VimpelCom CEO Hosts Analyst and Investor Day - Conference Call Transcript

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VimpelCom Ltd. (NYSE:VIP)

Analyst and Investor Day Conference Call Transcript

November 15, 2011 7:00 AM ET


Jo Lunder – CEO

Elena Shmatova – EVP and Head of the Russia Business Unit

Dmitry Kromsky – EVP and Head of the CIS Business Unit

Ahmed Abou Doma – EVP and Head of the Africa and Asia Business Unit

Igor Lytovchenko – EVP and Head of Capital Business Unit Ukraine

Ossama Bessada – EVP and Head of the Europe and North America Business Unit

Henk van Dalen – CFO


Cesar Tiron – Morgan Stanley

Alex Kazbegi – Renaissance Capital

Dalibor Vavruska – Citi

Torklid – Skagen [ph]

Alexander Balakhnin – Goldman Sachs

Igor Semenov – Deutsche Bank

Vive Khana [ph] – Deutsche Bank

Alex Wright – UBS

Abby Doray [ph] – HSBC

Victor Klimovich – VTB Capital

Ivan Kim – Renaissance Capital

Jo Lunder

Boy, for me coming to Moscow in 1999 with 160,000 subscribers in our GSM network (inaudible) ready to see a movie like that makes me almost emotional. It’s a great honor for me to welcome everybody to this first analyst and investor day in the history of VimpelCom. I would also like to take the opportunity to welcome approximately 120 investors following us by webcast, and of course, a warm welcome to everybody in the audience.

With a revenue base of $6.1 billion in the third quarter of this year and EBITDA of $2.5 billion and with a mobile subscriber base of 200 million surpassing October, I think now we have developed the scale that we believe were necessary to be able to grow and develop these group of companies going forward.

In fact, I think we offer quite a unique combination in VimpelCom of mature, strong cash generating companies and good growth opportunities in quite a few of the regions. I have with me today all the heads of business units that will present each region to you during the course of the day. I will introduce them a little more in detail later during my presentation.

We have our CFO with us today. We have also Khaled Bichara here. So you have the full senior management team of VimpelCom present. I think we have a very interesting day ahead of us and I hope we will be able to use this day in a way to get everybody a little more familiar with how strong our operating entities are, because I think there has been a lot with VimpelCom over the last year that has kind of clouded the picture a little bit. And I think everybody understands what I’m addressing.

But I think when the dusts ease and we start seeing through it, we see some very, very well-performing entities as part of our group, and I hope you will be able to see that a little bit more clearly when we’re done with today.

We will have a Q&A session at the end of the day and we will also open for questions from the one participating via webcast. And we will basically do that by having eight chairs on the stage and we will answer any questions you might have.

I think the key question investors should ask on a day like this, okay, so you had this M&A history behind you and we already are. So how do you now plan to operate this company going forward? And let me offer a few reflections and solutions to that.

I think first of all our whole philosophy is based on the fact that all business is local. We have a lot to earn this company into a huge bureaucracy where we will try to coordinate and centralize everything from the top. For me and the management team it all starts with 200 million and those customers will be handled by local management in the operating units.

So the whole decision process within the new group will be very vertical-oriented, meaning that, Ossama Bessada, head of our Europe, North America region, he will have his budget, he will have his resources and he will operate that company during the course of the year with that budget and with a lot of delegated authorities.

So, then, the next question is, so what is then the role of the headquarter. Our thinking is that we will develop a very lean and mean and effective headquarter. We will have no more than 150 people in the headquarter and we will not have capacity from the headquarter to get involved in every single operational question that comes up.

And if you see the slide behind me, I think we can divide the focus from the headquarter basically into six main baskets. The one on the left-hand side called business control and target setting, I think, here, my best sort of example would be the mindset of the private equity groups. I think the headquarter will apply a lot of the thinking in terms of setting targets, following targets, operational targets, financial targets and apply a constructive way or control with a different underlying units.

And the first initiative we’ve taken here versus operating units is to establish a value agenda. I talked about that value agenda to some of the investors I met after the second quarter earnings series. And we’re going to develop that agenda more today and we’re going to continue to develop it.

That value agenda is basically built on one key target for this group the next two, three years, and that is to increase cash flows. That is basically our value agenda going forward, to increase cash flows from operations. And we will do that by developing real content for each region along three building blocks.

The first one is what we call profitable growth. And we will explain during the business units reports what we mean by profitable growth. The second building block is operational excellence and the third one is capital efficiency. I’ll touch upon all three of them to give you a little bit more flavor of what we mean, but that’s the content of the business control and target setting.

Then of course, the headquarter will also be very much involved in the strategic direction and (inaudible) portfolio management, meaning that capital allocation, investments, M&A activities, divestments, in market consolidations, everything related to portfolio management, it’s clearly an area for headquarter to be involved in, with the philosophy that capital is a scarce resource. And for that reason, we need to have a centralized and coordinated way of how we apply our capital.

The third area, financial structure, clearly, cash management funding, financial structure is something we will centralize and run from the top. People and talent management, I think, is key. And I think when you look at telecoms now, we get more and more commoditized, and for that reason, having the right people in the right positions with the right mindset is going to be a key success factor going forward.

For that reason, we will develop in VimpelCom what I call a Marine Corps of the key 300 to 500 people, and those 300 to 500 people we will also develop our DNA and make sure that they have the right business mindset, they have the right knowledge, skills to be able to conduct business. But we will not involve ourselves from headquarter in the corporate culture we have in VimpelCom in Russia, or the corporate structure we have in VimpelCom in Italy, because I think the ambition is wrong.

We will not try to turn into a Vodafone. We will allow local brands to survive. We will allow local cultures to survive. But we will develop the key top 300 to 500 employees in a Marine Corps and develop them and their skill sets and move them around in order to develop our business.

Corporate governance and compliance is, of course, also a key and important area for the company going forward also given our history, and we will resolve the issues we have there step by step. And frankly speaking, I will be surprised if any of the governance issues we have ahead of us is going to influence our operational performance much going forward.

And then we will centralize two functions. And that is the two of the functions as of now we’ll centralize. We’re going to centralize procurement because procurement is scale. It’s about making sure that you have enough in your luggage when you go and meet the vendors. And for that reason, we will probably also establish a procurement company to organize that activity. But for sure, we’re going to centralize the function as such. And we will centralize roaming because roaming is also money on the table that we don’t want to give away when you have a group of our size with 200 million customers.

So those two functions are the only one we will centralize. The rest is decentralized and empowered by people sitting with the business units.

So that’s the high-level thinking on the operating model. And then if we move on and have a look at the size of the telecom market, I think these are quite known numbers to most people. We all know the profile now. Voice is flattening out in certain markets. It’s even going down. Data is growing.

So, on the top left-hand side, you can see the total telecom universe based on our sources. I’m going to reference the numbers. Clearly, the profile, as I said, flat voice, growing data. If you go to the lower left-hand side, you’d see VimpelCom’s footprint, excluding Italy. We’re growing faster on voice and we’re growing much faster on both mobile and fixed data.

So I think VimpelCom offers from a market point of view a more attractive profile than the average telecom universe offers today. And then on the lower right-hand side, you saw the dynamics in the Italian markets. The Italian market is very influenced by everything that – those of you following European telecoms see today – the termination rates on mobile is going down. And for that reason, the overall growth in the Italian market is not looking as favorable as the rest of VimpelCom’s footprint.

That being said, I want you really to listen carefully to Ossama’s presentation later today because I think we have a very good story in the Italian market total, and I think we have some good plans how we’re going to address also the challenges that we see there going forward. So if we break this into real numbers, because at least I’m a practical guy and you’re not making much money on percentages. It’s the money that counts.

If we break these three baskets of mobile data, fixed data and mobile voice into three baskets, you see in the middle an estimated cumulative market increase in VimpelCom’s footprint. And then, on the right-hand side, you see how much revenues do we expect to find on the table in ‘12, ‘13 and ‘14 if VimpelCom is growing as with their market share of the different markets we see today.

So we have at least $5 billion on new revenues coming from data services that is on the table and up for grab in our different markets if we apply the strategy for data services correctly going forward. And then, of course, we cannot forget about the voice revenues because voice revenues, even though it’s flat, it’s still very important to protect them, and stay focused on voice and not forget about that, of course.

Each market is quite different and I’m not going to steal the points from the different business unit heads talking about this slide. But I think what we’re going to do is basically to with the philosophy of all business being local or the philosophy of empowering people locally. We also have different value creation strategy plans for each individual company.

Take Russia as an example. We underinvested clearly in Russia in 2009 in connection with the last crisis in the capital markets. We started to lose subscriber market share. We started to lose revenue market share. And our judgment in 2010 was the fact that this is turning into a size problem, eventually, in Russia. So what we need to do. We need to put together a plan there that first addresses the immediate problem, that we are losing subscribers and revenues. And then we can fix the profitability problem after that.

And I think some of the disappointment we’ve seen as of today is basically reflecting that strategy. We have been growing subscribers, we have been growing revenues, and I think now, over the three to six months, our ambition is now to turn that revenue growth into profitability growth and start focusing much more on cash flows and profit in Russia, hopefully improving margins in Russia, instead of combating subscriber market share and revenue market share.

So our value creation plan for Russia needs to reflect that view. While in Italy, we have a different situation. In Italy, we outperform the market all the time. We’ve been doing that for years. We are growing relative much stronger than competitors and we have now great opportunities in the business segment. We have great opportunities within the data services. We were able to secure a great spectrum for LTE in Italy.

So that’s a different value creation plan. And then if you go to the growth engine assets we have, we have some great assets in the second baskets on the slide. We have I think here a lot of untapped opportunities for data services. We have seen 3G yet in Pakistan. We haven’t seen it in Bangladesh. We haven’t seen it in Ukraine. We haven’t seen it in Algeria.

So the most attractive markets in Africa and Asia haven’t even started to go out on 3G. Here, clearly, we expect to see growth in the next two to three years. Not to forget about Ukraine. So the whole story in the second basket is really to take out what is left for voice and then start capitalizing on 3G and data.

And then, in the third basket, we also have some very good markets, I think. The Canadian market is a very good interesting market. Vietnam is a good market. Laos is a good market. Some of the African markets we’re in are good. But here we are now doing what we call a contribution analysis, looking at how attractive do we think these markets area, how long do we think we need to invest there, to be cash positive, and how much do we think those investments, how much will they give us compared to money put into Russia or money put into LTE in Italy.

So this is really we’re trying to make a sound judgment on behalf of our shareholders where should we put our money. And that’s why we also put those assets into developing new businesses. But, of course, we will not abandon them. We will make sure that we apply a sound analysis, that we apply a sound strategy, and then we will put our money where we believe they should be.

Moving on to our value agenda. I talked about three building blocks in my intro. The three building blocks across are – profitable growth, not revenue growth on the expense profitability, but the revenue growth that leads to profitability. It’s about operational excellence – how do we look at our cost space, what kind of initiatives are we putting in place to make our business more effective.

I think telecoms have a lot of opportunities to work with their cost space. I think we have a lot of opportunities to really look at our business processes. And the third basket is capital efficiency. We are still investing a lot of money. And I think people now start questioning, so how much are you actually going to keep investing when you look at the how the dynamics of the business are.

So I think also we need to ask ourselves how can we invest in a more effective and how can we get more profit out of each dollars that we invest. I’ll also address that a little bit more in details.

This slide is a little bit of could be seen as soft talking. So, yeah, what do you mean? But I think what is important – and we will work on this with our key employees – is also to create a new mindset. I think a lot of the telecom companies today is still having the old mindset, the penetrating markets, we are growing on voice, and a lot of the old concepts are still very much alive.

I think going forward, at least for VimpelCom, we would very much like to focus the high-value customers and less look at subscriber land-grabbing. We would much rather look at retention and look at the lifetime of the customers. We need to look at speed of data access because that’s the killer application in order to grow data services and we need to get away from the old-fashion thinking around price per minute on voice to start bundling services and price data services a little different.

And I think specifically on data, we have three key concepts that we would like all our business units to look at and implement. We would like to move away from unlimited tariff funds. It’s a very, very hard concept to implement these days with the Facebook’s and the Google’s and the dollars.

We need a more rational traffic management and they will be addressed later on today with head of business unit and we need also more sophisticated differentiation in the way we work where quality and service and speed should be based on different value propositions going forward.

If I then move to the second building block, which is the operational excellence and cost efficiency. To me this is the base I can work from, the one on the left-hand side. This group has $6 billion each year that we pay for traffic, interconnect and everything related to traffic in our network. Then we have a bulk that consists here of conversion, operating expenses, technical, IT people and other SG&A. That bulk is $7.8 billion. And the last one is the CapEx we invest every year.

So we spend $18.6 billion and when we talk about increased cash flows among the three building blocks operational excellence, these are the cost elements that we will attack and these are the cost elements we will do something with. This could be network swaps. This could be site share agreement, like we do in Pakistan and Bangladesh right now, and this could also be new thinking connected to distribution concepts.

And if we look at the third building block, which is capital efficiency, we’re now spending, as I said, $4.8 billion each year in investments. Maybe the left-hand side is not all that interesting because it’s basically showing the different CapEx profile of the business units. But the right-hand side, I think, is an interesting slide. It shows how VimpelCom is benchmarking a nice peer group consisting of Telenor and Teliasonera to Tele2 and Millicom.

And as you can see here, there is clearly room for VimpelCom to start now focusing on less CapEx per revenue going forward. So hopefully the $5 billion of new revenues from data priced in the right way, the cost of traffic and the cost of operating expenses around $13 billion each year addressed the right way, and focus on how to apply our capital. Those three building blocks should leave to increase cash flows going forward.

And if you look on financial performance objectives for the three years, if we start on the bottom, leverage very much likely to have our net debt to EBITDA below two by the end of ‘14, and the increased cash flows will be used for the leveraging activities. We will target our CapEx to revenues below 15% by the end of 2014. I think this is a good target given the fact that we will grow our loft and roll out a lot of 3G and also start rolling out LTE fully during this period of time.

So 15% of revenues, I think, is a good target. And then, on revenues and EBITDA, I don’t think it’s the right way for me today to start giving commitments on exactly how much revenue is affected to grow and how EBITDA should grow. We are now developing this as part of the whole business revenue process we’re doing inside the company.

And the plan is to communicate this in 2012. Then, we’ll feel a little bit more comfortable on where we are with that work. And then I’m going to wrap up with this slide.

Very happy with the management team at VimpelCom. I think we have extraordinary skilled people sitting with the senior management. And the order of the presentations (inaudible) now is that Elena Shmatova will now after me talk about Russia and she will address the challenges in Russia using some of the same language and some of the same concepts that I described on our value agenda right now.

Then we will move to Dmitry Kromsky that will walk you through the CIS region, great portfolio company, good performing, good growth. After that, Ahmed Abou Doma will do Asia, Africa, CEO of Orascom Telecom Holding and a team member of VimpelCom Limited’s management board. We will then move to Igor Lytovchenko that will do present the Ukrainian business.

Igor has basically developed Kyivstar from nothing to what it is today, and it’s worthwhile listening to him because he knows what he’s talking about. And then Ossama Bessalda will wrap up the five business units in the end. Again, Ossama, great results in the Italian market and I think, also, very interesting perspectives in terms of the industry and also how to develop Italy going forward.

He will also have a separate section on our thinking on LTE in Italy that we paid €1.1 billion in October. And I think everyone is quite interested in why we did that and the thinking around that development. And then our CFO, Henk van Dalen will wrap up everything with his perspective and bind this together with the key elements of our CFO function within the company.

And then we have Khaled Bichara also sitting here today. We decided not for Khaled to present, instead go straight to the business units. That’s something that Khaled will clearly be part of the Q&A session. And he’s played a very instrumental role in the synergies and integration and then very, very useful and valuable resource for me in the whole integration work that we’ve done so far this year.

And then we announced yesterday, Jan Edvard Thygesen is joining the group in January 1st, 2012 as deputy COO, chief operating officer. Jan Edvard and I met first time 20 years ago when we developed (inaudible) mobile markets together. And ever since, we’ve had close contact. And I have great respect for his knowledge, experience and skills. And so I think he will be a very fine replacement for Khaled that decided to go back to Egypt at the end of this year, and mission accomplished on his side.

So, with that, I am also, actually, instructed by our legal people to make sure that I told everybody that today’s presentation might include forward-looking statements. And for that reason, we would very much like everybody to read the disclaimer, either in the book on our website. Then I’ve done the formal part of my instructions as well today.

With that, thank you very much for listening to this introduction and I hope you’ll have a very interesting day. And the floor is yours, Elena.

Elena Shmatova

Thank you, Jo. I’m very happy now to present to you our performance in Russia, the motherland of VimpelCom. And let me start with the overview of telecom markets, overall, what we can see in Russia in the coming years, from 2011 to 2014.

As Jo already mentioned, we are looking in Russia in general as maybe for the whole world for not very substantial growth in the telecom market, overall, approximately on average, 4% during that period. But different revenue streams demonstrate definitely different dynamics. And again, as Jo already said that voice services show a certain kind of stagnation, although they continue to be the largest part of the market, at least for Russia. And we will see quite a substantial growth coming both from mobile and fixed data services.

So as such, Russia is not a big different from overall trends and we anticipate our migration to the data-centric world. On the next slide, you can see that we show certain developments of GDP and our role performance. And of course, in the beginning of the century, the Russian economy performed quite well, showing GDP growth close to 10%. But of course we were impacted as the majority of the countries by the 2008 crisis.

And you can see that in 2009, the decline in GDP was close to 8%, although in 2010 we recovered quite a good level of focus and growth and our government authorities anticipate that in 2012, it will come slightly less to 3.7% growth. So it will come in line with the overall telecom market, because normally as we saw previously in the history that telecom development in Russia goes more or less in line with GDP maybe performing slightly better.

In Russia, we have four major players on telecom markets. It’s VimpelCom, Rostelecom, MTS and Megafone, with Rostelecom being dominant, on the fixed side, being incumbent operator and so-called decrease in MTS and Megafone have very strong position in mobile segment.

Although competition in mobile segment was quite intense, we still keep our average revenue per user in quite a health level, around $10, equivalent of $10, which is a thing that is not a bad level for the countries like Russia.

And since 2009, talking about VimpelCom, specifically, we saw a different performance of our company in mobile and fixed segment. Our market share in mobile, unfortunately, had declined. But in 2011, we have stabilized our revenue market share. And as you can see on this graph that in fixed, our performance was better and we will continue to growing our revenue market share.

Of course, as Jo already mentioned, the reason for our not so good performance in mobile revenue market share was very conservative behavior during the crisis. So, as Jo says, we were underinvested. And as you can see now on this slide, we are now start accelerating growth in mobile subscribers and that’s converted already into accelerated growth of top line. And this is definitely the first phase of our recovery.

Our mobile subscriber base reached 56.8 million, up 10% from last year. And the mobile broadband subscribers increased even further by 59%. Data revenue from mobile subscribers increased 40% year-over-year to RUR4.5 billion. And we think that that growth in mobile data definitely will continue and so we’ll do a lot of steps to stimulate this growth going further.

Our fixed-line broadband business also continued to hold with a strong growth of subscribers around 46%. And as long as we continue to develop our presence, in terms of HTTB and IPTV, we see quite good uptick in the fixed broadband revenues. So we already reached RUR 2.2 billion on quarterly basis, which shows growth of 55% year-over-year.

But access to top line growth negatively impacts the EBITDA by, of course, our marketing initiatives, both in prices and distribution channels, as well as acceleration of the build out of the network definitely was linked to the additional cost of network maintenance, which grew for a certain time period quicker than the revenues.

So, how will we reach to the second phase of our development – improving profitability? Let’s look on our issues and actions from P&L point of view. We can start with the top line and of course here, the main point, which I would like to stress, is that historically, if we look back to 2009, we can see that our average price per minute was quite substantially higher than those of our competitors. And we have to close that gap to sustain and to maintain our position on the market.

Of course, the PPM reduction, which we have to do, negatively impacted our gross margins. And the plans to resolve this issue is linked with the activities on rebalancing of the tariff plans to promote more profitable products, which are of course, linked to data products and such as voice tariff plans which are switching traffic to own net mainly.

Then, if we’ll go farther down on the operational expenses, of course, the three main blocks of technical, commercial and data, they all suffered from different things. So, in technical, as I have already touched, as long as we accelerate the network rollout, of course, we saw substantial increase in the maintenance cost. And in commercial sites, our distribution activities also brought some additional cost, but all that range of issues, we are planning to address with the operational excellence program. And later I will talk in more detail about our activities in that field.

So, what is the major activities? Of course, as Jo already said, for all of us very important is to concentrate value agenda, which is based on three key points. First is profitable growth, second, operational excellence and third, capital efficiency.

Talking about first (inaudible), sustainable revenue growth. We can say that we would like to address that question by splitting our revenue streams into two markets. Growing revenue streams and matured revenue streams. With matured revenue streams, we will concentrate on cash generation, while growing revenue streams, which is mainly data, we will use to continue to deliver top line growth.

Now, a few words about the opportunities, which we see in the growing markets and briefly how we will tackle all these. So, in mobile broadband, we see three different approaches, which we will use for different revenue streams. So, we are looking separately on small screens and large screens and on tablets, which we call medium screen and develop certain programs to enhance revenue growth in all that three segments.

In small screen, of course, our major short-term activity is to improve and to enlarge penetration of smartphones into our database because in Russia it’s still on quite low levels. On medium screens, we will provide unlimited tariff plans and then large screen, of course, is the major component of the future growth is the delivery of higher speeds, better quality of the network and, of course, possibilities to bundle it with fixed broadband.

In fixed side, we will of course, continue our successful story of deploying our FTTB network bundled with IPTV services. With IPTV, we have a very good uptick and we are quite happy that currently we have more than 400,000 subscribers paying for the services. Although, practically, maybe here a year and a half ago it was close to zero. And so definitely, we are looking for additional pockets of growth from the new products, such as M-Commerce and M2M. Of course, as you can see on this slide, the potential growth here is the largest. It’s 42% but starting with small numbers.

Talking about our position on the markets and the future growth, we will miss a lot if we will not talk about our Beeline brands. Our goal is to see our brand reaching the number one position in terms of brand preference. During the last couple of years, we have performed certain investigations on the segmentation of the markets and derived a lot of very interesting information on the customers behavior. And the careful analyzing preferences of the people in Russia, we came with certain conclusions how we will address the loyalty and customer satisfaction from different touch points.

Customer experience should be improved, of course, by the quality of the product itself, the quality of the network, then the usability of the products definitely with best in cost customer service. And as a result, we shall rebuild trust, which definitely will have very positive impact on all activities from the top line to the bottom line.

Now, moving to the second milestone of value agenda, it’s our operational excellence. These objectives will be covering practically all our activities, but predominantly the same with technical improvement and marketing enhancement, as well as of course, streamlining the processes and the organizational structure.

On the technical side, major main projects will include network element sharing, focusing on just between fixed and mobile network and interconnect cost optimization. On the marketing side, we are focusing on optimization of distribution channels, both in B2B and B2C. And on processes side, we plan to extract additional efficiency from procurement as Jo already mentioned and of course, from the knowledge, which would again get from the different countries.

And definitely we will address the possibilities to improve our productivity within Russia through streamlining the structure, implementing a better span of control and through that, driving more efficiency. So, all in all, all the activities are targeted to bring us RUR 5 billion of savings during the next year compared to 2011 on like-for-like basis.

Following an operational excellence, let me say a few more words about our distribution. As you can see, we have a very large distribution network accounting for approximately 96,000 points of sales. And it’s quite well split between different channels of multi-brand, mono-brand and the alternative channels. And of course, our idea is to balance all that channels in the most efficient way and also to look into such interesting way of further sales as using Internet. Although, currently, in Russia it’s questionable in terms of legislation and now we use the Internet i-banking and the ATM only for cash collection, but later on later we think that we can get the opportunity to use this for SIM distribution and through this, make our distribution I think even more efficient.

But currently, we have what we have. And the idea of operational excellence is to focus on the balance between the cost of each channel, a lifetime of subscribers we get from these channels and tariff plans, which were sell through the channels. So we call this contribution margin. And so that point of balancing and improving distribution, contribution margin by each channel is one of the points of the agenda of operational excellence.

Now, network – network has very huge impacts on our cost side. And as you can see the telemetric is pretty huge. In terms of transport network, we have already approximately 33,000 kilometers of our own fiber network. If we are talking about total, including rented channels, it’s 110,000 kilometers. So, the network is huge. And during this year, we added a lot in terms of additional VTS and ODs [ph]. And this on one hand ensures our ability to grow further. On the other hand, of course, that puts certain questions how we should manage more efficiently that size of the network.

So, we will address this issue showing the next slide. So, from the point of view of efficiency of implementation of the network and our marketing activities, we took, I would say, a segmented approach to the whole (inaudible) of Russia. Of course, the country is very big. And to cover it with the network, we tried absolutely equal in different parts of county is a very expensive story. And maybe it will not give us such a return, which we would like to see.

So, we split that country in two, let’s say two parts. One part is the branches in the markets to which most interesting for us, which are defined by the size and our position in that market. And the rest is, I would say, the branches which can go as a second priority. So, to be more efficient, we concentrated on the priority for the three branches. And this is what the branches account for 82% of the market size, but in terms of the territory that makes the whole story much more manageable. And so our investments and our capabilities will be concentrated on those regions.

So this approach, we think will allow us to be the most efficient on the market, not only from the point of view of maintenance of the network but also from the point of view of capital investment. We’ve already mentioned several times that, yes, we have certain underinvestment in the past. And this graph shows our comparison of the investments with our competitors as capital investment to revenue. Since 2009, for VimpelCom was the lowest compared to the big three.

But on one hand, one can say that, yes, we have the investors and then we have to catch up. But on the other hand, I think that we can treat this as an opportunity because currently we can invest in a more efficient way. We can come to the same size of the network if needed but in a better and more fruitful way using all our experience, all the experience of the group we have now, in terms of knowledge and in terms of procurement capabilities.

So, summarizing what was said and what we are planning to do in Russia, I want again to remind the major points of our earlier agenda. So, our main goal is to maintain top line growth and simultaneously improving our margins. And we think that it’s absolutely possible because of the activities which we have briefly discussed.

We think that all that plans and all that programs, they are well thought through and they are very much kind of supported by the management team in Russia. And hopefully with the skills of the management we have in Russia and the experience which we can get from the group level, we will be able to deliver with that result. Thank you.

Dmitry Kromsky

Good afternoon, everybody. I’m representing CIS Business Unit of VimpelCom Limited. My name is Dmitry Kromsky. What is CIS? If I say in a few words, it’s six countries. It’s one brand, the Beeline brand. It’s growth engine according to our cluster model and its very strong team. That’s the main characteristics of our small but fast growing business unit.

All our shared markets – highly competitive. We have from 3GSM to 4GSM players in each market. The main competitors are Teliasonera and MTS who represent in different countries and also Tele2 in Kazakhstan and Orange in Armenia. But what is more important, the penetration in most of the countries is below 100%.

For example, Tajikistan, Kyrgyzstan and Uzbekistan, it’s far below 100%. But we knew that we have very high growth potential in these countries, as well as for traditional services and for our growing 3G operations. We have five 3G licenses out of six countries, so this is also our focus.

And of course, (inaudible) which we have to give up in three countries has also a very strong potential. It does some (inaudible) in our performance and progress we made during the last few years. If I can explain certainly what we can achieve, we managed to improve our market position this year. We’re keeping very good profitability.

And the double digit growth in Q3, almost in all countries, that just prove that we are in the right track. With the three largest markets – Kazakhstan, Uzbekistan and Armenia, their contribution is more than 80% to the shared new business. And in all markets we’re faced with a more aggressive competition. Regulatory environment changes, ATPM reduction and the margin separation, but these are the challenges for all operators.

I mean, in this environment we managed to remain our healthy growth. For example, in Kazakhstan, this year Tele2 launched their operations from April. But when we see the results of the Q3, we showed the growth of our mobile subscribers by 23% year-on-year. And we showed 12% growth. So, we’re faced with this aggressive competition and continue our sustainable growth.

In Uzbekistan, we showed very good result this year, 36% growth in revenues and 58% growth in EBITDA. And in Armenia, the total market, we changed the magnet of trends which we saw during the crisis period. And see growth for our revenues by 5%, while the total market growth is almost 0%. That’s shortly about our countries.

In CIS, the trends of telecom market are very impressive. We achieve that in 2014 coverage. Even in voice in traditional services is 6%. And so it’s much more than in the global telecom industry. And to work in size growth markets is very interesting.

Of course the main driver will be mobile data with 38% and fixed data with 47%. And we understand that data becomes the main driver of telecom market growth and pay much more attention to this revenue stream. Our to-date performance, I already talked about some countries, but in consolidated revenues, with consolidated results in 3Q are very, very impressive.

We continue our mobile sub-growth and broadband subscriber growth which resulted in revenue growth of 19% year-on-year. Focus on effective cost management and while that’s to increase EBITDA up to 46%. Our main focus in the CIS markets is to increase or protect our market share and revenues. And these strategies supported by implementing a set of management strategies for different revenue streams.

The current situation, almost no markets we see that competition and regulations in some cases become more aggressive which influence some APPM reduction and gross margin pressure. The gross margin was also impacted by interconnect rate variations in the customer device margins, whichever it was.

In this environment we are trying to find optimum balance between growth and OpEx efficiency. And our actions to protect our profitability mainly focused on providing high margins data services in the markets. Our device strategy should be very balance in every country. We also just started operational excellence program, aiming to bring cost savings and improve our free cash flow. And also we are dealing with dealer commission management to focus on paying for the quality of subscribers.

What’s in the future? Of course we are part of VimpelCom value agenda. With these three main companies aiming increased net cash from strong operating activities year-on-year. For our profitable growth, our core strategic objective is to achieve sustainable growth together with OpEx and CapEx efficiency.

This means that we are trying two different approaches. The first is managing matured revenue streams which are focusing on margin and cash flow and growing revenue streams, such as mobile data, fixed data and mobile ready services with the main goal to capture market share.

For our matured revenue streams, we already start to apply segmented approach in some B2C and B2B markets. We also make our focus on price management. We implement some subscriber development and retention programs in some countries and already have worked on bundles to our customers in order to secure our margins.

In growth revenue streams, we, of course we are leaders in data in all markets but we are targeting that in data we should put to ourselves targets leadership in data in most markets. And of course, since the users of data are still lowering our markets we need to create some customer experience in mobile Internet.

As I said the broadband is the main driver of growth for the next few years. And we divided it into two different approaches – large screen broadband with the goal of subscriber acquisition, and the middle and small screen with the goal of revenue increase and maximizing cash flow.

Data use in our market – we understand this and just small example how demand – how technology driven demand of using Internet services. We just launched in December 3G network in Kyrgyzstan and Kazakhstan. And in a few months, we even five times growth of data traffic in our network. It means that people were expecting high-speed access. They receive this access, they start using and we should develop this stream as soon possible since we are the only company who has 3G network in Kyrgyzstan.

And thinking about capital efficiency, as Elena said we are also faced with underinvestment in 2009. But these underinvestment and rapid development is the main reason for considerable investment in 2010 and 2011. And, of course, we spend the CapEx mostly on 3G are allowed because we just obtained the license in two key markets in Kazakhstan and Kyrgyzstan as well.

We invest in 2G capacity to support profit growth. And the transport net also was our focus, that’s why we see this growth in investments. But in order to improve CapEx efficiency, we should implement cost effective 3G solution to maintain voice demand revenue stream and also to use the synergies and price and technologies to improve our efficiency and (inaudible). This benefits what we already have in our investments already today.

Summarizing this presentation, I would mention again that CIS is still a growth market with a real penetration below 100% in most of the countries, but still low data usage creates very promising prospects for further growth. Synergies in VimpelCom group and between CIS countries give us a wide range of opportunities to make our business more effective. And, of course, it’s a very important thing that growth market strategies should be balanced with sustainable cash flows with effective CapEx and OpEx management.

Thank you for your time.

Unidentified Participant

Thank you, Dmitry.

We will have now a break of about 20 minutes. So, we will start about later, 2:30 again, and we will have to break outside where we had lunch as well. See you in 20 minutes.


Ahmed Abou Doma

Good evening, ladies and gentlemen. The mike is on. Let’s go. My name is Ahmed Abou Doma. I am executive vice president and heading the business unit of Asia and Africa.

This is quite a diversified portfolio of operations we have here. We’re talking about nine operations. Four of which are in Africa, five are in Asia. Quite diversified in terms of the size of the operation, the maturity of the market, the level of penetrations in different market, and certainly, the purchasing power of the different market.

So, we are talking about countries that are as rich as Algeria with a GDP above $7,000 and as low as Burundi with $300 of GDP per capita. We’re talking about countries that have as high population as Pakistan with almost 190 million inhabitants or as small as Central Africa Republic with less than 5 million inhabitants. So, quite a diversified portfolio, but certainly full with opportunities.

In terms of internally how the business units were organized, we are having three bigger operations. Relatively bigger, so we are talking about Algeria, Pakistan and Bangladesh as being the big three. And we have groups, the Sub Saharan African operations in Central Africa Republic, Burundi, and Zimbabwe into what we call the Sub Saharan African cluster. And we have Group B, Southeast Asia operations in Laos, Cambodia and Vietnam in Southeast Asia Cluster.

In terms of overall highlights of the portfolio of managing in these business units, we’re talking about Pakistan, a market that is maturing, we are the leading operator there, maturing in terms of subscriber growth for the time being, and we have 33 million approaching 34 million subscribers in Pakistan.

We have a lot of opportunities there through revenue enhancement by leveraging the size of the base, getting to do valued revenue pricing and data invest uptick. In Algeria, despite the limitations that we’re facing there, we’re still the market leader by far and we’re showing very strong resilience there and very high level of profitability, approaching levels of EBITDA of almost 60%.

In Bangladesh, it’s a large market that is still underpenetrated. We’re talking about the penetration level of only 53% in a country that has 160 million inhabitants, one that has the highest population density in the world, in fact, Bangladesh.

And Banglalink, our operations there over the last four years have been the fastest-growing mobile operator. So in a very much growing market, we’re the fastest growing within that market. And we have managed to make our way all the way from being the number four to number three and now number two distant from the number three, a strong stable number two.

In the Sub Saharan Africa, we have leading positions in the market that are very much low in penetration. We’re talking about some countries which are below 20% in levels of penetration. In Southeast Asia, we are seeing highly competitive market but with huge growth potential.

In terms of KPI development, our mobile subscribers have been steadily growing within the business units, certainly, within the level of 2 million to 3 million net ads a quarter and actually accelerating recently, mainly due to increasing subscriber base in Africa and in Bangladesh.

In terms of revenue development, we think much better revenue performance in our business units over the last two quarters. And this is mainly driven by a better-than-expected performance in Bangladesh in terms of revenue growth, and certainly, an excellent performance in Algeria. So, Algeria is making a comeback from the levels before the crisis we had there during 2010. So, we’re back to the level of 2009 and actually exceeding it.

In terms of EBITDA and margins, we are very quite sort of stable. And actually, the last quarter that they release that had been announced shows that we had our highest, actually, level of EBITDA in absolute terms and maintaining the same level of EBITDA margin.

Again, going back to the value agenda that Jo has presented earlier, we’ll share with you how we are contributing to these three pillars, again, the capital efficiency, the profitable growth and the operational excellence.

In terms of driving profitable growth, we have two strings in the business unit. Again, as I have mentioned earlier, one of the characteristics of this business unit is that we are operating in many countries that are still underpenetrated. So, the penetration levels are very low and there are not a potential to go there.

So, the first three is the market shift stream. There is more market share to gain. There is more land driving subscriber that could be done specifically in Africa, Southeast Asia and Bangladesh. But we also would like to be adopting a value-driven pricing. Value driven pricing, meaning not triggering any price war trying actually, especially in Algeria, not to trigger any price wars and respond wisely to competition moves and smartly.

Not only this but in countries and officials like Pakistan and Bangladesh. According to the World Bank, Bangladesh has the lowest cellular mobile minute in the world. So, operating in a country where the price of the minute is already very low, so the trend in the market over the last couple of years, especially led by us was actually to increase the average price a minute with very smart categorical moves. And we have been successful in doing that so far.

We would like to think that experience and actually start to see how we can connect that in Southeast Asia and Pakistan as well.

And so, the other stream is about VAS and data stream. And that’s initiative related to mobile data. We’re talking about a huge 3G opportunity in the countries where we operate. So, Algeria, Bangladesh and Pakistan have not yet seen 3G licenses being granted.

And as I mentioned earlier, we’re enjoying leading positions in this market, who are by nature very low in terms of Internet connection. So, the mobile broadband opportunity there is huge. We’re talking about markets like Algeria where the purchasing power and the ARPUs are at the level of $10 similar to some countries in Eastern Europe. And they are not yet having 3G. And the Internet penetration is extremely low. I think that’s 14%.

So 3G and data is a huge opportunity. We have already launched in Burundi and Zimbabwe, our 3G services and we’ve been granted 3G launches in Laos only a month and a half ago. We’re likely to launch 3G in Laos before the end of the year, the end of 2011.

Of course, as I said, VAS is a very big opportunity. So while we were busy in the years of the mid-2005, ‘06, ‘07 and so on, to get the subscribers, now that we’re sitting on 33 million subscribers in Pakistan and 22 million and growing in Bangladesh, we have a huge opportunity to leverage this big size base and actually try to increase the uptick of VAS within those businesses.

Mobile financial services, we have a leading position in Bangladesh. And in Pakistan, we are also developing very fast mobile financial services. Those two countries are known for having a lot of expatriate population. So, money remittance, international money remittance and so on is becoming very popular, and I think it will with time.

We were the first, actually, to launch mobile money remittance, international money remittance in Southeast Asia and in the subcontinents in Bangladesh.

In terms of the second pillar, the operational excellence, we think that’s step by step. The whole point here is trying to increase our NDE margins, which physically leads to increasing cash, which is the ultimate objective, as Jo has mentioned.

So we’re increasing the supply, increase our revenues, and as I said, maintaining value and increasing pricing is something a cornerstone of our pricing strategy in the operation as to where we are existence. Captioning the high subscriber growth potential in Africa, Southeast Asia, and Bangladesh certainly is another way of increasing our top line and leveraging the large subscriber base to grow voice and non-voice revenues in here. And we had very good experience, actually, doing that in Bangladesh and Pakistan where we use VTL promotions.

We do micro-segmentation that goes up to having 60 different segments of the base depending on their behavior. They call by night, they call by day, they call on-net, they call off-net. Watch the seconds of usage and see how we can design limited time promotion that is communicated to them below the line through SMS.

And we have seen some of those segments who might double when a promotion like this is done. And the beauty of this kind of either side is that VTL promotion, first of all, they’re not costly advertising money because they use their own tool SMS to carry the SMS. It’s targeted. It doesn’t go to everyone.

It doesn’t trigger a price war because the competition would not know exactly what and where you’re hitting with. So, you might have on the same day 20 different offers going through 20 different segments.

And eventually, I have one of the CEOs in Bangladesh who called me once and said, “My team,” he said, “Banglalink is having an on-net offer, another one is they’re making demo. They have an off-net offer.” And actually, he asked me, “What exactly is your offer?” He wouldn’t know because we have 20 offers on that day starting 20 segments, so he cannot respond to that.

And the most important thing is its value driven, meaning, when you do a promotion, you’re not doing it to the whole base. You are exactly segmenting where you want to give the offers to stimulate usage. You’re not giving it to the whole base, which might be sometimes value destructed.

The second part is improving the margins. And definitely, the data mobile opportunity is a good way because the margin is on that. But it’s definitely better than the voice. And adopting a variable mix of outsource and insource service, applying newer market strategies, where we’ve done that in Bangladesh, we’re doing that now in Pakistan as well.

So, while we want to capture the high end, going back to Jo’s presentation, we want to focus on the high-end segment of the market. But at the same time, the level of servicing at the different touch points that you’re giving to the customers should not necessarily be the same for the high end and the low end customers.

So how we can take off the weight from the lower segment of the market is the trends and providing and differentiated experience, so basically using a dual strategy to the market as we call it.

Another way of improving the margin, of course, is the mobile financial service, which yields strategically good margin. In technology, reducing the OpEx, and that happens by all the initiative we have in technical OpEx reduction, especially in what relates to the power asset, because in countries where we operate the public electricity grid is not necessarily the best in the world.

So a lot of our technical OpEx goes into fueling generators to run our sites. So, we have been doing relentless efforts trying to reduce this cost, which is increasing all around the world and a lot of innovative solutions coming from suppliers are being adopted as we speak and are yielding good results so far.

Site sharing is another, of course, initiative or direction we’re taking. And we have seen that in some of the countries where we operate, green field site that we launch with site sharing agreement was probably at 50% or less of the cost that we build the site ourselves.

In Bangladesh, we have already site sharing agreements with four operators. In Pakistan, the same. Maybe in Pakistan it needs to be a little bit stimulated. But the contractual frame is already there when you just push on it. And the 3G opportunity there is coming, with the rollout 3G present as perfect opportunity to build again on the side chain.

In terms of commercial, a lot of things, we are planning to do already the standardization of the Beeline brand in the Southeast Asia cluster is happening with rebranding from Tevo in last two Beelines, which would give us some synergies there.

Another thing is trying to push for (inaudible), which happens to be much less costly for our operation and OpEx versus the scratch cards, the typical numerous scratch cards. Of course, needless to say that all the markets where we operate are predominantly prepaid markets.

So in that context, the cost of the scratch cards are big basis such as in Pakistan or in Bangladesh or Nigeria, becomes very expensive to produce cash flows through all these trying to push the ease of penetration. And we have these good levels in countries like Pakistan and Bangladesh.

Bangladesh now runs at 97% of the total charges are happening using (inaudible).

The third pillar, the improvement of the capital efficiency. And here, as you can see from the graph, this is our performance. I think just to note, this is impacted by the limitations we have in Algeria in terms of CapEx expenditure. But still there is a lot of enhancement in our performance and efficiency over the last years in terms of CapEx ratio within our business unit.

And we are certainly using these such as the infrastructure shading, the network outsourcing and demand management. And certainly, on the procurement level trying to leverage the size of VimpelCom to get better lease from suppliers, better SLAs and better prices.

So we are revisiting and finish revisiting a lot of our frame agreements with our suppliers, our technical and network suppliers. And we’re certainly coming up with better terms and prices than the ones we show up with.

So, the trend is good. Maybe once and when Algeria limitations are over, we can see some CapEx investment there, but generally we’re going through the right direction, trying to reduce our CapEx to revenue ratio.

Now I’m going to cover with the three big ones for the sake of time. So starting with Algeria, the Algerian operation, our operation there is called Djezzy. So this is a country with 35 million population, relatively high GDP per capita of $7,000 and the penetration is standing at 81%. There are three players there. We are the market leader and our market share as you could see here is around 56%.

Generally speaking, the economy in Algeria is driven by the hydrocarbons and it seems to be staying that way for a while. The penetration rate as I said stands at 81%, but amazingly, at this level of penetration which is relatively high for this part of world, we’re still seeing very strong growth coming from Algeria, as you could have noticed in the last two quarter releases.

In terms of KPI, Djezzy performance had a little bit of a down towards the end of 2009 and through 2010. As I said before, we are making a good comeback there. So in terms of subscribers, the subscriber growth is continuing so far in the year. In 2011, we’re seeing excellent subscriber growth in Algeria. In terms of revenues, we are on our way to hit back the levels we had in 2009, if not exceed them.

And in terms of EBITDA, as you can see, we have a very profitable operation, which is so far in the year, we are standing at the margins of 59%. CapEx, as I mentioned before, due to the limitations we have, the numbers you see here are sort of skewed towards the very small number due to the limitations we have in Algeria.

The second country of operation we’re going to cover is Pakistan. We have Mobilink. Our business there is called Mobilink. Now this is a very populous country with almost 190 million inhabitants, relatively small GDP per capita or around $2,500 and is a very competitive market.

So we’re talking about four major competitors there – Telenor, Ufone, Warid and Zong. Again, we are the market leader there with 31% of the market, the market share. Pakistan has been hit as you know in 2011 by very heavy floods, which left almost 10 million people homeless and had its impact as well on the economy.

It’s quite a regulated environment. MNP is very active in Pakistan. It has been launched three years ago, four years ago, and is very active in there. There are talks about 3G licenses being launched in 2012 and there it will present an excellent opportunity for us given the low level of Internet penetration in the country.

I guess that’s it. This is the KPIs for our operation in Pakistan. As you can see, subscriber growth is tampering off. I think the revenues as well are kind of very stable, strong and stable. I think the next sheets you’ll see on both figures, revenues of subscribers will happen once the 3G is in place. There’s a huge opportunity for us there with our 33.5 million subscribers.

In terms of EBITDA, it’s delivering a relatively good performance on the 40s level so far in 2011 and that was as well in 2010. And the CapEx has been very much in control over the last three years including so far in 2011, and probably we’ll start to resume some investment once and if the 3G license is granted. Again, infrastructure sharing is a big opportunity in Pakistan, with five big players really building each one of them their own network. It doesn’t do good to anyone. So we are already having as I said the legal frameworks for (inaudible) agreements with the other operators, but this maybe we put more into action.

Third operation is in Bangladesh. It’s called Banglalink. Again, this is a very populous country of 160 million, a GDP per capita of $1,700 and market size currently of 81 million subscribers. So the penetration rate is only at the level of 53%, which leaves (inaudible) potential for growth in this market. The market players, again, are six players – Grameenphone from Telenor, Airtel, Robi from Axiata, CitiCell (inaudible) and Teletalk is the government-owned operator.

Our market share is 27%. We come as the second largest player in Bangladesh. But if you look at the last three or four years, we have been constantly grabbing market share from the market leaders, and today we stand at 27%. We made our way from being the fourth player to the third, to the second, as I said before. And as we speak last quarter, we have grabbed a whole one percentage point of market share in a relatively big market like we saw. That’s good.

We are the faster-growing mobile operator there. And the regulatory regime and the taxation regime there was imposing what is called a SIM tax. So everybody buying a new line should pay to the government what is called a SIM tax. And the SIM tax used to be at the level of $11. Of course, the purchasing power in the market cannot allow customers to buy a line and pay $11 for that. So operators used to subsidize that and that’s used to have its toll on the EBITDA figures of every operators.

Good enough and after a lot of pressure and the negotiations with the government, the last Bangladeshi government budgets announced and effective as of 1st of July, 2011, the SIM tax has been substantially reduced and now allowing us to have a healthier growth back in there.

As I said before, this is a market that is enjoying the lowest cellular mobile price per minute in the world according to the World Bank report. Yet, with this lowest price per minute in the world, we managed to grow our subscribers and our revenues steadily, not only this, but also enjoying an EBITDA margin that is relatively healthy at the level of 37%.

And again, the CapEx was under control over the last three years waiting for the 3G license to be granted. A lot of the reasons why the CapEx was under control over the last couple of years is the site sharing agreement we had with the four operators and which have saved us a lot of our CapEx.

So, for the (inaudible) in conclusion, we have very low penetration levels in our markets in Asia and Africa, which offers a huge opportunity and a great potential for us. Data is certainly a key to our future in this market. We are talking about (inaudible) market, leading operators within these markets, low penetration of Internet and 3G is not lost. So a whole recipe for success for the data storage.

We are managing for value strategy as I said and we’re apply a lot of operational efficiency-gaining mechanisms. I think we come a long way in terms of developing the expertise and the understanding of how to run a company with quality EBITDA margins healthily at the levels of the high-30s or low 40s with ARPUs that could be as low as $2.

And certainly, with the new merger we have now with VimpelCom being part of this bigger family and this groups, it gives us an opportunity of leveraging the new group size to realize more synergies and actually add more to our operational efficiency. That’s it. Thank you.

Igor Lytovchenko

Good afternoon, ladies and gentlemen. Let me introduce myself. I’m Igor Lytovchenko, head of business unit, Ukraine. A few words about Ukraine. It’s the second biggest country in Europe, after France, (inaudible) territory, more than 600 square kilometers, with a population of 46 million.

I would like to start my presentation from market industry to end of Ukraine. The mobile segment was the key driver in the growth for telecom industry in 2000, 2008. As the market reached saturation in the light of economic crisis, the mobile segment showed no gross in 2009, 2010. We expect the mobile market to show our (inaudible) growth of 5% per year in the near future.

The development of mobile market is limited due to lack of 3G licenses in Ukraine. Only one license was issue. Mobile data can be a significant growth driver if the licenses are issued to the 3G players in the near future. Fixed voice has been a declining market as local and intra region voice traffic has immigrated to mobile networks and international goals. Costs have been declining due to competition and good competition from voice IP.

Local telephony is also a regulated market and so the regulator has not been too keen to erase local (inaudible). Fixed voice segment is not likely to return to growth, but may stabilize as the regulator prices are increasing. Fixed broadband is the key growth segment in the Ukrainian telecom, mainly due to low penetration compared to similar markets.

In the recent year, the market has grown more than 30% per year and we expect growth rate to be in a range of 20% per year. This segment is primary drive in by new customer acquisition which compensate decline in our post [ph] and we expect our (inaudible) to stabilize in short terms.

Market and competitive scenario

Kyivstar competes in both mobile and fixed segment and is the leader multiply at the right in Ukraine. In the mobile segment, Kyivstar is a clear number one in both. Subscribers and (inaudible) market share. MTS (inaudible) is the number two position and Life is – this come third.

The mobile market were significantly affected by the economic crisis of 2008 – 2009 when growth stopped. The competitive environment is challenging due to the proliferation of the zero [ph] on-net model which leaves to the significant increase in usage [ph] while (inaudible) level remain flat.

Growth in Mobile Data is relatively higher but leniency due to the lack of frequency. Regulatory reduction in MTR put (inaudible) on the revenue. In the fixed segment, Kyivstar is focusing on the kind of full service provider in the B2B segment and on the delivering FTTB service to the mass market.

We are currently number three but fastest growing operator in mass market broadband. Kyivstar is consistently the operational excellence leader in Ukrainian telecom with EBITDA margin in the low to mid figures.

Our performance today. Ukraine business and few Ukrainian business union continue to deliver, (inaudible) two point [ph] growth in the third quarter and maintain leading market position. This growth was largely due to our continued transition towards new bundle tariff plans in mobile stimulation and 8% increase in MU while the Subs base remain stable.

Mobile data revenue grows 27% driven by increase in usage of data series in USB modem offer and with a new bundle tariff plans. Fixed residential broadband continue to show strong growth as well. Fixed broadband revenue increased 94% year-over-year driven by 117% increase in Subs base which reach 324,000 in the quarter. We continue to be fast grown alternative broadband provider in the country and are driven towards becoming the number two alternative broadband provider in Ukraine, after recently prioritize Ukrtelecom.

EBITDA decreased 1% leading to a margin of 53.7% due to changes in the revenue mix and the highest SG&A which was impact by high technical cost and inflation.

Our current situation, today Kyivstar is facing a number of challenges that put pressure on our revenue dynamic and margins. Specifically, overall, macroeconomic growth in Ukraine does not drive our recovery in telecommunication sector and the primary is putting in place pressure on the cost of doing business.

The current margin mobile segment has reached situation with declining rate of revenue growth which require us to launch develop non-mobile business putting pressure on margins and CapEx. In addition, the regulatory environment remains diligent with respect to the last 3G license.

SMP and MTR regulation increase in regulatory charges. We remain committed to our strategy of building a leading integrated operator offering full spectrum of telecommunication service and, hence, we are in voice and fixed residential broadband, B2B integrated solution, sales of user devices to stimulate data business, all of which contributes to our organic mobile revenue growth.

With regards to managing EBITDA margin, in recent years, Kyivstar executive, comprehensive operation excellent program through which we’re able to maintain high margin double digit inflation, currency devaluation, increase in regulatory fees and gross traffic. Kyivstar was able to effectively increase its network capacity to a high voice and data usage with a marginal volume related increase in OpEx and with a much lower CapEx spend compared to our competition.

After the merge with VimpelCom, comprehensive synergy program was launched which is currently delivering synergy about target, total, $160 million and previous signs inception.

Our future plan in managing margins effectively and with this achievement of a sustainable structure OpEx savings for mobile network swoop outsourcing project to competence for margin declines from non-mobile fixed business and inflation, in order to remain the undisputed leader in cost efficiency in Ukrainian telecom.

And now, I would like to address how we will contribute to the value agenda 2012, 2014. First of all, it’s profitable growth. In the consumer segment, we are focusing on maintaining leadership in the mobile market and growth to the number two position alternative in the data base.

Our core focus is on a gradual switch from pay as you go pricing to a bundle model and this increasing usage for both voice and data. In the mobile market, we iterate these two brands, the flagship Kyivstar brand and Djuice which is our user-oriented and price attractive brand.

Our strategy is mobile broadband is highly dependent on the timing and the conditions of 3G license option. In fixed broadband, we are planning to finalize rollout in 2011 and to focus on becoming the leader in net ads in 2012. In the business segment, we are evaluating involvement towards a one point of service and the customer care through increasing our portfolio service and realize gross sales synergy.

We will be exploring new pockets of growth in high-speed data service, data centers and call centers. Revenue growths and the revenue retention will be also realized through operational improvements and value proposition management, sales management and growth to the processes.

Secondly, operational excellence. Our synergy in the operational excellence program is built around three work streams – marketing, technical and business support as implementation of initiatives in our regional operation excellence and the synergy program is gradually completed. We are planning to launch the next wave of operational excellence and the several large transformational projects on mobile network, swap mobile equipment to more than one of higher productivity and efficiency of outsourcing element of network maintenance.

It’s very important capital efficiency. Kyivstar is investing in both mobile and fixed business while our main competitors are mostly mobile operators. In mobile, we invested in network capacity to deliver more value to customers and to maintain our premium quality position.

In fixed, we are investing in B2B and fiber allowed to our B2B clients. To improve or at least to maintain capital efficiency, Kyivstar has a rigorous investment portfolio management process for CapEx approval. Prioritization, release and review, global participation and transformation project will add to the increase in capacity efficiency.

As for conclusions, summary. In summary, Kyivstar is implementing a balanced strategy of delivering superior shareholders returns, investing in new business area, but with a minor loss in mobile market share and brand perception.

Our key priorities for 2012. Pricing excellence and the transition to bundle in mobile, obtains radio license and the fast network rollout, completion of FTTB rollout in leadership in net ads, maintain cost efficiency through its local and global synergy and network transformation, corporate culture integration and motivation system.

With this, we will contribute to the value agenda. Thank you so much for attention and now I would like to hand over to Ossama.

Ossama Bessada

Thank you, Igor. My name is Ossama Bessada. I’m in charge for the Italian operation, as well as the Canadian one. The focus today is certainly on the Italian operation. However, just perhaps two words on Canada very briefly.

I think we remain strong believers in the Canadian opportunity. Just to give you a hint, the market there is less than 100% penetration – actually around 80% or a little bit below, ARPUs of $65. A kind of three player on the top of it, but if you look at their problems or their state, it’s a two-player market. So, there is certainly room for a good third nationwide player.

So, the opportunity is there. I think we’re also trying to push and to lobby with the government on the foreign ownership rules that will help us gain funding at, let’s say, reasonable cost levels, which we cannot raise currently in the Canadian market. So that’s just the anecdote of the Canadian operation very quickly. So let’s focus on the Italian one.

Just commenting on Jo’s memories of early stages, I remember my first trip to WIND in 2005, the assets was just acquired in August. And then in the airport, took a cab, telling him I want to go to WIND. And the guys started looking at me as if I’m from the moon. Okay, what is WIND? I told them WIND mobile operator, whatever, okay. No clue. “So, you mean TIM?” I said, “No, no, WIND, okay.”

So, let’s say the brand was not known, was really in shanks, as they say. Never mind, but they ended with him driving me to the other part of the city and so on. But WIND is really a very nice story because it really started from scratch. Okay, that company in 2005 was I think one of the worst managed assets in Europe, at least.

The first phase of the turnaround of WIND, I think, was very, very successful. Okay. The big turnaround came with a lot of capital efficiency, new processes, establishing new management teams and so on, okay. And it enabled WIND really to capture the growth of the markets and to become a well-established player in the Italian.

However, and as every story comes to an end, okay, we started to see, let’s say some bottoming up of that. We re-looked into our strategy, okay. We re-innovated our strategy and we took a different stance on a phase two approach where we focused on high value segments on 3G and on the corporate segment.

Why am I saying this? Because, now in a context where Italy is so much under the spot, saying Italy is in a bit of economic problem and so on. I think it’s worthy to understand that we have been able to cope, okay, with the two phases with the region. And I think we are able to cope also with a third phase of operation, if needed.

So, the Italian market is slightly declining. Mainly attributing to the MTR cuts that are very heavy and pushed by the European Union. However, guess what? That’s the same story for the last three years. So there is nothing new, okay. So, we’ve been able to grow and had a decline in market and to live with that. So for us, that’s a challenge that we encounter every year and we take the burden off as business as usual.

However, the interesting part here is what you see on the mobile and fixed data, okay. Those are the avenues of growth. Bearing in mind that especially in the mobile data – because we were catching up on the 3G coverage, we have less than our fair share of the market value. That segment remains even much and much bigger for us. So the opportunity there is much bigger than the other operations. And we would see all these in the data, in the value legend.

The regulatory environment in Italy is one of the toughest, I guess. We talked about the MTR risk. And there is a decision that is supposed to come out this week. However, we will see what the new change of government whether it comes out or not. However, on the positive side of things, okay, so the EU usually brings bad news for us there is some good news, okay? They are also pushing for a discount on the copper, on bundling fees, okay? And that’s certainly good news for us. So we will try also to ride that wave and push for lower copper fees from the incumbent.

Again, a topic that we’re asked about many times, NGN fiber and so on. Okay, I think it’s too early. There have been three models tossed up by the regulator to talk about different ways to do fiber. However, I think it’s a little bit of the long serve, especially that there is no public money to fund fiber in the short term for it.

Talking about the market scenario. Again, I think it’s part of our solid portfolio. We’ve been able to grow our market share and, most importantly, our value against TIM and Vodafone in the last three years together with the broadband market share on the fixed.

Talking about the Italian macro economy, especially in this sensitive part of time where people are sometimes too worried. I live in Italy, okay, and I can tell you there is more money in the country that what seems on the surface where the center of government, okay?

To give you one clue, as per the ISTAT, ISTAT is the public statistics agency for Italy, the amount of people of who are doing more than €300,000 per year are 54,000 people, okay. I guess, I’ve seen more Ferraris than Lamborghinis more than that. But the more important story is we do not see this in the consumer expenditures, okay? We see a solid expenditure and the single part of the ARPU decline is really attributed to the mobile termination cuts and the incoming revenue (inaudible) that we see every year.

However, on the outgoing bid size, that’s mainly – sometimes it goes down due to the competitive market pressure but that’s the story. So I would say that the Italian economy from the inside is much healthier than what it seems from the surface, okay. Also, you need to remember, I think, three key stories. Italy has the second GDP per capita, the industrialized GDP per capita after Germany. Okay? Italy has a trade balance that is positive, okay? While people like Japan, France, and the – sorry, not Japan – France and UK are negative, okay.

The growth in the northern part of Italy, the nine regions on top on – from the whole 20 regions of Italy is actually higher than Germany, okay? So we’re talking about, really, in my view a brilliant economy because I heard just today, what about the eurozone crisis, and whatever, I think it’s more of an issue for the central government that is to put better policy, okay, and we’ll see will what happen with the new government than a real story. And also, there is a lot of gray and cash economy inside it.

So, we don’t see this as a risk on our side in roll-ons. Again, solidifying the view, we have this comparison with third entrance all across Europe. So, people of similar size, you see on this list, E-plus we.

And as you can see, we are the highest EBITDA margin by far from all the three category layers. While on the CapEx, okay, we are a bit higher. But because we are convergent while all of those are mobile only, if you think the mobile only CapEx contribution, you will find that we are second best after ‘02, okay, and better than most of the times.

Again, I will not burden you with the operational highlights, which I think you’ve all seen in the releases. One thing that is worth mentioning is the EBITDA, okay, that is stable, that is sometimes going up. I mean, the third quarter was a real good quarter for us, okay. However, as you can see, in terms of suited EBITDA, mobile and fixed, okay, we cruise and has a way around the 40ish number.

How we address the current situation, okay, I think I will jump this slide, okay, and talk more the field because we have a lot of slides, okay? And how we will tackle this and the total value agenda as addressed by colleagues and as introduced by Jo.

First profitable growth, we focus on three core segments, okay, high value, consumers, corporate segments and data. On the high value consumers, okay, we’ve been able to shift our bill sizes on the prepaids, okay, by doing more cross-selling, okay, by extending the Noi community.

Noi community used to be strictly our on-net community when we started the company, okay? And it was a way to bypass the higher MTRs or other operators. Now, the Noi community includes across net park that is growing very heavily. To increase the bill sizes, we are doing a super Noi, okay, which includes also texting and Internet, okay, in a kind of an all-inclusive offer for prepaid.

Worth mentioning, 75% of our Noi community has at least option, which means a resilient bill size that cannot just be changed because they are occasionally pay per use or secondary SIM and so on.

On the fourth data, I think we have a real success story. We’ve been able to grow our business, as you can see, almost from 71,000 into half a million in the last three years, okay? And these are people who have an ARPU above 30 euro per month.

On the fixed, fixed was one of the key turnaround pillars in the story of WIND, okay? WIND has been able to focus on dire customers to enhance marginality and to focus on double play to enhance. Moreover, now we have a conversion offer that combines fixed and mobile, okay, and a key contributor to our margin is the sales in our shops, okay?

So, we extend the sales in our shops to decrease the reliance on the push channels and to enhance our marginality. Currently we do 18% of our fixed sales in the shops, okay, and our target is to take it to 25% by 2013.

Second segment is the corporate segment, okay? Here, as you can see, our share of this segment that is worth 11 billion in the Italian market was less than 5%, okay? And I think we’ve been able to grow it by 1% per year, okay? However, it’s a slow ramp up. There’s some more complex offering. There’s some more complex target, okay.

It’s not easy for a company that is totally consumer to attack the business and the corporate segment, okay. We started by doing a completely dedicated business unit that is fully conversions from day one that does all the sales, technical assistance, and everything, okay? And the prime results of this work appear in us being able to bid the market, okay?

So, as you can see the market and the performance of WIND, especially on the SME segment, we’re growing actually double digit, okay, on that precise segment. So, this is something that we expect a heavier ramp up, okay, and hopefully, the hockey stick peak will come in very soon. Yet, we are very happy with the results that we achieved so far on the segment.

Again, mobile Internet I think is a key story, and not only mobile but also fixed Internet. In the past quarter, we’ve grown 33% year-over-year on mobile Internet revenues, okay. This is the way to go. So, it’s a real point to focus. We have started from a 3G coverage, which we were late for.

In all honesty, I think if I would say one of our few mistakes, okay, is that we started 3G rollout a little bit later than supposed to, okay. We were too cost conscious on that point. So, our 3G coverage starting ‘09 was 60%, okay? Now, we’ve been able to take it to 90%, okay, and we are enhancing the indoor. We are enhancing the speed, okay?

And as Jo said, we believe that the future relies in a speedy access to the Internet, okay. So, that’s the key value proposition of the future. So that’s something we are building on. We increased our rollout capacity from 1,000 sites per year to 2,500 sites per year, okay, to cope with the 3G capacity and coverage enhancements.

The second point in the value agenda is actually operational excellence. Our full positioning, as we will see later, is based on something we called Più vicini. Più vicini in Italian means more closer, or closer to you. We do not compete on technology. We do not compete on that part of the spectrum. We compete on customer intimacy.

And for that, transparent pricing, clear pricing, as well as customer service are key for us. We’re very proud of the satisfaction index that you see in front of you where we are highest both on mobile and fixed. And I would also say that we are one of the top ten companies in Italy, even across industries, in our customer satisfaction results.

The second pillar in our operational excellence is our powerful sales organization, okay? Our sales organization is regional, okay. We’ve been able to shift, as you can see, into more franchise and on-shops, especially after an acquisition of 126 shops that happened three years ago in the shopping malls. This helps us to enhance the quality of our sales. It helps us to enhance our share and lower our cost.

Something that we are doing is that we did a minority injection into our wholesale dealer, okay, to make sure from a strategic perspective that we are in full control of a big chunk of our distribution and also to enhance our presence where we are weaker in all honesty in the northern part of Italy, okay? So, there we have a market share that is around 10%, okay? And we believe this is part of the growth in the future where we can increase this share to at least 15%.

The third point is, on the, let’s say, network IT part. Site sharing is one of the key initiatives. We have already 1,000 sites that were done on phase one with Vodafone, okay, and we have already phase two that has started with another 1,000 sites.

Again, we have done a full transformation of IT, okay, lowering the number of our vendors and enhancing the lots and capitalizing more on the economies of scale. This is saving us just to give you an idea on application development only 20 million per year.

Now we have completed our migration into one CRM platform that is making our time to market as well as our cost efficiency far better in terms of offer, in terms of customer service. The network we have spoken upon, also on the fixed network, we are currently present in around 1,300 subs that constitutes around 54% of the Italian population.

The last point on our key assets in the network is 21,000 kilometers of fiber, okay? And that’s very important. Not only for the fixed but for the future of offloading the network and the direct holding of the BBSs that will be key in the future for LTE.

In terms of capital, I think we are working with the group on the same agreements. That’s one of the key integration tracks. The same applies for the terminals. However, we have two strategic projects that are under study. One is regarding what we call managed services. That’s one of the heavy projects that we are studying and can, let’s say, realize a considerable amount of savings. So we hope that we would realize that next year.

The other part is an opportunity in the Italian market also for tower sharing. And there are different models for tower sharing. We are studying that and seeing who can be the right partner. But these are all opportunities to enhance capital efficiency and generate very quick cash flows.

Before going on the LTE, that something that was concluded end of September, it was one of the big LTE auctions worldwide. The Italian government cashed in 4 billion. Out of which we paid 1.1, unfortunately. However I think we are, and with all the support from VimpelCom, fully on that because we believe that this is so strategic and we will see why for the future of WIND.

As you would not take in nor next year nor the year after, our expectations with LTE will be highly commercialized by 2015. And if it was up for us, perhaps that auction should have been a little bit later. But this is the fact of life. However, I think, we came with a very, very good output.

But first, why is LTE relevant? I guess most of you already know about the – just to give you two key indicators. LTE smart phones are currently 50% of the market. They are expected to go from 50% to 80% in the coming two years. So by 2015, smart phones will 80% of the market, for which LTE is a key contributor because it has better cost per Gigabyte, it has better latency. So LTE is critical for the customers and users moving forward.

We talked about the data traffic unto which the cost per Gigabyte will be very important. It is expected to double within the coming two years and expected to increase by 26 times by 2020. So seeing those two indicators, I think you can understand why LTE was very important for us.

However, the nice thing is how this ended as well? So we paid 1.1 billion but we paid a 100 billion less than our competitors; however, getting a fourth block on the 2,600 megahertz.

And this means something very important. It means that within the coming five to seven years, until our competitors, namely Vodafone and TIM are able to reform their 1800 spectrum, we are the only ones able to have 20 megahertz continuous. And this means that we are the ones that able to give the customer the fastest or the speedy Internet access in the market.

Another side issue is the 800 megahertz which is very important for indoor coverage for better capital efficiency and so on, ended up with three operators on. So there is a force operator that has deprived from that bout [ph].

Again to conclude, I think the conclusions are clear. WIND is a very solid company with a very firm track record. This company is able to generate every year so far, €1.1 billion or roughly $1.5 billion of operational cash flow. Just to agree on the definition, EBITDA minus CapEx so that we don’t go into what is the definition of the operational cash flow.

We expect that this would continue because we believe that with the strategy we have on the segments we have and so on, we are quite resilient on that part regardless of Euro zone or Italian economy whatever. We believe that our huge upsides for WIND, I would mention two. The debt of WIND which a lot of people see as a burden, I think we see it as more of as an opportunity.

Refinancing these steps into WIND will be available in 2013 can bring huge cash benefits to the group. And I think this is something we are discussing with Jo and VimpelCom headquarters. However as I said, this is something to be done in 2015 so it’s for next year. However we believe it’s quite a lucrative opportunity.

The second thing is, all what we’re talking about from power sharing and so on can bring huge benefits to the group and can give huge cash inflows that would help also change the whole situation.

The third point is, this is a market where consolidation is inevitable. It will help. We talked about the 800 megahertz being given to three operators. So there is a fourth operator that has an issue with his long-term sustainability on mobile and how they can compete without any indoor coverage.

On the fixed, Italy has so many operators and a lot of troubled assets okay that are bound to collapse and consolidate.

So we are not sure whether WIND is a consolidator or not. The market will consolidate down. There would be less pricing pressure and more efficiency in the market. So between the firm track record and the future opportunity, I think WIND is quite well positioned and is, I would say, quite an attractive asset, unlike what many people said.

Okay, thank you very much. And I don’t know.


Thank you, Ossama. And we’re going to have another break of about 20 minutes. I hope you can be back not later than 4 o’clock and our CFO, Henk van Dalen will take you through the financial agenda. See you then.


Henk van Dalen

Okay. Ladies and gentlemen, I will do the financing part now and talk a little bit about the financials as a group and give a little bit of perspective on the operational excellence and on the funding costs and the plans going forward. And after me, Jo will wrap up the afternoon, of course, and then we will go into Q&As.

Value agenda building blocks that the business units directors put you through this afternoon, focused very much on, of course, the first three blocks – profitable growth, operational excellence and capital efficiency. I will, in my presentation, not go that much into any of the elements of profitable growth but mainly focus on operation excellence elements and capital efficiency. And of course, also on the financial strategy, the financial structure of the group.

Agenda of this presentation has three elements.

First, I will take you back on some of the basic figures of VimpelCom because VimpelCom in its current composition, of course, is a group that is just existing. So I’ll try to give you a range of elements that might help you also develop certainly some of the analysts to develop their models further, and then focus on some of the elements of the financial value agenda, put that into perspective of how the financial function. I would look at it and then finalize with the financial objectives.

Looking at VimpelCom you can do as just take the figures as they are. But you can also do it by looking at some of the development of the revenue taking a constant FX. What I did here was looking at that on an actual basis as well looking it on a pro-forma basis, on a basis of constant FX average 2009. So we’re starting the development in 2009 and then looking at how it went up to the last 12 months of the third quarter ‘11.

And then you see that on an actual basis, there has been a growth of about 85%. In this period of time, of course due to two significant transactions, the Kyivstar integration and the transaction with WIND Telecom. On a pro-forma basis, you can see a revenue growth which is roughly 3% to 4% organically over the period.

And other ways, of course, looking at EBITDA. What I did here is take the EBITDA development year-to-date in 2010 pro-forma and take year-to-date in 2011 pro-forma. Also again based on the same average parts of 2009. And then it shows that we have a small decrease organically of 1.5%, of which 1% is related to one of course, which follow their combination within Telecom and all of the course that are related to this.

The second element is, as we have seen in this year, there is a downward factor in the market adjustments that is taking place in Russia, on which of course Elena explained what the elements of that are. If you take that down with adjustment out as being one off than the organic growth is roughly 2.5%. So overall it is a mix of pluses or minuses on the year-to-date basis.

The same mix came, of course, out when we published our third quarter figures yesterday and talked about the development of revenue and the development of EBITDA organically as well as a result of FX. Then we have quite a solid organic revenue growth 5%, but a little bit disappointing minus 1% organic EBITDA gross. And that is very heavily influenced by the market adjustment is Russia.

If I would take that minus eight out and take it as flattish, then the organic growth will be 2%. And if you take a normal perspective on the Russian market, so excluding of the adjustment that has been going on during this year, it is more in the range of organic 4% to 5%. And then an even, I could say, quite conservative in that perspective.

Another element, which I explained yesterday quite extensively, is the factor of FX and all other incoming expense leading up to the net results. We had quite a significant effect of that in the third quarter mainly related to loan circuit in different currencies than the functional currency in which the loan was held. And then a movement in derivatives in Italy all adding up to roughly $400 million of difference.

So that brings me to an element which might interesting for you as well to talk a little bit about the sensitivities in the results related to currencies. As you can see from this slide of currency sensitivities, there are actually three messages.

First message is that the revenues in EBITDA are for 85 to 90% dependent on full currencies. Being the Russian ruble, the euro, the Algerian dinar, and the Ukrainian hyrvnia. The rest is a mix of various currencies in various countries but the dominant ones are those four.

Second message is that when the ruble, the euro and all of the other currencies appreciate in value against dollar with 10%, of course it has an impact of roughly 10% of the revenue and roughly 10% of the EBITDA. Delta is slightly different when you see the same movement in their debt. Then there is an increase of 1.8 or a decrease of 1.8 of gross debt and of a net debt of 1.5. It’s just a mix of the various currencies and the debt positions that we have that placed a role.

Another element is of course what happened in the third quarter particularly with regard to currency sensitivities that have relation of more functional currency denominated loans and receivables in relation to the particular functional currency of the country. We have a market view of some of the loans that are part of a ruble functional currency, a euro functional currency and Egyptian pound functional currency. If that block moves up and down, it can have an impact of 70, 75, and 260 respectively.

Of course normally it never moves up and down altogether. So there is a kind of a natural hedge in the mix. But in the third quarter, it had quite moved in the wrong direction in all of the positions that are given here. So particularly on the ruble and the euro position towards the US dollar loan, there was a minus effect of almost 200.

And there was in the Egyptian pounds that depreciated against the Canadian dollar, which is quite a unique phenomenon but it happened in the third quarter and that had an impact on the Canadian receivable. It is an intercompany loan to WIND in Canada.

That all happened with normally these things kind of hedged each other in a more natural way and you do not see this effect. Of course, I’m showing you this because we’re also working on resolving this particular issue in the structural group, and that is going to be one of the target points in VimpelCom. We’re already working on that on the ruble side for a long time shifting much more of the loan structures to the rubles than taking out the dollar positions. In the other areas we still have to focus on that.

And then there is an embedded derivative in some of the bonds of Italy. That of course got quite a hit related to the significant decline in the value of the bonds in Italy. But that we see as temporary situation. When of course that bond will increase in value, then you will have a plus effect in the net visual as well.

This is a slide on the financial structure of the group. I think quite a few of you are in that financial structure. A structure I would like to take you through in four bulks.

One there is a ring fenced block of debt related to WIND Italy. That is the circle that you see. That’s about $13.7 billion of debt for the end of September. That block of debt is ring fenced in a sense that it has no recourse on VimpelCom Limited and no recourse on any of the other companies in the group. So it’s really on a standalone basis.

The second block is debt of 1.1 billion in local entities of Orascom. Those local entities have their own position and they do not have a recourse on VimpelCom Limited. They might have from time to time certain guarantees of the Orascom group.

And then the third bulk has to do with OJSC VimpelCom and VimpelCom Limited. And this is the bulk that you can see on the left-hand side. And in total, that leads up to almost of $11 billion of debt, portion of the VimpelCom Holdings and a portion of OJSC VimpelCom.

Then bulk of debts is structurally related to funding also, that’s 0.4 in the company Orascom. So the Orascom Holding at the moment of the transaction was applied, we have to take out all the debt at the Orascom Holding level. And that is $2.7 billion. So now you see that intercompany flow of taking out debts. External debt of Orascom Holding is now an intercompany loan which is provided by VimpelCom Limited.

That intercompany loan has one particular feature, is that it is secured by cash coming in from a range of assets in Orascom. So, first that cash will always have to be used after the local costs have been paid to repay the intercompany loan. So, there is a relation between OJSC with VimpelCom, the VimpelCom Limited and the Orascom Holding. And that relation is quite a strong link.

There is also what you see in the left-hand corner of this slide which shows the ratios of the group, gross debt to EBITDA. And then we make a split on what is the gross debt to EBTIDA for Italy, which is the ring fenced structure. And with this, the gross debt to EBITDA for the VimpelCom Limited including the total position in Orascom. And then it’s feasible that the gross debt/EBITDA is 1.95 for VimpelCom excluding Italy. And for Italy it is 4.7. The mix leads up to the 2.8 that we communicated also yesterday as gross debt to EBITDA.

Net debt of course is a few steps lower than debt this due to the cash positions they are in. Composition of the debt is 65% long-term bonds and the rest in terms of loans in other financing instruments. Thirdly, maturities over debt searches on long structure. The first big block over the financing comes in the year 2017.

And as mentioned already earlier by Ossama, largely related to Italy, that some of those steps we might also already be doing a few years earlier, as of 2013. So there are momentums in the refinancing that we will of course take and at the same time look at the capital market environment that might provide opportunities as well.

And then finally this slide of course has a lot of information. It also shows how the debt is structured, all those debt in euros, all those debt in US dollars and in rubles and how is the interest charge effectively related to those debt structures.

The cost structure of the group. Jo talked about that in figures. I will talk about the figures later on as well, but it actually comes down to 33% of our revenue relates to OpEx including our own employee cost. Thirty-six% of the revenue is usage related. And that is elements like interconnection, roaming, termination, lease, et cetera. And if you look the year-on-year development and particularly the usage related element as a percentage of revenue round up significantly.

The same goes for the commercial OpEx. As a percentage, the other elements, technical and others SG&A were more or less stable and HR went up a little bit. Overall, EBIT went down and depreciation amortization in the mix went up.

CapEx basics. We’re looking at the capital expenditure to revenue of 17% over the last 12 months, over the last 20 months as well. It’s kind of stable. Although for the year we expect it to be as a level of around 17%. What’s interesting about this picture is that the depreciation amortization revenue is 21% year-to-date in the third quarter. So structurally, we are still spending at this moment and there is much more improvement to be folding. We are spending less than our depreciation amortization on revenue is.

And then one element which is also coming up – what are you doing with listing, what are you doing with index inclusion? We are listed on the New York Stock Exchange now for 15 years, headquarters in Amsterdam, Incorporation in Bermuda, and only relatively limited free floats.

What we are doing at the moment is studying what the best is for eventual sector listing in Europe and how we can afford those elder, how we can create an opportunity to become part of range of other indices. And particularly MSEI indices are the important for us to look at as well. We expect a solution on that listing and index in the first half of 2012 and also to come to conclusion in that respect.

I will now take you through the elements of the financial value agenda. This is the area that’s finance contributes. They contribute to strategy, they contribute to value creation in the sense of a cash funding returns, operations and investments of quarter. I’ll show you a few elements of that. There is element is risk management and compliance. There is talent and career development and the financial standing.

I will not talk about talent and career development. I expect Jo already did. And a beautiful animal that is kind of a sheep with seats of a crocodile that is what we would like the finance function to be going forward.

First of all, about strategy. What we did in the last couple of months was also talking about how to integrate our business, how to make sure that we have processes that align our businesses going forward, that we have standards and policies that aligned our business going forward.

So that resulted in a uniform set of KPIs that has to be developed by all the business groups together in a set of financial requirements, various standard realms but also deep dives on cash flow. Because cash flow and managing cash flow is one of the fundamentals going forward. The mix of all those KPIs are always looked at from a technological, the commercial, and the financial perspective and debt combined leading up the value agenda.

That is the way in which we have also developing integration over the last couple of months. It’s of course a range of projects in the area of synergies that were polled by (inaudible). And then there are a range of things in processes and standards and policies that need to be set in stone, you could say, before you start to operate as one big new group.

Talking about the elements of value creation – cash funding, returns, what about operations and financials and debt, and what about investment. The first key point is that we operate within the cash flow. As certainly for a company that we are today, which we’re having 26 billion of gross debt, it’s important that we are fully aware of what the cash flow of this group is.

And on a normalized basis, and I took the last 12 months of – as of Q3 2011 as that basis, you’re looking at a net cash from operating activities, which means after interest paid, after taxes paid, of roughly $6.5 billion to $6.8 billion. That’s quite a big amount. And it is used for CapEx, and it is used for dividends. The dividend amount of the months in view, $1.4 billion, is more of less based on the $0.80 per share that we would like to pay at least to our shareholders going forward. In fact we already do this year as well.

And also having done this spend, CapEx as well as dividend, there’s a free cash of 1 billion and the free cash can be allocated in various ways. It can be part of projects, it can be part of – for the debt redemption.

Fundamental process to manage the cash flow along the line of what is the cash through – and the cash from operations, how can we get our interest cost and takes cost down, what do we have left then for cash CapEx and for dividend, and how can we at the end of the day, make this company financially even stronger than it is today.

And one of the things is working capital. Our working capital, there’s a lot of detail here on the slides. So this actually shows that all accounts receivable, accounts receivable, the other days sales outstanding of about 40.

That’s quite okay, that is not something which is bad. It might be a little bit better, but that is quite okay. On the accounts payable on the other hand, there is room to improve. If I look at the total accounts payable – we are around 90 days, 75 to 90 days that could be better.

And even if we do only 20, 30 days more, it already frees up 500 million of cash. And the same is true for what is called here, payables related to along these. We are at this moment at a payment term of 70 days on average, so it can pass by the way of the group at 180 days.

So there is room to improve. The moment that we only take the small step up there, it is also another 500 million. So easily, you could say from working capital, with a little bit more focused and consistent applying the best practices, the most the ability to take about a billion of cash out of working capital.

And that is, by focusing effectively on payment terms. I think the second point if you look at working capital, it’s always important to realize ourselves that this group will always have a plus in working capital if he managed it on a normal basis during the year.

So the person working capital, trade working capital, they’ll be roughly 200 to 300 million every year due to the mix of payables and receivables that we have so when the revenue grows, there will be that particular plus.

Another way to drive cash is to look at how we have funded our companies. How can we optimize a fiscal treasury, legal and accounting structure and do that with the eye for business value. And that’s a very simply thing provided, it’s very difficult to accomplish it because you have to take into account some local bank structures, national bank requirements, you have to make sure your cash can go up and down in the group freely.

In order to effectively come to the model which I call optimized in the company capital structures and optimizing intercompany capital structures, has to do with making sure that wherever there are losses that you cannot offset in Texas, that you at least fund those companies as much as you can with equity.

And wherever where you have profits, try to fund it in such a way that all of the interest that you account for, is tax deductible. And at the moment that it is tax deductible, you get the interest in on the intercompany loan, you will want to have that tax at a low rate, that is the role of a financing company.

This structure we are currently building, this structure, this we hope to have in place in about one and half year from now.

Tax, often questions about tax optimization, what about the effect of tax rate, what about the cash, tax paid, but the effective tax rate is influenced, of course by the normal rate, as well as by what are rates above statutory, and what are the components of the rate above statutory.

You see the components there we have a block of our recognized loses, sometimes, we have one of the events, sometimes they have to do with certain structural elements that we need to resolve in this structural group.

There’s an element of provision for withholding tax payments which shall effectively take over the whole of the year so with an equal approval per quarter. So, if it goes up and down in a quarter, that isn’t relevant for the total picture of those of the affected tax rate.

So, what they did, was also take an effective tax rate on a normalized profit before tax, so, taking out all these one of elements that you’re looking at an effective tax rate of 30, 30 plus a little bit.

But, the clear areas for improvement that will be a part from financing together with the business. As – in recognized loses, that is the fall on the dividend withholding tax, how can we make that, let’s say less pressing one the tax rate and of course, take out anything that has to do with non-deductible interest structures.

Overall, it has to lead to an effect tax rate down and the cash tax down, as well. Diversified spending is another important pillar in the financial structure. We have a diversified spending with maturities loan, the balance mix at the moment and as I mentioned yesterday, we are working on finalizing revolving credit facility in Amsterdam, as well as in Moscow to have certain flexibilities organized in the forming structure of the group, as well.

I think we have done that. You have a question that you can use from time to time if there are temporary funding requirements.

Financial standing also has to do with maintaining credit ratings. So we’re talking about BB today. We want to maintain BB and we want to move from BB to BB+.

That means moving the net debt to EDITDA to a level of below to, by the end of 2014.

Someone here will say, you said earlier by end of 2013, and that’s true and the reason that we now say by the end of 2014 has to do with at the moment that we said by the end of 2013, we didn’t have at that time any perspective on the requirements of the various 4G and 3G licenses and the speed with which they would come into the structures of our various businesses.

In particular, for instance, the speed which is the 4G license and it came this year was certainly something that we expected at that time and also note required high amount of the cost at the end of the day, related to it, although, we did quite good as Ossama explained in the mix of what was done in the option at that time.

Importance for this move, for Double B+, in the next couple of years, is that, it will also give us more access to more sources of funding, it creates a kind of flexibility which is even better than the flexibility we have today.

Looking at the debt structure of the group, looking at the ways in which we can optimize it, that is 350 to 500 million of optimizations scope in the next 2 years, lowering the debt cost and lowering the tax because we are able to bring the tax deductible elements of the interest at – that it places in the group, so that the full interest can be used as tax deductible.

Debt at the same time will help freeing all of our entities pushing out tests to the group, up-streaming that and again bringing it down in the form of intercompany structures and – intercompany funding structures in the group.

So, all grow, that’s their perspective to the next 2 to 3 years. Capital allocation always an important question and we talk about financing, first of all, as we’ll be staying within the cash flow that we have. CapEx to support organic growth then paying the dividends, then the debt redemption and from time to time, we will also have to look if there are opportunities to, in market consolidations for this typically, this mix of steps we take.

Operation excellence, this is a slide that was shown by Joe, it shows the 7.8 in OpEx, which shows the uses, related costs. The preliminary perspective and of course, we still need to work out a lot of the details on these operational expense plans but the preliminary perspective is, that on uses, is must be possible to take clearly more than $200 million of the cost.

On OpEx, setting ourselves a target would take clearly more than 400 million out of the cost, I think it’s something we should do and we are focusing on that one now in process of reviewing it outside the perspective for all the businesses.

In CapEx, we already mentioned to go to a level of below 15% of revenue by the end of 2014 excluding CapEx of licenses which we always will take separately, and of course, synergies, are an important factor in that.

We explained the synergies so far that is 2.5 to 3 billion of scope in the synergies significant portions secured via the telecom transaction, and a portion already will go in TSR as well as mentioned by Igor.

But in the synergy package, so far, we have only been tickling point one in this slide, roaming procurement in roaming, we are even still implementing.

Developing best practices, that is the second thing that we did, and knowledge sharing of this thing that we are doing and are in the middle of. The other elements might still add value in the period to come and that is not at all included in this.

These are preliminary perspectives on operational excellence and of course, when I talk about savings, it’s savings only base on 2011, so whenever there is growth of traffic or there’s inflation, that will of course, also, happen with any cost base but this is the focus we would like to have.

Capital returns, capital efficiency relates to capital returns, making sure that on the gross asset base that we have of $50 billion on the book value asset base that we have of $40 billion, we have an adequate return which is clearly above the way to the service cost of the capital.

We are currently working on a set of, indicators that will help us to do two things, one, link it, these indicators to be total plan of operational excellence, capital efficiency and driving profitable growth and to do that as much as possible on a full cash basis.

Working with that on a full cash basis and cash flow return on investment is often a better one than a return on a depreciated book value. These things are going to be part of our structures going forward. I just want to show you this, that this is an important thing to see how we can year on year add value on the invested capital that we have.

And all that what I now said, needs to be bound together by a very strong risk management in total control integrity and compliance processes and systems. All the elements are in place, all the elements are being strengthened as we speak including of course, next year’s some our entities going through the Sourbox [ph] exercise, that will further strengthen the internal control of the group.

I think this is at the heart of any company to make sure that you have a solid control over everything that you do.

That brings me to the financial objectives, petition of what you already showed, we are working on those objectives on revenue and EBITDA, plan to be communicated early 2012, targets are all set for CapEx and for leverage and it is a range of operational excellence actions going on.

Overall, I think we’re in a good shape to continue to pay also good cash returns to our shareholders, so, we aim to pay at least $0.80 per common share during the period 2011 2014 per year that aims stands [ph] and in the year 2011, we will indeed live up to that particular position.

Conclusions from assets, financially, we are I think in good shape, we control over the processes, control over the financials of the various entities, and we have very good people in these entities managing the financial structure of the group.

We have started a lot of initiatives, significant initiatives as part of the value agenda, and there is substantial cash flow potential not only coming from profitable growth but also coming from working efficiently with our CapEx, and with our capital expenditures and with our asset base, second about a billion that might be and will be feed up in the targets from working capital in addition every year 200 to 300 million from working capital in the cash flow and targets on operation excellence to cost basis as well as the usage that we want to make three [ph] steps ahead in lowering that cost and an indication to that extent as well.

I think over all, a lot of brackets, a lot of elements that will be strengthened and will further bring the group to the next phase.

Jo? Please.

Jo Lunder

That was a long day and we’ve been throwing a lot of information at you and soon we’ll open for Q&As now. And also from the one participating through webcast. I’m not going to repeat everything that’s been said today. This slide basically summarizes a lot of message that – I would like maybe to use this opportunity to take one step back and look at VimpleCom because we have made two transformational deals in the last 18 months.

In fact, we did two very large transactions in a period of less than 12 months, first the Kyivstar and then the WIND Telecom. And, I don’t think we made necessarily our life easy during that period. It was demanding, and negotiations, it was very demanding processes.

I think maybe we also lost a little bit focus on operations in some of the key markets, and I think also integrating basically three large companies, Kyivstar, VimpleCom, and WIND Telecom Orascom Telecom Holding, OTH, that again consists of two companies being WIND Italy, and OTH.

It’s a quite demanding process from a cultural point of you, integration point of you, you got to put management teams together, you got to agree on value agenda going forward, and we’ve kept ourselves extra ordinary busy with bringing these, these different companies into one group.

And then on top of that, we have had the history of shareholders conflicts that is well-known to everybody following VimpleCom. And now, we bring in also Naguib Sawiris – that’s a large, third shareholder in the company. And I think, when you take this one step back and look at VimpleCom, I think people still wants to see what is actually coming out of these big transactions and the conflicts and everything we’ve talked about.

So I think all we can do now as management, is really to start building step by step trusts back into the company, and I think we need to start what we have communicated today, we need to start with focus on operations again because all companies in the end is living of well performance and good operational performance in their markets.

And why, why do we focus so much on operational excellence, profitable growth and capital efficiency? We do that because, at least in my mind it’s a little bit difficult now to understand exactly which direction the telecom industry got to take.

If the data story kicks in, at full, it’s going to be a very, very attractive industry to be part of, for shareholders. If the data story, is not kicking in, if the regulatory environment continues to be difficult, and on top of that we get increased price competition on voice, then the growth numbers will be lower. So I think the best thing you can do right now, is to prep yourselves for growth at least not kicking in immediately.

And then let’s take control our own destiny. So let’s look at our cost space, let’s look at how we spend our capital. Let’s make sure that buying ourselves revenue growth without translating that into real cash in the balance sheet.

So the whole purpose of the whole exercise right now, is really to take control on our own destiny, make sure that we tune our cost space to a revenue growth scenario that is hard to predict right now.

And then if the growth kicks in at a larger scale which I personally believe is going to do, then it’s very easy to move quickly with that growth rate and participate in that growth. So that’s the thinking both – why so much focus on operations, it’s setting it to a million within the perspective of the transformational deal, and then when it comes to our shareholders, I think they need to give their answers to probably a lot of the questions that many people has.

We know there will be an arbitration first half of next year.

We saw a couple of days ago that Telenor filed – or at least, the way I understood it, filed an injunction for delaying determination of the shareholders agreement. And on top of that, everybody following VimpleCom clearly understands that they have different shares as a potential overhang.

All that being said, every time I interact with Telenor, Alfa or Nagisavires [ph], they’re all very focused on growing value of the company. So I think at least, I would very much like now to divide those two situations and allow the company to now build itself stronger and stronger on improved operational performance and then they will resolve hopefully the shareholder issues as time goes by.

And I think already first half of next year, we will have an important decision from the panel. And then of course in addition to that, I see two very important issues to address for the company in the next six to nine months, Russia is clearly one of them. We would very much like to see now the trends changing in Russia and see improved performance.

And we spent time and resources to make that happen. And then of course Algeria. That is probably stupid on me to mention because I comment much on Algeria, for reasons I’ve given a couple of times, but of course also to find a solution to the situation in Algeria will also potentially unleash very interesting values, I think for VimpleCom’s shareholders.

So that in a nutshell is at least the background for why we’re doing what we’re doing, and what we’re focused on going forward. I think on the balance, we are quite diversified, quite resilient to different developments in different markets, personnel delivery in the data storing. And as we said and as on the slide behind, me, now executing on the value agenda.

It’s going to be key for all our operating units moving into 2012. So with that, I suggest we move to Q&A. And I understand we’re going to start with – you could just start rearranging whoever is doing that, I understand we’re going to have shares on the stage, and that we will start with questions from the audience, and then after that we will also bring in the questions we have.

So if we just stay in the room, and give us a couple of minutes, we’ll rearrange everything up here. Thank you everybody.

Unidentified Participant

Okay, we don’t need to make this more formal than necessary, so I should just kick off and there are people with the microphone. So we are ready for any questions you want to ask. Yes, let’s start. Yes.

Question-and-Answer Session

Cesar Tiron – Morgan Stanley

Hi, it’s Cesar from Morgan Stanley. I have one question on Russia. I would like to understand better what are you doing to curb churn and also possibly to understand how you’re catching up with your competitors in terms of – 3G roll out. Thank you.

Elena Shmatova

So what the stuff – with churn. Churn of course with that, it’s as I mentioned, the analysis of the segmentation of the market, and we as well analyze the reasons for churn in different segments. And here, we of course split all that churn in several, I would say groups.

One of the – unfortunately, one of the groups which are causing a lot of churn is the segment which we called as survivors [ph]. And with this thing that – it’s maybe not worthwhile doing anything. So certain level of churn will continue to be there. But the rest should be addressed through different set of programs.

One of them is of course the use of targeted marketing to be more pro-active offering of subscriber base, the new entire plan [ph] and the new capabilities which they do not know about, and sometimes they will return because they would like to change just the plan not knowing that they can do it without changing the SIM cards and so on.

Another exhibit if of course linked with a certain promotion campaigns, for example like we launched in the beginning of the summer like crazy days which gives certain discounts for people who top up their balances on certain amounts. And this showed that that program decrease churn in the groups – with the control groups quite substantially.

So that is a pretty diversified program on that churn decline but of course, we – the thing that will not get immediately effect, but the target to bring the churn level down to the levels which we saw for example in 2009, 2010 is this. It’s part of the operational excellence program.

Another question was 3G roll out. It’s an interesting question because on one hand, of course, we are doing a lot to deploy the network and during nine months of this year, we already added 4.4 (inaudible) network.

On the other hand, taking into account the level of penetration of smartphones, I think that we should not be kind of too speedy in this regard because all the activities from the side of the operators should be balanced with the capabilities and the requests coming from the market.

So we’ve briefly talked about this in the presentation that talking about small screens, one of our targets is to increase the penetration of smartphones and 3G enabled phones in our database. And there is this set of measures that we are talking in this regard.

Alex Kazbegi – Renaissance Capital

Alex Kazbegi from Renaissance Capital. Two questions, I’ll ask them probably one by one. The first one, both on data actually. The first one I was looking at your projections for the Italian market and frankly, I was a bit surprised that you were only expecting 6% component annual growth in data over the next four years, so I was first of all wondering, is that corresponding to your expectation of having 80% smartphones on the network and only producing 6% composite annual growth?

Is that new numbers so to say, related? And within that question also, what is the ARPU you are getting from the smartphones at the moment vis-à-vis the ARPU from the non-smartphone users? That’s I guess question to Ossama.

Ossama Bessada

Okay, on the 6%, okay, I think that’s CAGR, and it pertains only to – not the total data parts, okay, but to what we call the mobile Internet part. The fact that smartphones are exploding, is a little bit – it has a correlation, but it’s not a straight-forward straight line approach.

For example, we have a lot of – just to give you an idea, iPhones on our network, okay, people are using only voice, okay and they’re not using data for the smartphones, just to comment for the LTE strategy, if it will be consuming voice over the data package which will be different.

So that’s why the smartphone driving LTE is a little bit different. However I think, through your point, the 6%, we need to look into the precise drivers, okay because the 6% also seems a little bit low to me, to myself, okay so I think we need to look into the definition of the market on that point.

There was a second point, the ARPU of the smartphones. Okay, if we talk about the ARPU of the smartphones, we see – again, it depends on how you allocate, to be very honest and fair, most of the bundles, okay, have a voice, SMS and data component.

Okay, for that customer, just to give you the entry point on the post paid is about EUR 30, okay, so it does EUR 25 on size and around EUR 5 of income. For the prepaid, okay, the all-inclusive is at least EUR 15 to EUR 16 up. Okay, that’s the one with the one. The allocation because the data, voice and SMS – differs from operator from operator.

And here’s the tricky side. Okay, if you look at the total bill size, okay, I would say that on a prepaid customer, he does EUR 17 ARPU of outgoing and EUR 3 of incoming, okay, on a post paid he does 25 of outgoing and 5 of incoming.

Alex Kazbegi – Renaissance Capital

And the data uplift?

Ossama Bessada

The data uplift – out total data ARPU, okay, if you think about the total base, okay is around EUR 3.5 out of the total ARPU. Okay, that’s an average across the board. So it has been increasing and that’s the average across the board.

Alex Kazbegi – Renaissance Capital

Okay, thank you. Then if I may, the second question was that – so if we have the 6% growth for Italy, and then you show those on your chart for – excluding Italy, you’re looking at about 18% growth in growing all in the same period of time.

So the question is that, you know, whatever happens in U.S. typically catches up with us. So it looks like – in some way your Italian expectation is quite pessimistic, but then everything else is quite optimistic. Is that really the real picture?

Do you think you are exaggerating then a bit? What is the outlook X Italy because that has 18% growth there.

Henk van Dalen

But I also think, Alex that if you look at the slides, those are market projections, right? And the point with the slides was more to illustrate clearly how the profile of this market is not developing with voice, and that data keeps in – and that VimpleCom’s footprint outside the affiliate has a higher data growth than the average of the total global telecommunications market.

So that was really the point being that – if the global telecom makers market grows 20% on data, then VimpleCom X Italy will grow more than that. And so maybe the numbers, you can always – I said that, I think it’s difficult to predict exactly the growth of data.

Maybe this is a little bit of a conservative data source we’ve used. But the point is that we will grow faster than the average data story in the world in our view X Italy. So that’s one point. Another point, just for information purposes, if you look through smartphone penetrations in Italy today, 40% to 50%?

Ossama Bessada


Henk van Dalen

50% - if you look at an average of the rest of VimpleCom, approximately 10%. So – and of course here, we are very well-positioned I think in the number of the markets Ossama talked about as well capitalizing on smartphone growth in these emerging markets.

Alex Kazbegi – Renaissance Capital


Dalibor Vavruska – Citi

This is Dalibor Vavruska from Citi. Just maybe a follow up on this question to maybe put it in a more kind of general and strategic level, obviously, you’re looking at this data which shows 6% growth or literally 12% growth globally which doesn’t seem as impressive as we see from other data sources.

So my question is, at which point would you actually be convinced that the data story is significant after you change your priority or change your thinking? What type of growth rate would you like to see for the company to look at this differently? And also you made an interesting point about the branding and, you know, that this moment you kind of centralized certain function and decentralize the operations and around perhaps a number of different brands.

Again, would there be anything that will persuade you maybe at some point at the later stage to apply the Vodafone model or would you just say that VimpelCom is different and you think that the industry and the synergies work in a different way and this model is better suited for this type of global company.

Henk van Dalen

Okay. I think the Voda – this is my view, this is, of course, a different goal but the way I look at this is that we will adjust and copy with pride. Meaning that if we see data coming, we will gradually free up in lessen funds if we see real good, whatever banking applications, payment application whatever takes off, we will copy with pride.

I think this market right now needs close monitoring in terms of growth, what kind of applications is actually becoming a success, what can we copy, what can we learn from one another, what can we learn from competitors so I think it’s very hard right now to make it all say that data is sort of hitting that number. We’ll do something from dramatic, I think it’s a little bit of a balancing act, applying good judgment and as I said the copy and adjust – that’s the way I would think we will do this.

Dalibor Vavruska – Citi

So, in other words, you don’t believe in first-mover advantage like you put things certain things first and, you know...

Henk van Dalen

I do not believe in first-mover advantages. Maybe that’s a little bit of a harsh statement because we’ve seen some very strong examples that first-mover advantage has been successful, but in general I think in relation right now is less important than keeping your options open and keeping your flexibility intact so I would rather keep my options open without making a huge effect on A or B to see a little bit how this data market is shaping. For that reason, I don’t think necessarily innovation is the most important thing.

Ossama Bessada

And back to the brands. I – in foreseeable future we will look right to copy Vodafone. We have a few years back. I think Beeline was valued as the 65th most valuable brand in the world. So, I mean, we have some very, very powerful brands in the portfolio that – and WIND and other, so I don’t believe in that either.

I don’t think when people – when people travel in Rome and do roaming services, I don’t think they have a good preference really. I don’t – except the wrong brands.

Dalibor Vavruska – Citi

I actually agree with that. I actually agree with that and I think most of us are wrong by assuming that the value of the brand can be monitored. In fact somebody – yes, but, I mean, just on the first question – just last follow-up, I mean, don’t you think that companies like Orascom and to some extent VimpelCom were actually build on the personal rate advantage so basically you are quite substantially deviating from the strategy if you don’t think it’s important now.

Henk van Dalen

Yes, I think Orascom and VimpelCom is built on entrepreneurship and I think that’s – that part we will keep as part of our DMA. I think that ability to act quickly to make decisions close to where they should be and to be real entrepreneurs, I think that should be part of our DMA and that should be part of the DMA and talked 500 people I talked about in – on how to manage people.

But I don’t think necessarily the first-mover advantage is – I think this is a little different from the first-mover advantage. These companies had coming into the markets early with voice penetration, et cetera.

Unidentified Participant

Thank you. Three questions on my side. First of all, regarding Ukraine. The expectations are the economies as you said so – is you hear some issues over here and as more and more pressure are bidding on the currency, if you can give us some color about the exposure that you guys have over there. And we all see (inaudible), we’re seeing prices really hurting the economy and it will have an effect in the currencies.

The second question is Addu [ph] said yesterday on the call that you let the option expired and we’ll see the upside as well as a down side no matter what the result is going to be and just as who they are thinking over there and what you guys expect where the process stands right now.

And third question just going back to Russia, how do you see Rostelecom entering into the market and more aggressively in the coming years and what do things are going to be an impact on the market.

Ossama Bessada

Very good questions. I suggest Henk or do you want to give it a try, Igor? Henk and Igor can sort of decide – whose taking the Ukrainian question and then Elena will do Rostelecom, I’ll do Algeria.

Igor Lytovchenko

Thank you for the question. You’re absolutely right. Ukraine really depends from oil and gas from Russia. And our expectations of price will be fair. And if it will be a really big pressure for every – include telecom market.

As far as the economy situation, it’s a public announced from our government, the expectation grows approximately 4% or 5% for next year. How would they be involved for our business?

Of course, there’ll the additional purposes from outside but at the same time I see as for today, most stable economic situations in previous years special in Kyrgyzstan. I don’t – so big concern as for the situation, it’s expected situation from outside.

Henk van Dalen

So the area of exposure is of course also a certain cash exposure that you probably are focusing on. One of the things that we do with regard to Kyivstar is bring in place a mechanism that helps to frequently stream up cash by dividends so that we’ll limit the exposure to that particular extent but, of course, at a certain moment the Ukrainian government will decide to evaluate against the dollar, that is very difficult to go against that particular exposure.

So the most technical thing we do is make sure that there are regular dividends paid and that there are as much as we can do that within the treaty between the Netherlands and the Ukraine on text – the digital and (inaudible).

Igor Lytovchenko

And one more thing too. I must reassure before (inaudible) for spring next year as our currency will be stable.

Elena Shmatova

About Rostelecom. Of course Rostelecom sometime ago announced their plans to get a higher portion of the overall telecom market chain in Russia but frankly speaking, I don’t believe that in the short-term future they can do something really substantial because – to be more aggressive on the market, first of all, you have to have product which frankly speaking they do not have.

It doesn’t matter whether we’re talking about mobile or fixed, still they have to do a lot in terms of delivering good products. And of course, historically, they were not very, I would say, skillful in terms of packaging their products, in terms of marketing them and so on and so forth. So to build that capability, they also need certain time.

So, again, as I said that eventually in at least in next year, I don’t think that we will see impact of the activities although eventually, if they will build internal team and if they will pursue the route of maybe you’ll see that they made a rebranding so – there can be some options especially if they will go through acquisition strategies and so on.

Ossama Bessada

On Algeria, just to refresh the memory a little better than the – when we signed transaction with WIND Telecom, we entered into an agreement with shareholders of WIND on a risk shared in Algeria. This was an option VimpelCom were given. And that agreement works the following right. You are protected against the downsides and you have to share a potential upside and then we haven’t disclosed exactly how that matrix work.

And then what the board of VimpelCom basically had to do last week was to decide to do the – activate that risk share or do we let it expire? If we activate them, they have to downsize protection but no upsides based on the way we analyze the situation and the fact we have now and of course we developed different scenarios in terms of what might happen the next six months in Algeria.

We felt it was in the best interest of VimpelCom shareholders not to activate. This means that today, it expires. If something bad happens in Algeria, we are in it before. There is a resolution there, we have the upsides benefits basically. So that’s where we are exactly what the content of the conversations are and the timetable et cetera. Unfortunately, we cannot disclose right now.

Torklid – Skagen

Thank you. Torklid [ph] from Skagen [ph]. So, I have three small questions. The first ones are asking the context of being a minority shareholder like most of us are against the two big or three major players. And that’s got to do with to what extent the management act as a guarantor that these capital allocation principles will indeed be followed. And I’m particularly concerned with what you call – that you explicitly say select in Market M&A. Does that mean that you can exclude any outside Market M&A in particular?

Question number two is, if you could spend a few minutes on the management incentives. Number one, for the people in the centralized structure and number two, on the people further out in the group and I would also like you to cover for the central people in the group – any sign-on bonuses and any other things that has been put in placed already for the existing core management.

The last question is just when you made the decision on running a decentralize structure for the group, what was the trade off that you think you made there, i.e., what are you seeing in having a decentralize structure that the likes (inaudible) and Vodafone are missing in running a centralized structure?

Ossama Bessada

Very good. I think probably I should try to – and, Henk, jump in if you like on capital allocation. I think first of all, it’s very hard and silly to sit and give guarantees but what we can do is to give our pledge on applying our absolutely best effort.

And I see no obstacles why the capital allocation principles that we talked about should not be applied and used. We will now focus on generating cash. We will focus on debt redemption. We will focus on paying dividend. That being said, I think also we have a responsibility to develop values within the group. Meaning that if we have a clear in market consolidation opportunity that we believe makes sense, we would like also to – we care on that in turn of events like this that we will explore that and have a look at that.

Transformational transactions now like we saw with WIND Telecom, I personally think it’s far truly. I think we now need time to integrate and time to refocus so I would recommend to any shareholders, any large transactions in the foreseeable future. So that’s on capital allocation.

Management incentives, I think first of all is fully disclosed in the 20-F so it’s very easy to find it there. We have a stock option program that senior employees are part of including the ones sitting up here. Sign-on bonuses to my knowledge, we don’t use.

And I think the incentives are very much targeted to the different operating units, meaning that if you go in and look after bonus program for Russia or for Italy, the bonus KPIs are very much tied to the operating units and to a less extent tied to group targets.

For headquarter, it’s group mainly and then the mirror an average of the underlying operating units. And then the last question, decentralized model. I think this is almost a philosophical question. I’m a strong believer in business being local and I’m a very strong believer in empowerment of people, local brands, customers are different and for that reason, I see a danger in centralizing and I see a danger in bureaucracies and the long decision processes.

And I think right now we need flexibility. We need even though we’re big. We need to act as a small company. And I think we’re going to achieve that to be the model that we have in place now

And in addition to that, I think there’s one fundamental thing and that is we are mega bonds we don’t have a whole market in the Netherland and we are not coming out of a big domestic home operation. Telenor is doing that, Vodafone is doing that, Telefonica is doing that and the whole headquarter from function came out of something that was very close to the core and the beginning of a lot of these companies while we actually moved the headquarter out of Russia to have western jurisdiction and to build something new.

And I think this is a great opportunity for VimpelCom. We can a lean and mean headquarter less cost-structure, organizations, more flexibility and then decide what would like to centralize. And so far there have been a lot of proposals. I can show you about what should decentralized, but so far we have set procurement in roaming, that’s it.

Torklid – Skagen

(inaudible) fourteen. I could expect that you’ll take the responsibility and say no and kind of side with the shareholders and, you know, basically walk in that to let people do whatever they want. I’m just wondering, you would protect us, the shareholders because the other twos probably won’t.

Ossama Bessada

Yes. I want to do what is in the best interest of the shareholders. There might be – let’s assume a situation where we have very good control on our company and we have a very good operation 18 months from now. And I don’t even know – where is sort of the borderline for a transformation deal coming?

Is that a big fine asset in a natural market of VimpelCom to move into? Will they have the capacity to take it? I think we should look at it. If it’s a big blow merger in the middle of 2012, I find that very hard to go through.

Torklid – Skagen

And the other ones also just to clarify. So no one in the current management has received big sign-on bonuses?

Ossama Bessada

Sign-on bonuses to my knowledge, no.

Torklid – Skagen

To your knowledge, that’s a no overall. Yes?

Ossama Bessada


Torklid – Skagen

Okay. Good.


Thank you. I guess (inaudible) credit. I want to ask a question about how we see the Russian market because obviously, the problem in Russia is not only possible like mistakes in the bottle so in that – the market is pressed up. If we look at the EBITDA growth over the three combined and we’ll come to that, with the very new growth at the bottom to 9% probably the EBITDA growth over the last year was about 2% to 3%. And we see pressure in margin not only for you but for MTS and Megaphone.

So, my question is probably about – can you please talk about – what is your sense of scenario for Russia for the next 12 to 18 months? So, do you basically think that the EBITDA growth will more or less match the earlier growth or do you think that we might see substantial field of pressure on margin? Thank you.

Elena Shmatova

Yes. Thank you for this question. It seems to me that’s kind of the whole story which we tried today to deliver is about the fact that of course we’ll do our best in order to improve OIBDA growth versus top line growth. There are in a set of measures which we plan to do. Nevertheless, of course, your question relates to the market overall and the overall performance on the market in terms of marginality.

Of course we’ve seen certain decline in the growth of OIBDA on the market due to several reasons that started, let’s say, with the crisis and then there were new entrance to the markets as Tele2 acting as a discounter and lots of other things. But currently, we think that all the big players now starts acting, I would say, more cautiously and I would think that the markets hopefully will stabilize and in this environment, we have all the actions which we put together can generate better position at least for VimpelCom in terms of relative performance of revenue and EBITDA.

Actually, that’s our idea and the main task of profitable growth.

Alexander Balakhnin – Goldman Sachs

Alexander Balakhnin from Goldman Sachs. I have one question probably a follow-up on the previous one. You mentioned that for the Russian market, the key priority now is on the revenue growth and to the EBITDA growth. And can you probably elaborate what exactly you plan to do not just, I mean, focus at the value at the end or develop profitable growth but what exactly you plan to do to deliver a profitable growth?

And you also mentioned that part of the strategy is to be rational in terms of subscriber – in terms of subscriber acquisition. Do you think over the last six months, VimpelCom was rational or not?

Elena Shmatova

Let me start maybe with the last – with the last points whether we were rational or not in terms of acquiring subscribers. I still think that we were rational because we had to close the situation of us losing market share and losing our position quite quickly.

So of course, the goal defines the means of achievements of that goal. So to this extent, I think that we tried to do the best in a very short timeframe. Of course, one can argue that something could be done better and whatever of course. But this is – that was one of the crucial points for us because we still want to be really big three and not distant to play on the market.

Eventually, talking about specifics, what we call profitable growth. So, let me, again, summarize maybe the whole presentation very brief bullet points.

First, addressing performance of gross margin. This will be done through rebalancing tiered plans and more focus on that tiered plans and promotion of high profitable products like data because one of the parameters which we think will improve our margin performance of course is the increased share of data revenue if we’re talking about mobile stream.

If we’re talking about the sixth side improvements we will come not on the level of gross margin but improvement will come on overall network efficiency level. It also relates of course to the mobile part because the network which we are building right now is common. And utilization of such network should be more efficient than what we had before practically running to federal networks one for mobile, one for fixed and maybe the third one even for FTTB.

Now, we have very strong program of merging that three networks and extracting synergies from that within the country because – I can speak a lot about all the points and possibilities, for example, using our FTTB network to connect node B through the fiber because it stays on the same roof of the building where we connect subscribers and so on and so forth.

So that’s the network capabilities. Then, of course, what was mentioned in the presentations of my colleagues from other business units, it’s sharing of certain passive infrastructure with our competitors and that’s a pretty evident trend. And you know that in Russia, we are using it to a large extent. So we didn’t pay maybe a lot of attention to this today but nevertheless, we know that we are exchanging capabilities of all transport network between big three we built together 4.5 thousand kilometers over the road in far east which is called a more project launch there – our government. So, in all that remote regions, of course, consolidating our efforts will bring us efficiency.

And then the most, I guess, kind of favorite topic today and our activities in distribution. And so whether we are too aggressive or not so aggressive and what we’ll do further.

In distribution, I think that we have a lot of opportunities to improve our performance through different means. First of all, we should improve performance of our mono-brand network and improve our presence in mono-brand network because in the environment where we are switching from active, I would say, land-grabbing to the retention, it’s very important to have quite solid presence in mono-brand because there you can really not only just sell some new services but you should serve your customers. And the customers can come and really receive some additional explanations, some additional promotions of services.

And for Russia actually we find out that it’s very important that – really to show to people some new features of the handsets that they are buying because we were quite surprised when we look into statistics of usage within our network that there are certain people even having iPhones or Blackberries who are not using data at all because they just do not know how to use the features and with the apps store and so on.

So definitely, we will address it through this. Then in distribution of course as I said that we will be very active on tracking so-called contribution margin. Contribution margin is actually gross margin minus daily commission. That’s what we call contribution margin. And so, this parameter should very much balance towards the lifetime value of the customers. We put together the kind of the model how we’re addressing all the channels and I think that we will start seeing results quite soon.

Igor Semenov – Deutsche Bank

Igor Semenov with Deutsche Bank. Can I just follow-up on – you know, you just mentioned mono-brand and so in this regard, I just wanted to ask exactly where you stand with Euroset and maybe talk a little bit about the pros and cons. And also probably would be reasonably significant transaction. So what – if it happens – what kind of approvals would be required? Would it be just board management? Would board be involved or would it be the shareholders?

And second question just is just to clarify on the backbone; can you remind us where you were, maybe, a year ago in terms of backbone? So how much investments you’ve made into the backbone and sort of in terms of how they could grow, you said 33,000 kilometers in Russia?

So where were you a year ago? Thank you.

Jo Lunder

Maybe I can start on your first one and you can take the second part Elena. I think this question explains why it’s difficult to simply give guarantees on no M&A in a company with a concise...

Igor Semenov – Deutsche Bank

Yes in market.

Jo Lunder

Okay. We have an option to buy up to 51% of Euroset and that option expires mid January. We’re analyzing that now. And of course part of that analysis is to look at the alternative costs of rolling out modern brands.

And we will – we can guarantee that we will make a good judgment and we will make a judgment in the best interest of all shareholders. And this will be a decision that the supervisory board of VimpelCom will have to make. And we need simple majority in that board to make that decision.

This means that either Alfa and Telenor needs to agree to it representatives of Telenor or Alfa plus Independent or Telenor plus Independent. That’s basically what is required to make this transaction happen.

So I think you have a very good governance in place there. And in addition to that management role, we’ll make sure that we calculate also in our best possible way.

Elena Shmatova

So talking about the transfer of network, actually I cannot give you right now a precise data on how much we really invested because it’s – all the majority of the exhibitors which we have now in terms of increasing our transport network, they are in exchanging the parts of the transport network with our – with our competitors.

So just to view our own construction for the nine months was not very huge, it’s slightly less than 2,000 kilometers. But the exchange activities, they are – they are pretty high, but they are not kind of monetized.

And so to this – if you’re interested so we can come back to you with the numbers later.

Vive Khana [ph] – Deutsche Bank

Hello, good afternoon. It’s Vive Khana [ph] from Deutsche Bank.

A couple of questions if I may, I guess, first or the first two are related to Italy and I guess this is for Jo and Henk. Just to start off with just – I mean, I – how are your expectations of the medium-term outlook of when Italy change since the time of the acquisition or merger?

Jo Lunder

No, I think Italy is performing in line with what – with what was assumed in the – in the assumptions in the acquisition case.

Vive Khana [ph] – Deutsche Bank

Okay, fantastic. That’s very kind; in fact that’s why the Q3 numbers are actually very good.

Jo Lunder


Vive Khana [ph] – Deutsche Bank

Now, so going back to some of the other things which you’ve talked about in this presentation, one is the cost of debt optimization and the other one is on capital structure. I was just wondering considering where and, you know, with regards to refinancing I think you mentioned that 2013 could be a time where some of the 2017 maturities to be addressed.

You know, even in 2013, you would be paying a cold premium to refinance those bonds. So I guess my question is today, when these bonds are trading, you know, below par at $0.80 on the dollar or $0.85 on the dollar, when the yield to call is, you know, 25% or 30% why is – why are you not considering potentially buying some of these bonds at the market, putting a tender for some of these bonds in the market?

It is deleveraging. There’s no premium paid. There’s no upfront cost and is a positive net income transaction today unless, you know, there’s something that – I’m missing something.

Henk van Dalen

No, you’re not missing a lot of course. The fundamental thing for us is to look at any short-term option also in the context of how you would like to have the group look on the midterm.

So that particular perspective is being developed as we speak. And of course when you decide to go in the market and particularly look at some of those testing instruments, in an environment which is not very friendly for refinancing, then it might come out for the totality of the group as a negative movement.

So we always need to look at, at any opportunity that there is in Italy. And we know that particular position although we do not know how big and how large it could be. And it might be at the moment that you would go into such a proposal, if you would have that very fast, that gap is being closed of course. But it needs to be looked at in the total search of the group.

And that is something that we’re working on and hopefully in the run-off 2012. So that’s a better – total perspective.

Vive Khana [ph] – Deutsche Bank

Thank you. And just a follow up – unrelated if you have to sell Algeria from the use of proceeds, you know, would you be considering – would it be more geared towards potentially buying out some of the rest of your minorities or potentially give your shareholder a dividend?

Have you given that any consideration whatsoever?

Henk van Dalen

I’ll leave it Jo what he expects from the whole discussion around Algeria. But in structure of debt that is the point I can answer. Any cash that comes in as a result of any transaction that you suggest, will have two allocations.

First, in Orascom, it will be used of course to cover running cost as though as if you are there. And secondly there is then the necessity to use that cash to pay down a part of the inter-company loan from VimpelCom to Orascom.

That’s part of the structure. And what, how, if, and when, that’s a lot of guess word, but Jo maybe you want to go into that?

Jo Lunder

I think that was basically what I planning to answer as well that the way the capital structure works; it is at a potential sale and proceeds from Algeria will end up first with VimpelCom because of the shareholder structure.

I think that is completely unrelated to how we should view the value, OTH. So I don’t see those issues related. And I think also there is a very fine balance here in terms of whether we have more information than the rest of the market has with respect to Algeria and trading in OTH.

So there is a quite complex position to have, I think. And I think the answer is basically what Henk said, the capital structure could be beneficial. Probably VimpleCom has given up – like the cash ends up here first.

Alex Wright - UBS

It’s Alex Wright from UBS. The first question I have is regarding 3D license in Ukraine which you mentioned is a priority for 2012. I just wondered if you could get us to – whether there is a specific process that you’re expecting for next year in terms of license issues or whether you may say it’s a possibility to require the existing license from Oger Telecom.

And my second question is regarding the developing assets portfolio which you said were subject to contribution analysis. And I wondered whether there is a specific timeframe during which you expect to complete this analysis and kind of with a firm decision on whether you are going to invest further in those specific assets or whether you are really just holding asset on an ongoing process for each individual asset?

Jo Lunder

Yes. I think Igor can answer the 3G on Ukraine. He is well connected in the country and I think he has a good and clear understanding of the 3G process.

Igor Lytovchenko

Thank you for the question. As for today we feel there’s three different possibilities. One of them we start a discussion with TriMode Company. It’s a daughter company from Oger Telecom. And we are waiting to when Oger Telecom will transfer the whole license and the frequency to this company

And this discussion and negotiation has already started.

And as a possibility, we tried to push our Ukrainian government as for a requirement or technological neutrality because we feel enough 18 and 900 frequency.

That possibility will start to push our government for new license, 3G because we know in the military base has enough free frequency as for today for 3G. And at the same time for next year we already plan to scope our network from 2G to 3G. For us it does not matter as for today which one we will start to develop or from (inaudible) or from 3G?

It will be approximately the same. But as for today as these three issues start negotiation with TriMode, discussion with technological neutrality or requirement of this government and new license kind of a new license is over the structures of our government.

Alex Wright - UBS

Okay. Have you had any initial response from the government regarding the second and third options?

Igor Lytovchenko

You know today it’s too early to make a really – a right answer for you because I think we will receive more information middle of December after discussion with TriMode company, after discussion with government, and military base who are really owner of this frequency.

Today it’s a little bit too early.

Igor Lytovchenko

On the contribution analysis I think we won’t set necessarily a time table on that. I think there are some very good assets there and even if the decision should be to divest some of them, I still think we need to invest and develop in a responsible way until we end up in a potential divestment situation.

So I think right now the whole contribution analysis is more to understand the real potential of these assets and then off to that we will make a decision. And so it might even be a different timeline for the different partial – group or company.

Abby Doray [ph] – HSBC

Yes, Abby Doray [ph] from HSBC. First question is in Russia; only up here was your 26% market share. Your market share has been stabilized in the last three quarters as compared with 2010.

So is it a good time now for you to look at more profitable growth as you mentioned quite relatively strongly, you know, in your presentations? Or do you think you still need to consolidate your position in Russia?

And second question is you mentioned your attempt to reduce for instance CapEx in terms of ratio. And I was wondering for instance again in Russia what will be the assumption you have to take in regarding your competitors in term of investment? And do you think that can provide a constraint for you in decreasing expected CapEx ratio looking forward?

Jo Lunder

If we look at the size of the overall market position in Russia now, I think that’s the size we would like to have. And we believe all the operators should focus now more on customers, product development, margins, retentions, left our customers and move away from the old logic that is about acquisition cost.

And right now I think we transferred far too much value to the distribution part of the value chain. And I think we should take back part of that value chain that I think belongs to the operators. And size-wise I think we have a size in Russia now that justifies that position.

We want them of course as a distant number three. We will of course defend our size if that becomes another round of challenges that way. But we don’t give time to initiate that kind of market tactics.

When it comes to your second part of the second question I think MTS and Megaphone is very different in terms of how much they actually invest, where they build, where they apply 3G, et cetera, et cetera.

And I think our judgment is that MTS looks like they have more the same analysis and understanding that we have in terms of what is required of the number of base stations and coverage areas et cetera.

And it might look like Megaphone at least in our view is a little bit over investing. So I think if you’re going to look at the benchmark, it’s more MTS we’re going to look at in Russia than Megaphone which means that it’s not all that much catch up, less actually on the roll out before we have more.

It’s a little bit, but it’s not – it’s not going to jeopardize the logic of reducing CapEx to revenues in the next three years time.

Unidentified Participant

(inaudible) from Credit Suisse. I have two questions please, firstly on Italy. Last week Telecom Italia were saying that although they weren’t seeing much pressure yet in the consumer segment, the corporate segment we’re starting to see some pressure from what’s going on in Italy.

So first, I was wondering, is that something that matches your experience? And if you could maybe remind us what is the split in your revenues between consumer and corporate exposure?

And then secondly on Russia, again, on the Russian mobile margins your margins are below Tele2 despite the fact that you have substantially more scale. And you’ve obviously talked a lot about the measures that you intend to implement to improve the EBITDA margin trends.

But do you think for example you could get back at both Tele2’s margins? And so what I’m really trying to is get some sort of quantification of where do you think the margins in Russia can get back to? Thanks.

Jo Lunder

For Italy, first the revenues from what we call the business segment is around 11% of the total WIND revenue. We have not seen – we have seen some signs of some bad debt in all honestly, Okay, on the segment.

However Telecom Italia is a different story because they have a huge base of public administrations companies, okay? And the government used to be – we have some of those – the government used to be, let’s say, slow payers, okay. But now it’s a little bit becoming bad payers.

So it’s a different story. Our exposure is not the same as Telecom at all on this site.

Elena Shmatova

Well, talking about mobile margins, it seems to me there’s certain some misunderstanding about our margins because when we are talking about 40% or the margin for example, we’re talking about integrated operator, both fix and mobile.

And we all know that fixed part is, of course, has much less margin than mobile. Tele2 is only mobile operator. So we have to compare apples to apples, our mobile operations to mobile of Tele2, and with this, of course, our margins are high than with Tele2.

So going further we think that – and one of the points which I referred before was that we think that currently the market’s behavior seems to be more cautious than it was before. Part of it is also connected to the behavior of Tele2 because at least they announced that they would like to come to the stage of improving their margins which means that they will be less aggressive in terms of prices and this will bring kind of better conditions for the markets overall.

Victor Klimovich – VTB Capital

Good evening. Victor Klimovich from VTB Capital. May I follow up on the Russia again? Am I correct that actually today we have – we had Megaphone’s result and they once again showed that VimpelComs stayed at the third position in terms of mobile revenues in Russia?

Am I correct that, Jo, as you said previously that you are fine with this position as long as the gap between the first operator, second operator, and the third operator is not significant?

Jo Lunder

Yes. That’s – I think that that’s not important. I understand it’s important because by the most (inaudible) is publishing who is number one, two, and three and there is pride and there is publicity around it.

But for our shareholders I don’t think it’s important whether we are one, two, or three as long as we have a size in Russia that is big enough to apply, a powerful market tactics. And so you shouldn’t end up as a distant number three because then you might be marginalized because of scale disadvantages.

So we need to have a certain size that is balanced. And as long as we have that six, one, two, or three doesn’t matter to me.

Victor Klimovich – VTB Capital

I asked this question because it looks like for MTS and Megaphone, it’s very important which position they have. So when the Megaphone – when VimpelCom started to be more aggressive then we saw the market reaction on that.

And may I follow up on the second thing regarding CapEx. We will see that and we discussed that previously that VimpelCom is lagging behind Megaphone. VimpelCom is lagging behind Megaphone and MTS in terms of network construction in 3G.

And you just said that you will see and wait which kind of solutions will work best and then will invest more if you see opportunities in the market. But on the other hand you said that, Elena Shmatova said that you would like to have more revenues from higher profitable services like data.

So isn’t this a contradiction or how should we read that?

Jo Lunder

Yes. I think that the coverage of 3G, that’s a core product. And long term we will be marginalized if we don’t have sort of a core product that is comparable and equal to our competitors.

So we’re rolling out 3G, as I said, reaching the number of base stations as MTS is having, that is something we need to do in Russia.

Victor Klimovich – VTB Capital

But you are ready to do it – to do this later?

Jo Lunder

Well, we are about to catch up now. And I think by the end of 2012 probably we might reach maybe a little later.

But I don’t think it’s necessary to do it now in three or four months. But we want to reach more or less their size also. To me that’s not wait and see. To me that is part of the core offering to the market. I talk more about a massive bet on E-commerce or whatever acquisition of an Internet content provider, stuff like that, that is very sort of innovative and might be very successful.

That was the philosophy I try to address when it comes to let’s wait and see and keep our options a little bit open in terms of how this is going to develop going forward, what other revenue models when it comes to the core product, coverage, and capacity on data services that we need to have.

Victor Klimovich – VTB Capital

Thank you very much. That’s clear. May I ask a question from absolutely the other side of the world? I would say about Canada.

Now it looks like this is an asset which is struggling to have a substantial growth because of lack of investments. And do you have any plans to invest? I don’t know which amount of CapEx you’re planning to invest there?

Are there any limitations and so on with regards to that? Thank you.

Igor Lytovchenko

Okay, just on the – because I think the first statement is a wrong statement. It’s – we’re struggling with the market for sure because the market is stuck. However, VimpelCom has funded the asset in so far, okay and has provided funding.

I think we have invested more than $100 million so far after the merger. So we have no problems with that.

On another note, we have got good vendor financing facilities, okay that will take our CapEx roll out all through the end of 2012. So that problem doesn’t exist. So it’s not a struggling asset so far, okay?

We have a challenge in the market. I think we have also – we have some internal challenges with the management which we didn’t perceive we’re doing very well. And there has been complete change for the management in the summit. Now there is a new management team in place and I think they are calling on the right jobs. And we expect to see better results moving forward into the first quarter of next year.

Victor Klimovich – VTB Capital

And – but on the other hand, your major competitors, they invest several times more than you do in Canada. So if you – in my understanding – if you want to have any significant market share in Canada, you need to scale up significantly your CapEx.

Igor Lytovchenko

I mean we’re not in all honestly as per our plans, we’re not short of any CapEx needs, okay? Whatever they do is their own story in all honestly. I mean if they buy Spectrum and put it on the roof, okay, that’s their own problem, okay, so I mean which we cannot be held hostages from that.

But in all honesty, all the CapEx that we need for rolling out the network and all the areas that we think are our priority, okay, we are doing that. And we have no problem with that until the end of 2012. Thank you.

Vive Khana [ph] – Deutsche Bank

Hi. Good afternoon. Vive Khana [ph], with a follow please? This is, again, to Henk, please, just a little bit of clarity if I may on the bridge loan which is happening in Italy to pay for, you know, the very valuable 4G licenses.

Now, what I’m sure of the company in Italy and yourselves can probably digest, you know, a 10%, 11%, 12%, 13% interest on, you know, what is a relatively small component of your overall debt profile, I’m still trying to understand, you know, what is your RCF?

What would you pay on your RCF for example or on similar sort of, you know, level of security debt and trying to reconcile that versus, you know, whatever the 10%, 11%, 12%, when Italy would be paying especially considering that this transaction would be accretive and is not, again, reliant on investors either participating in adjustable [ph] churn or tender offer.

And also the color – or the – I believe you announced that you’re close to announcing an RCF facility of half a billion and if – and if the use of those proceeds could be used to help refinance the bridge loan of WIND Italy? Thank you.

Henk van Dalen

First (inaudible) of the bridge loan in Italy is to take it out with their bonds or comparable instrument. So that I think is also the best way forward assuming of course that the markets will be coming to a more relaxed phase going forward. And let’s say the current complexities that we see.

On the revolving current facility structures, VimpelCom Limited and as you see at VimpelCom and we would like to use those primarily for short-term funding needs and then keep them also as a cushion in today’s complex financing markets for possible temporary needs as well.

So we would like to not use these revolvers for any elements that have more structural character. At the same time of course, the particular conditions on the revolver we will bring to the market at the moment that we have finalized the discussions.

Unidentified Participant

We have only time for one more question.

Ivan Kim – Renaissance Capital

Ivan Kim from Renaissance Capital. Given the global trends on termination rates, do you expect these rates going down in Russia? And if yes, what could be the impact on the competitive situations on those on your voice parameters for EBITDA? Thank you.

Elena Shmatova

So terminal – the termination rates in Russia, frankly speaking it seems to me that they are already on pretty low level at least comparing to Europe of course we are much, much lower in this regard.

So we are paying for termination on mobile networks around 95 CapEx which is approximately $3. And on fixed network from 30 to 40 CapEx which is close to $1. So I don’t think that there is any room to further decrease.

But of course, anything may happen. I don’t think that it will have a substantial negative impact on our EBITDA because we are more with the same level of – in terms of receiving and sending the traffic to the other networks. Of course, on revenue, we will see a decline but at the same time, we will see some decline in our costs.

Jo Lunder

I think that ends the session. Thank you very much for participating. Thank you very much for all the questions.

We are happy to answer follow up questions with the IR team. We will also have a team in London tomorrow and in Barcelona on Friday, so we might even meet one-on-one, I think. So have a safe flight back. And thank you very much for coming.

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