italy, they also grew, but very little. So I was wondering again, what is the dynamics there? Why do you think this was happening? You also mentioned, of course, in your press release that you would activate your promotions in the small screen – for the small screen devices. So clearly if you look just in the Russia, it’s 1.5 million new subscribers in the quarter and pretty flat on the mobile broadband subscribers. So there is hardly any – well, I guess there is a round again there, but it seems to be a very small number from a new internet subscriber. So if you give us maybe a bit of color on something which we’ve all, I guess, think it’s a key for the telecom companies to see the turnaround in the revenues to see what’s going on that front both in Russia and Italy.

Khaled Bichara

Sure. I think as part of what Jo was discussing on tomorrow on the Investor Day, we’re really discussing our strategy on profitable growth, so we’re looking at growing data profitably which I’m sure is one of the biggest questions in the industry in general. And one of the strategies we’re looking at is, now, we’re looking at three type of screen type of approach, small screen, medium screen and large screen. Each has different pricing cost now and different profitability margin.

In Russia, one of the reasons of the lower growth is we stopped some of the promotions of giving away the modems, because as discussed in the previous question between commission, churn, and free modem, these customers were not making us any money. So we’ve decided consciously to walk away from revenue that is negative in terms of margin and creates no value for our shareholders, knowing that it might have short-term effect on our market share, but that’s not something we look at, we look at something that we can build on for the longer term.

For Italy, I think we have been seeing a lot of growth. Probably we would have hoped to see better growth in Italy, but there is no specific promotion that was stopped, but we still believe it will continue to grow. In the next few quarters that belief is backed by our investment in the 4G spectrum.

So we really believe that our personalization strategy on the three different type of screens and new pricing, it will take us time to enter the market, but really looking at data as our next profitable line of business, not as simply something that increase revenue at the cost of the [inaudible].

Operator

Our next question comes from Max Loginov of Goldman Sachs. Please go ahead.

Alex Balakhnin – Goldman Sachs

Yes. Hi again, that’s Alex Balakhnin again here. And my second question was on your Russian margin dynamics related to the rollout of monobrand distribution network. Could you probably elaborate where are you with this project? What percent of margin evaluation you experienced from that – from the rollout of the monobrand? And how far will you go with the rollout, how much would it cost you? That would be really helpful – and the timeframe obviously? Thanks.

Khaled Bichara

Clearly, the Russian market in general is going towards more monobrand and receiving that the monobrand sales are of higher quality, higher ARPU and lower churn. So on the long-term, we see that as a good investment. We are unfortunately behind on our rollout on the monobrands, so it’s not a significant reason of our change in margins. We believe our change in margin were due to the reasons we’ve mentioned before, some offers that with negative margin and some dealer malpractice if I may. We have an aggressive plan in the next two years to rollout our monobrands. Having said that we’re still looking at an improvement in margins next year for the Russian business.

Alex Balakhnin – Goldman Sachs

Let me just clarify, so you explained that your profitability enhancement steps will more than offset the potential costs coming from the rollout of monobrand distribution going forward?

Khaled Bichara

Starting next year, yes.

Alex Balakhnin – Goldman Sachs

Okay, thank you.

Operator

Our next question comes from Dalibor Vavruska of Citi. Please go ahead.

Dalibor Vavruska – Citi

Hello, good afternoon. And two quick questions. I think we already touched on the mobile data story. I’m just wondering when you look at your major markets, I mean can you tell us in broad terms what is the mobile revenue – the data revenue as a percentage of the total and where do you see the highest growth opportunities in the mobile revenue in terms of percentage growth but also in terms of the impact on your top line?

And the second question I had on dividend. I mean, obviously, even considering the Italy ring fenced, the leverage of the company is quite high, so I’m just wondering obviously you’re paying relatively aggressive dividends and relatively orally in this cycle in terms of the interim dividend. I mean, can you just shed some light about these and how you’re balancing the balance sheet risks and the dividend payments? Thank you.

Jo Lunder

I think Henk can start with the dividend and then Khaled is going to pickup from – on the question on the mobile data.

Henk van Dalen

Yes. As you know, on the dividends, we have said that we aim to at least payout $0.80 [ph] per share as the interim dividend that was announced a few months ago, will now be paid in December. We do not yet know the exact date, but probably around the middle of December. We feel that the dividend level that we have established fits also within the cash flow profile of the Group.

If you take roughly a EUR10 billion level just round it figures, and you take about EUR3 billion to EUR3.5 billion in interest paid and taxes paid, then is shows that there is about EUR6.5 billion to EUR7 billion less, which is done effectively for CapEx and for dividends and for certain other things we need to do. So we feel that there is a healthy profile, which will give us sufficient scope to win over in the context of the totality of the Group.

Khaled Bichara

As for the data question, I think we are currently looking at our markets in two views. We have markets where we believe the mobile data complements the fixed line data like Russia, Italy, Ukraine, where we have both plays and where there will be an absolute value, maybe a very high growths in terms of value or dollar terms. When you look markets like Pakistan, Bangladesh, Algeria, where the fixed line infrastructure is very weak, and 3G is not there yet, and then these will be as we’ve also called our growth engines where percentage wise the growth year over year would be huge in data, but in absolute terms maybe Pakistan and Bangladesh will be clearly less, but then Algeria would probably be comparable to somewhere like Ukraine.

In Italy, for example, to date 23% of our mobile revenue is coming from data and services that’s including SMS. We believe with time eventually the line would blur between voice and data and that’s one thing we’re working very diligently within the Group, that’s we did this classification over the different schemes. We’re looking at the fixed and mobile sort of conversations not of launching something like the FT unique or something like that, but more of how can we provide convert services to these customers, leverage the significant structures to allow faster and bigger data networks. So for us, we believe we are very uniquely positioned in markets that are more advanced like Italy and Russia, and markets that are less fortunate. So we’re leveraging really the experience within the same Group to able to bet long-term on the data story.

Dalibor Vavruska – Citi

Thank you.

Operator

Our next question comes from Alex Wright of UBS. Please go ahead.

Alex Wright – UBS

Thank you. I’d like to ask a couple of questions about your voice pricing in Russia and Ukraine, please. In Russia, you’re highlighting your plan to promote more on on-net calls to drive the gross margin higher. And certainly it’s one of your competitors that has been talking about this for sometime as well. So do you see – do you expect the whole market to move more in that direction going forward?

Ukraine on the hand, you’re talking about OpEx increase due to more off-net traffic and it seems that you expect that to continue. So I wonder whether that’s a deliberately different strategy there that you’re pursuing there and why you – if so why you’re so pursuing that different strategy, especially given your high market share in the Ukrainian market?

Khaled Bichara

Sure. For Russia, yes you are right. I think it’s two things. It’s off-net, but also a lot of international calls to CIS. So it effects the BU Russia alone, but it’s positive for VimpelCom as a whole. Clearly, as you mentioned, some of the competitors are mentioning the same. We believe on-net increases customer loyalty, because then you don’t churn alone, you try to have your group there with you. It has an impact on the amount of minutes. And I think this is what Ukraine have done a couple of years, where they increased a lot or sort of zero on-net type of offer. So then that’s where Russia will want – not to go to zero clearly, but have more on-net.

If you look at Ukraine, because for the last couple of years we’ve been zero on-net, you really have sort of maximized its value proposition to the customers and you have to start giving them something more which is currently the off-net, so that simply differentiated of the development of each market. You can’t have the same strategy in all the markets.

Alex Wright – UBS

Okay, thank you.

Operator

Our next question comes from Dan Worth [ph] of JPMorgan. Please go ahead.

Dan Worth – JPMorgan

Yes, hi, good morning. I have two questions please. The first one, is there anything in the VimpelCom loan or bond documentation that stops VimpelCom guaranteeing Wind debt? It obviously would give Wind access to achieve the funding. That’s the first question. And I'll ask the second one post the answer.

Khaled Bichara

No, there is – as far as I know – but I do not know all the details of the bond documentation. But as far as I know, there is nothing in that bond documentation that would prevent us to do so.

Dan Worth – JPMorgan

And the second thing is, obviously in its recent turmoil, some of the Wind debt has been trading at significant discount. Now, given you said already that you wish to retire some of the Wind debt in 2013, it’s unlikely that you would actually come into the market prior to 2013 to take advantage of a discount and buyback some of the bonds, I think such as the Wind debt is the one that stand out obviously, because they have up [inaudible] step-up in 2013.

Khaled Bichara

The only answer we can give you could say on these very specifically highlighting question is that we’ve always look at the totality of the capital markets and the opportunities that those capital markets provide us to also judge the potential for possible earlier restructuring of the debt. So it is never something that is only focused on one area, but we also we need to look at it in the total context of the Group. And I think secondly for the moment, we feel that, let’s say in this phase having the debt and need to be ring fenced as it also showed with regard to the financing of the 4G license, also it has a certain strength in the top of profile of the Group.

Dan Worth – JPMorgan

Thank you very much.

Operator

Our next question comes from Nadezhda Golubeva of UniCredit. Please go ahead.

Nadezhda Golubeva – UniCredit

Good afternoon. Two questions please. First of all, now you don't need external finance, yes? But it might be the case that the 4G spectrums bandwidth in Russia in the beginning of 2012 and it might be the case that the cost of this spectrum is pretty substantial. So if you were had to freeze the need to like either cut budget, yes, or – so if you're external funding capacity is limited, let's say yes under this assumption, and if you need to fund this payment from your own funds, what would be the first to cut the dividend or your CapEx plan? This is my first question please.

Jo Lunder

Nadezhda, I think this is more of a question of how we allocate capital from Group level and the way we view different potentials we have in the markets. We have been on a capacity to develop all of our businesses right now including participating in 4G kind of process in Russia. We believe in the data story, we believe right now telecom is a little bit out of favor for maybe for good reasons, but we also believe that it’s possible to monetize data traffic going forward and for that reason to make sure that you have 4G spectrum in your core markets is important and we will make sure that we allocate money and resources in such a way that we will look after the best interest of shareholders. And I think 4G in Russia might be such an investment. But, of course, it’s always – you need to compare it with other opportunities you have and look in the underwritten on the capital. I think that’s the best answer we can give you.

Nadezhda Golubeva – UniCredit

Okay, thank you. And the second question if I might? Could you somewhat [inaudible] evolve the Euroset deals, so whether are we going to expect some decision in this regard?

Jo Lunder

Euroset, we have an option to buy the rest of the shares in the Euroset and we are analyzing the different scenarios there now, and our decision will be made no later than January, I think.

Operator

Our next question comes from Sanford Lee of Canaccord Genuity. Please go ahead.

Sanford Lee – Canaccord Genuity

Hi, thanks for taking the question. My question relates to Wind Mobile Canada, although it relates to a very small party operation at present. So in particular I guess my question is around the net additions. Wind Mobile Canada added 41,000 net ads, and that's sort of down from 45,000 in the last quarter and 46,000 in the year-ago quarter. I’m just wondering why this is happening given on a quarter-over-quarter basis that Q3 is usually seasonally strong due to back-to-school, your POPs covered is growing. You mentioned over 12 million POPs now, plus your points of distribution is also growing and you're launching the new plans in the quarter with the WINDTab+. Can you just give some comments on why the net ads in the quarter were down quarter over quarter?

Khaled Bichara

Sure. Clearly, similarly to the Russian model where we were looking more now at quantity versus quality, and at the beginning it was all contract less prepaid, where we've seen a level of churn that we were not hoping for the markets like Canada. So now in the new net ads, there are much more postpaid contact based customers that we believe will have better churn. So we believe this is the right strategy to donate value and on the long-term grow our base faster because then you have these customers more, it's not a washing machine effect.

Sanford Lee – Canaccord Genuity

Just a quick follow-up on that. You mentioned if the focuses is on the higher quality as subscribers, but then your ARPU for 3Q ’11 was down 2.5% from Q2. Can you comment? Are you satisfied with the performance?

Khaled Bichara

Clearly – we always want the ARPU to go higher, but clearly the ARPU of Q3 comes from the additions coming in Q2 and early Q3, so that the postpaid customers that join you now don’t affect your customer base that much in the quarter. So the view would be on the longer-term that ARPU would go up and would have healthier mix post paid, prepaid. It’s not that we’re going to move fully to postpaid, because clearly that’s not our positioning.

Sanford Lee – Canaccord Genuity

Okay, [inaudible].

Khaled Bichara

Yes.

Operator

Our next question comes from Tatiana Boroditskaya of UBS. Please go ahead.

Tatiana Boroditskaya – UBS

Good afternoon, gentlemen. Tatiana Boroditskaya from UBS. And my first question is related to your strategy, in relation to raising debt in capital markets towards the end of this year and next year and if you intend to do any buybacks?

Jo Lunder

Yeah, the subsea operation I think I mentioned it already basically in my presentation part, is that the mental focus is on creating sufficient flexibility in the funding lines. So, we are now finalizing discussions on the revolving credit facility at the level of VimpelCom Amsterdam. We are also looking at certain of those flexible instruments at the level of OJSC VimpelCom. And we hopefully are able to get those discussions to a final point in the couple of weeks because it’s in a good thing if these flexible sources are filling [ph].

Although they are factually DEXT open backup whether they are available in difficult markets. It can also show serve as a cushion for certain temporary needs. For the rest as you know, we are long term financed. We execute financing for the next 10 to 12 years, relatively limited redemption over the years to come. If I’m correct, for the year 2012, $1.2 billion – $1.3 billion in total which is I think normally quite able to take that out of the market. So, overall I think we are looking for flexible sources and from time to time we will go to bond markets to replace certain packages for refinancing.

Tatiana Boroditskaya – UBS

Thank you. And my second question is related to Algeria situation. Do we know when we can expect you know, any comments from your side as you just said that that you don't really want to comment, you know, in detail on the card situation?

Khaled Bichara

I think for now we’ve said what we would like to say. And I think also what is important to our shareholders and to the market. We have decided not to active the risk share agreement which means that we have enough sites but also potentially on downside. And on the balance we believe that was the right decision. On the timing going forward, it’s very hard to predict. And we’re not in the position to comment on that. So, we’ll rather come back to you when we believe we have something more of substance to report.

Tatiana Boroditskaya – UBS

Thank you very much.

Operator

Our next question comes from Harald Øyen of First Securities. Please go ahead.

Harald Øyen – First Securities

Good afternoon guys. Could I ask you just to elaborate on the $230 million net auto expenses in the P&L? Thanks.

Henk van Dalen

Yes, I think, I gave during the presentation for the detailed explanation on the movements in the net results. If I repeat at this moment then the net income a typical VimpelCom Limited as you saw came in as US$4 million. There is an element in the difference compared to last year which relates to forest losses of almost $10 million attributable as a company loaned to Wind Mobile in Canada, which is you know, Canadian Dollars and doest a view to negative movement in the exchange rate of the Egyptian bonds towards the Canadian Dollars. Rest US$118 due to movements in the euro too as the dollar as opposed to positive movement in third quarter 2010.

And in addition, there was a non-cash loss of around $110 million related to fair value adjustment often by the derivatives in the Wind Bond enabling them to be redeemed as a fixed price that of course was a result of the significant decline in the prices of those bonds. So, that’s factually brings it together, there are a few smaller points with ineffective cash flow adjustments, I know that’s important.

Harald Øyen – First Securities

And if I could just follow up, and that concludes all those items you mentioned, it’s equated in the $230 million other expenditures?

Henk van Dalen

A portion is included in the Forex loss and a portion of that is in the $230 million.

Harald Øyen – First Securities

So, if you reconsider the $230 million as non-recurring or can you just elaborate quick on that? Thanks.

Henk van Dalen

Yeah. Absolutely as non-recurring in this sense because it can change from quarter to quarter depending a little bit on the movements that’s why I gave this extended answer on the various movements in those elements.

Harald Øyen – First Securities

Thank you so much.

Henk van Dalen

Yeah.

Operator

Our next question comes from Sergey Goncharov of Troika-Dialog. Please go ahead.

Sergey Goncharov – Troika Dialog

Hi. On several occasions you were seeing that the company is pretty comfortable with ring-fenced structure for Wind debt. Does it mean that going forward you will continue to direct debt mostly at Holding and Russian VimpelCom level as Wind is more leveraged currently or will the situation change or, so, yeah, what do you say about that?

Jo Lunder

Well, of course in the third quarter you saw an example of also attracting some additional debt at the level of Wind. It will be related to the 4G license. There wasn’t a bridge of €500 million as well as again before faced payment over the next five years of that license. But in deed if you’re correct in saying that the ring-fenced is one block, the other block is the whole block of VimpelCom for VimpelCom Limited and Orascom that is, you could say connected to each other.

As I mentioned, both are in the presentation is that we are certainly looking at in the one two years of opportunities to restructure the debt for the whole of the group, if that leads to an advantage in the financing and group structure. And that of course, is then again dependant on market circumstances, capital market environment etcetera, etcetera. So, we are preparing that you could say, very diligently but will only move when there is in good momentum.

Khaled Bichara

I think OpEx is fair to say if I may that the funding structure of the group today, I think it’s quite attractive and beneficial to shareholders. And the fact that we have this ring-fence of the timing assets, with everything, that is ongoing in Europe right now. And if we then look at a leverage of rest of VimpelCom excluding Italy, I think you would see a quite reasonable, even low level of gearing. So, that gives us flexibility basically to sit now through this turmoil in Europe and sit through the development, the next 12 to 18 months.

And then we can make a firm decision whether we would like to unwind that ring-fence and list that to holding level and dramatically decrease funding cost. Or whether we see it’s beneficial for shareholders to keep the structure in place at that point in time. So, I think actually from being structured we have in place that was executed on the timing of the deal. It has substantial benefits right now even though we pay of course more interest than we would like to do.

Sergey Goncharov – Troika Dialog

Okay. So, just to make sure, am I right in understanding that you always – you always consider all the sectors but currently the situation is not likely to change in the short term?

Jo Lunder

Well, I think, you only have to look out of the window and in the various newspapers and [inaudible] see that, the short term is very quite followed by along the capital markets. I think we need some rest to come back to those markets before there is more optimum moment. And in the meantime, as I mentioned in one of the previous questions, we are looking on flexibility in our funding sources which is I think the best we can do for the company.

Operator

Our next question comes from the Tala Boulos of Deutsche Bank. Please go ahead.

Tala Boulos – Deutsche Bank

Good afternoon gentlemen. I just had a couple of questions. The first one is, I see that you’ve managed to bring total debt down over $1 billion in the presentation you did a few details. But I was hoping you could clarify that on exactly how it came down by that much? And on the second point, to do with the ring-fencing, I just want to completely understand how effective the ring-fencing is. I understand that the debt has been separated in this ring. But it seems like the cash generation from the good assets is still coming through from wins into VimpelCom?

Henk van Dalen

As a total debt in need to grow, that came down with about 1.4, 1.2 of that is actually the movement in the currency mainly the ultimate quarter decline in the value of the euro versus the dollar. So, on appreciation you could say in that sense of the dollar compared to the euro, which of course brings them to the euro debt which is mainly in Italy and dollar terms when it’s done. There was $0.2 billion related to on balance that debt redemption that we also did. So, that brought back with 1.4.

Now the ring-fence is very effective I would say because it is on all of the debt instruments at the level of – in Italy. But there is no recourse of those debt instruments to group level of VimpelCom limited. So, in itself, it is an affect of Wind Italy.

Operator

Our next question comes from Marco Gironi of Credit Suisse. Please go ahead.

Marco Gironi – Credit Suisse

Hi, yes, good afternoon. I have a couple of questions about Italy. The first one is about the churn, which is in the mobile phone there is step up 29 distant. I was wondering if you could comment on the factors driving that and whether that’s just a seasonal or something that to be broadly with the competitive elements in Italy. The second question is just a point of clarification. Did I understand correctly what Henk said in the prepared remarks, that with regards to the Wind Italy, 2017 wall of maturities that would be addressed before then but not before December 2013. And if I heard that correctly, why exactly limit that option given that the debt becomes callable in July ’13? Thanks.

Henk van Dalen

Maybe, I can take the last point first. Indeed I said that end of 2013 or mid of 2013, that indeed depends on the particular cost that would overwrite the related to the pick notes. And they have quite a high call premium if you won't like to do that bit earlier. On the other hand, I think I mentioned, in that prepared notes also, that we continue to monitor the capital markets. So, there might be momentum for the group that comes earlier. So, we do not exclude anything. But under normal circumstances, I think the best moment to maneuver probably is towards the second half of 2013 but it might of course be earlier moments depending on what the markets bring us.

Khaled Bichara

Back to churn question, Italy, I think yeah, clear Wind churn came up but it’s more or less in line with the markets. So, you look at Vodafone’s journey to 29%, the rate churn is 31%. The only one that’s went down was sim but it’s coming after two years of very high churn. So, if the cyclic kind of move clearly, that’s not a very good sign for the markets in general where the churn is a bit higher than we would like it to be. So at this point in time, when we were in the mid 20s and we continue to have that, products for the long term.

Marco Gironi – Credit Suisse

Thank you.

Operator

Our next question comes from Dennis Ankle [ph] of Brevan Howard. Please go ahead.

Dennis Ankle – Brevan Howard

Hi, I just had a question on Italy in general. Are you seeing any signs of the recession in Italy and it’s potential implications on when – well, you’ve seen in some geographies such as Greece or Ireland, how the underlying recession has impacted the telecom operator quite drastically. And I was just wondering if you started to see any signs whatsoever that’s taking place in Italy? That’s my first question. Thank you.

Khaled Bichara

So far no. The reasons we’ve seen, if you look at our ARPU’s general, our broadband ARPU went up on fixed line although the customer base went up. So, and there we see good strong customer spending. On mobile, the most reason the ARPU is going down are two things, the mobile termination rates which were cut in July and the other one was that now more and more people are buying extra simcards what they put in their like iPads or their PCs where they only use them for occasional use. These simcards have lower ARPU by design.

Dennis Ankle – Brevan Howard

Got you. But as of November, have you seen anything, over the last couple of weeks, have you started to see anything because there are signs that it is going into a drastic recession as of now. So I was just wondering if you saw any signs, over the last couple of weeks.

Jo Lunder

We’re hoping here on. So far I was giving something to write about that, we’d hope we’ll get.

Dennis Ankle – Brevan Howard

So, the next question. And other people have asked variations of the same question, so apologies if I’m repeating the question. But, you know, if the euro crisis will still continue to escalates, do you envision VimpelCom taking advantage of this in the form of launching a buyback or Dutch option for the outstanding Wind bond so you could crystallize the discount?

Jo Lunder

A routing guy can give a much different answer than the type of answers I already have given is that the, we monitor the proper situation. We are working on what kind of structure we would like to have going forward, looking as of course what we have doing the best for our shareholders as we already mentioned earlier. So, there is no particular routing to say. And in meantime, we are focusing at bringing flexible instruments in place that can provide from to time a cushion for temporary needs but normally are only there for a backup in the proper financing of the support group.

Operator

Our next question comes from Ehab Kleel of Joy Funds. Please go ahead. Pardon me, your line is open. You may ask your question. Our next question comes from Michael Galkin of VTB Capital. Please go ahead.

Michael Galkin – VTB Capital

Hi, I have a few questions, since I’m mostly focusing on debt side, questions on the cash flow. And is your CapEx going to for of group overall is going to stay at the 17% level going forward, is it going to be a bit higher or lower? Please.

Jo Lunder

Henk indicated earlier that the expected for the year to be around 20% and we still keep with that indication. It was normally indeed the fourth quarter has slightly higher CapEx level than the earlier quarters.

Michael Galkin – VTB Capital

Sure, thank you. And the working capital, you benefited from, you know, some cash being released from there in the third quarter. Is this more, it should be treated more like a one off right? I mean, in your case, working capital wouldn’t be a regular source of cash?

Henk van Dalen

Well, we are certainly working very hard on the situation that there will be a regular source of cash. In some of our business units that certainly has been indicated, particularly in Italy I think over many, many years working capital has provided an additional source of cash. Year-to-date we are roughly and then you talk about total working capital roughly $100 million negative still. Third quarter had a positive effect. But our clear aim and focus also in the year 2012 is to make working capital a contribution to the cash.

Michael Galkin – VTB Capital

Okay. And the cash at Kyivstar, has this been up-streamed already or is that going to be, you know, is it something that is going to happen in the next couple of months?

Henk van Dalen

No, we are in the middle of a process of dividend that is paid Kyivstar to VimpelCom Limited so that goes, you could say day by day also depending on for the market, it can have in terms of comforting the [inaudible].

Operator

Our next question is a follow up from Max Loginov of Goldman Sachs. Please go ahead.

Alexander Balakhnin – Goldman Sachs

Hi, guys, good afternoon again. That’s again Alexander Balakhnin from Goldman Sachs. I just wanted to ask you two questions. First is on, Yuen Edward joining VimpelCom. Should we read much into this in terms of the level of cooperation between VimpelCom and Telenor going forward Yuen Edward has spent more than 40 years in Telenor. And my second question was on the holding expenses or adjustments at EBITDA level, I mean, if you try to reconcile your business segments, EBITDA, do you have some, something like $100 million elimination from that level. What is the nature of this course, this number was high last quarter but it was explained I guess by the completion of acquisition. What is the driver of that, of that number this time? Thanks

Khaled Bichara

I can address the appointment of Jan Edvard Thygesen. First of all, I think we lose a big capacity our lids depositing. But that being said, first time I met Yuen Edward was 20 years ago when we were developing Norwegian mobile market. And I have followed his career ever since. And he has an excellent track record in most mobile markets throughout the world. And I think his profile fits very well to the treasury of VimpelCom going forward focusing on operational excellence and results. So, I think he has a perfect fit for what we are trying to achieve over the next couple of years.

And I think also you can read the – as your question actually was at, I think you can read into it willingness among our shareholders to make decisions that they believe are in the best interest of the company from an operational point of view. And they will know the systems to search remove and everyone, all board members and shareholders, I’ve spoken to understand the logic behind this. And I think this is at least a sign of being able to agree on a potential difficult item that went out to be a good decision for the company.

Jo Lunder

Yes. And then, on the two elements that you kind of basically or progressively on the other net operating revenues compounded by this 98, that’s mainly inter-companies on the revenue level and on the other end of the EBITDA as minus 34. That is positively one third relates to integration costs. So, effectively all the work that is going to be done to integrate the companies, to develop new processes, new structures, the work that has been done, that is still going on the area of opportunities that Khaled explained earlier. So, a range of those costs and the rest also has to do with the growing headquarters. And particularly we are developing the technological procurement and commercial functions in that. And of course, there are some additional costs as well.

Operator

Our next question comes from Jonathan Moore of BlueMountain, please go ahead.

Jonathan Moore – BlueMountain

Hi, my question was answered. Thank you very much.

Operator

Our last question comes from the Alex Wright of UBS. Please go ahead.

Alex Wright – UBS

Yes, thank you. I just wanted to follow up on some of the sintages that you talked about and you mentioned that you secured $1.9 billion out of the $2.5 billion that you targeted. I’m just wondering if you can highlight to what extent we are seeing that in the numbers already and if so, where and how much we’re seeing in the OpEx and the CapEx at this point. And then, just secondly the 5 billion rubles of upsides that you see in Russia, is that completely separated to the sintages that you’ve identified. And yeah, again, when do you expect to start those kicking in, is if from the beginning of 2012? Thank you.

Khaled Bichara

Okay. For the 1.9, it’s mostly CapEx, it’s mostly the entity of the contracts with major vendors compared to our business plan, which compared to how the 2.5 was initially communicated and shared with the market. So, last quarter, we’ve reached 1.6, we added $300 million in Q3, so, clearly we thought it was the bigger contract to be sufficed and we’re going down the value chain. So, these prices are mainly CapEx or they would only show on eventually their depreciation of that CapEx. And then, the procurement also allowing us to buy more equipment for the same amount of money in some of our markets, we were a bit behind in the rollouts.

In the future there are more OpEx synergies that we’re working, that’s for the 1.5. As for the $5 billion on Russia, it’s a whole new program. It’s not – no intersection whatsoever was 1.9. Program was a lot of sub programs, with nobody were on the retails. But I think we have 24 different areas where we’re looking at. And again, that program has already started now. It will start generating from January 1st, of next year OpEx savings to normal trend in this program would not have been launched.

Alex Wright – UBS

Okay. And the CapEx savings that you’re securing, we’re already seeing those in the CapEx numbers, are you probably seeing in Q3 for example?

Henk van Dalen

Yes.

Operator

Proceed please.

Khaled Bichara

What we’ve elected to do is at least for this year, or any savings we’ve made, we’ve used to catch up. So, basically we’re both more equipment for the same amount of money in some areas. So, clearly for example in Russia, where we are behind in 3G, we’re using that money to catch up on 3G.

Operator

I would now like to turn the conference over to management for any closing remarks.

Jo Lunder

Thank you. First of all, thank you very much everybody for your interest in the company. I hope we’ve been able to explain the concepts of the business and converse on that we have also managed to [inaudible] going forward. We will provide some more details tomorrow for the one that is available for the Investor Day and dig more into each business units and then also focus I think more on the whole funding structure and the financial side of our business. So, I hope that also can be a useful and fruitful day for all of you.

And then we have extensive travel I think on participation on Wednesday, Thursday and Friday, the UBS Conference Wednesday in London, we’re invited on Thursday and Friday with Morgan Stanley. So, I hope we will have one-on-one review and also have the ability to keep explaining our thinking and our plans going forward.

With that, I suggest to close the call. And again, thank you everybody for following us. Thank you.

Operator

Ladies and gentlemen, this does conclude today’s conference. You may all disconnect and have a wonderful day.

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