VEON Ltd (VEON) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the VimpelCom fourth quarter 2008 earnings conference call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Mateo Millet. Please go ahead, sir.

Good morning and good evening, and welcome to VimpelCom's conference call to discuss the Company's fourth quarter and full year 2008 financial and operating results.

Before getting started, I would like to remind everyone that except for historical information, statements made on this conference call may constitute forward looking statements that involve certain risks and uncertainties. These statements relate in part to management's expectations about the Company's ability to meet its future debt obligations, the Company's strategy and development plans at Russia, the CIS and Southeast Asia, 3G and its fiber to the building development, and take up rate and projections relating to the Company's cash position and capital expenditures.

Certain factors may cause actual results to differ materially from those contained in the forward looking statements, including the risks detailed in the Company's press release announcing fourth quarter and 2008 financial and operating results, the Company's earnings presentation, titled Fourth Quarter and 2008 Financial and Operating Results, the Company's annual report on Form 20-F for the year ended December 31, 2007 and other public filings made by the Company with the United States Securities and Exchange Commission, each of which are posted on the Company's website at vimpelcom.com.

In addition, the Company's fourth quarter and full year 2008 financial and operating results press release and Form 20-F are posted on the Securities and Exchange Commission's website at sec.gov.

VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward looking statements made on this conference call, or to make corrections to reflect future events or developments.

If you have not received a copy of the fourth quarter and full year 2008 financial and operating results press release, please contact FD at 212-850-5600 and it will be forwarded to you. In addition, the press release and the earnings presentation, each of which includes reconciliation of non-GAAP financial measures presented on this conference call, can be downloaded from the VimpelCom website.

At this time, I'd like to turn the call over to Boris Nemsic, Chief Executive Officer of Vimpel Communications. Boris.

Thank you very much. Good morning. Good afternoon. Hello everyone. Thank you for joining our conference call today. Let me introduce the team participating in this call. Here with me are Alexander Torbakhov, General Director, together with me first time in this VimpelCom conference call, Elena Shmatova, our Chief Financial Officer, Kent McNeley, our Chief Marketing Officer, Dmitry Pleskonos, Executive VP for the CIS, Andrey Patoka, Vice President, Head of B2B Russia, and Alexey Subbotin, Director of International Investor Relations.

We understand that this announcement is coming later than usual. 2008 was the first year that we are consolidating Golden Telecom and Corbina, which significantly increased the scale and complexity of our operations. In line with our business practice, we waited to have a complete audit before announcing our results. So we appreciate your patience.

On this call we will discuss our results for the fourth quarter and full year 2008. We will also provide an update on management actions designed to navigate the Company through this period of macroeconomic uncertainty.

2008 was a very important and dynamic year for VimpelCom. In the beginning of 2008, after the acquisition of Golden Telecom, VimpelCom became an integrated telecom operator, offering our corporate and residential customers a variety of voice and data services using a broad range of mobile, fixed and broadband technologies.

In addition, we embarked on a new distribution strategy, working more closely with key retailers and promoting our own channels. We also acquired a minority stake in Euroset, the leading telecom retailer in Russia. The new approach significantly improved our competitive position in the market.

We also developed geographically, growing our business in the CIS countries and entering Vietnam and Cambodia. Our efforts in 2008 were rewarded with a record high net operating revenues of $10.1b, OIBDA of $4.9b and operating cash flow of $3.4b. However, our bottom line was negatively impacted by local currency devaluation when the crisis reached Russia and Ukraine.

We ended the year in a strong cash position and with a set of anti-crisis measures designed to carry us through the uncertain macroeconomic environment.

Let's now move to finance. And Elena will present our fourth quarter and annual 2008 financial results and describe our financial position in detail.

Thank you, Boris. In 2008, VimpelCom's financial results were very strong, with revenues showing 41% growth year on year and OIBDA increasing 35% during the same period.

Our operations in the CIS became a stable source of growth and the acquisition of Golden Telecom opened new opportunities in fixed telecom services. This diversification of our business, both through geographies and business lines, will bring us better stability going further in this potentially tumultuous environment.

While the underlying parameters of our business remained solid during the fourth quarter, we began to see the first negative impact of the crisis on our financial. Currencies in Russia and Ukraine experienced sharp devaluation against the US dollar. The ruble lost approximately 14% against the dollar and [euro] more than 35% if compare exchange rate as of the end of the quarter.

As a result, both top line and OIBDA showed solid growth year on year, though both also suffered in the fourth quarter from currency devaluation and showed a decline compared to the previous quarter. This negative effect was mitigated by good operational performance, which is a confirmation of the robustness of our business composition. Now we have two segments, Mobile and Fixed, supporting each other.

Some decline in revenue in the Mobile segment was partly mitigated by stability in the Fixed business segment and growth in FTTB. As a result, we recognized $2.5b in revenue in the fourth quarter and $1.1b in OIBDA.

In the fourth quarter, our net income before foreign exchange losses and goodwill impairment before tax effects on the stated adjustments was approximately $639m, reflecting solid operational performance.

Goodwill write-offs were a result of the increase in business risk perception. We partially impaired goodwill related to the Golden Telecom acquisition in the amount of $315m in Russia, certain TV licenses for approximately $38m and Ukraine operations in the amount of $90m.

Our cash balance at the end of the year was above $900m, which is approximately $200m more than as of the end of the third quarter.

During the fourth quarter, we also repaid approximately $290m of debt, made approximately $865m of capital investments and spent $478m to fund the acquisition of minority stakes in the Vietnamese joint venture and in Euroset.

In October 2008 we closed a syndicated loan due for approximately EUR550m. As a result of all those activities, our total debt as of December 31 was close to $8.4b which is approximately $440m more than as of the end of September.

In the fourth quarter, our capital investment amounted to $855m. But our CapEx to OIBDA ratio remained flat through 2008 as we continued to increase the last 12 months OIBDA in absolute terms in US dollars despite ruble devaluation.

Our debt to OIBDA ratio in the fourth quarter was 1.7, the same as for the previous quarter.

Our debt structure as of December 31 was very close to what it was at the end of the third quarter with major debt payouts occurring in 2009. 23% of total debt and 2010, 24% of total debt. As of April 30, 2009 we have already repaid $609m which were due in the first four months of the year. By the end of 2009, we still have to repay approximately $1.3b, which is comfortably supported by our projected cash flow for this year.

The strength in our cash position, we secured additional funding. In March 2009 we entered into two loan agreements with Sberbank. One loan is for RUB8b, maturing in 2011 at a maximum 19% annual interest rate. And the other loan is for $250m, maturing in 2012 at maximum annual rate of 13%. The majority of these new loans will be spent on managing our debt portfolio. Now back to Boris.

Thank you, Elena. In Russia, our quarterly revenues in dollar terms, increased almost 27% year on year. In ruble terms, the increase was 40% year on year and virtually flat quarter on quarter.

Our consolidated OIBDA margin was 44%, which is in line with normal seasonal patterns, given the consolidation of the Fixed Line business.

During 2008 we spent approximately $2.6b on capital expenditures, approximately 69% of which was spent in Russia on upgrade of existing infrastructure, deployment of 3G equipment and construction of FTTB networks.

Recent investments in infrastructure and integration of transport networks of Golden Telecom and Corbina Telecom significantly increased the capacity and quality of our networks.

In the interest of prudence, we temporarily suspended a number of our new orders for capital expenditures. We are focusing on projects which are essential for the quality of our services and new initiatives with shorter payback periods.

Our Mobile business in Russia continues to grow. We increased our active subscriber base and now provide services to 47.7m customers. Fourth quarter was particularly strong from a subscriber acquisition standpoint and we sold more than 8m SIM cards in the quarter, including more than 3m SIMs in December. Despite this influx of subscribers, usage by subscribers in the fourth quarter remained flat when compared to the third quarter of 2008, at about 230 minutes per month.

We believe that for most of our Russian customers, mobile telecom services have already become a necessity rather than a luxury. This is supported by fourth quarter results. It showed most of our key operational indicators remaining in line with normal seasonal trends.

While we have seen normal seasonal patterns continuing in the first month of 2009, we must note that this could still change later in the year. OIBDA margin decreased in the fourth quarter, primarily due to three factors, strong seasonal marketing, sales support of new acquisitions and the start of sales of iPhones in October.

Our Fixed Line business in Russia showed very good revenue dynamics and proved to be prepared for the negative impact of the economic slowdown at the end of the year. We have managed to increase our OIBDA margin in the fixed line segment to almost 25% as a result of cost control and synergies coming from the initial integration with our Mobile business. Our offer to our fixed line corporate customers was enhanced with mobile services and solutions, coupled with more attractive commercial conditions for bundled products.

In the wholesale segment, we continued to grow revenues, even in dollar terms. This growth came from increased capacity due to the integration of mobile and fixed networks, and a more proactive sales effort in the national and international long distance communication market.

In the residential fixed line segment, the gradual replacement of legacy products and services with modern broadband solutions continues.

Despite the devaluation of the ruble, our broadband revenues in dollar terms increased as we continued to increase our subscriber base. Our two main technologies, our fiber to the building networks, which by the year end covered approximately 7.2m households in 46 cities of Russia, and 3G networks that we launched in 40 cities. We significantly boosted construction of our FTTB network after the acquisition and integration of Golden Telecom and Corbina.

Recently, we revised our broadband strategy, temporarily suspending new FTTB construction projects and focusing more on sales efforts.

We also made good progress in Mobile Broadband. The trend indicates that we came up with the right mix of product design, pricing and distribution platform. Overall, the residential broadband market in Russia is shaping up to be a bright spot this year. And VimpelCom is well positioned to become one of the leaders on this fast growing market.

Now let's turn to our performance in the CIS countries. Kazakhstan was the first CIS country to face the current economic crisis when a liquidity squeeze hit the local economy back in September 2007. Despite the prolonged economic turmoil, we continued to grow our business, reporting 22% year on year growth, accompanied by strong annual OIBDA margin of above 50%. During the year, we continued to add new customers, growing our active subscriber base at 36% year on year. We increased our market share with minutes of use remaining within normal seasonal patterns.

In Ukraine the consolidated operations grew year on year at 152%. The Mobile revenues increased by 77% on an annual basis, while maintaining positive OIBDA. Throughout 2008 we also managed to increase the size and the quality of our subscriber base. From the year on year perspective, our active subscriber base increased by almost 6% and ARPU in US dollar was up 25%. VimpelCom remains committed to the Ukrainian market. We operate a new high quality countrywide network, providing both fixed and mobile services to our customers.

Our Armenian operations are in good financial shape and continue to deliver stable revenue growth, coupled with sustained high OIBDA margin of almost 50%. Our active subscriber base decreased in the fourth quarter of 2008, as we had expected. However, our revenue market share remains stable, confirming the underlying health of our Mobile business.

In Uzbekistan, in the fourth quarter of 2008, our mobile revenues demonstrated strong annual growth of 74% with an impressive OIBDA margin of above 51%. Facing strong price competition during 2008, we increased our active mobile subscriber base by 71% year on year, including more than 16% quarter on quarter increase, with ARPU showing remarkable stability. With this, we managed to improve our revenue market share year on year.

Now let's turn to operations outside of the CIS. Our entry into Vietnam and Cambodia was one of the key events of 2008. In terms of population, these two countries equal approximately the population of all CIS countries outside of Russia. In both countries we put professional teams in place, established an organizational structure, started network planning and construction and developing sales channels.

In October 2008 we made a $267m cash contribution into our venture in Vietnam. These funds, combined with the in kind contributions made by our Vietnamese partner, should be sufficient for this year's development of the network throughout the country.

In Cambodia, the scale of introduction required CapEx for a lesser extent. The commercial launch of our operations in May of 2009 has already taken place.

Now a few words about the recent organizational changes. Alexander Torbakhov and I joined the Company on April 2. With increasing complexity and scale of VimpelCom's operations, and given the current economic turmoil, the split of responsibilities between two top managers is the best way to ensure a smooth operational transition. A split role capitalizes on the strengths of each manager and will allow each of us to focus on the areas in which we are most competent.

Alexander Torbakhov is an experienced Russian General Director, familiar with all the Russia specific issues. He will be responsible for legal and regulatory, government relations, human resources, security, finance, internal audit. All these issues which are crucial for smooth planning operations and financial stability of the Company.

I myself have a lot of experience as a telecom executive, running both fixed and mobile businesses in emerging and major markets. I will be responsible for operational management in Russia, CIS and international markets.

Concluding our presentation, I'd like to say that this year the Company made a great step forward in our drive to become a leading world class international telecom operator. In 2008 we passed $10b in revenue. We grew to more than 60m mobile subscribers. We diversified our offerings to include fixed, voice and broadband. And we laid the groundwork for expansion to Southeast Asia.

2008 also presented challenges for the Company with the beginning of the economic crisis. We continued to focus on operational excellence, cash flow and debt repayment, to carry the Company through the uncertain environment.

In keeping with past practice, we would also like to give CapEx guidance for 2009. We estimate our CapEx in 2009 to be in the range between 12% to 15% of Group consolidated revenues. Of course, in the current environment, we will be monitoring the situation closely and our Board will be reviewing and adjusting the CapEx plans on a quarterly basis.

As we look forward, we believe that the scale of our operations, our financial position and the anti-crisis measures that we have implemented will help VimpelCom effectively weather the economic crisis. With our strategy and key components of the business in place, we are confident that we will continue to be one of the flagships of Russian industry.

Now let me open the floor for questions. So Operator, can you take over please?

Thank you. (Operator Instructions). And our first question comes from Herve Drouet with HSC -- HSBC Bank.

My first question is regarding the CapEx. You are guiding a relatively strong CapEx cut for 2009. What for you will be the priority in term of the cut? Where do you think you are going to cut more? I think you mentioned the fact on the broadband rollout, it's going to be slowed down in term of the home path. Is there any other area where there will be a lower investment?

And my second questions will be on competition. It looks like you have increased your tariff in some part of Russia. But this move hasn't been followed by other competitors. Do you expect some market share erosion in Russia? And what for you will be the most critical element? Will it be more market share? Will it be more margin consolidation? And if you can, indicate if you see any change of trend during Q1, either in term of subscribers take up or usage. Thank you.

I'll take the first part and Kent McNeley will take the second. We give a guidance for the CapEx in a pretty broad range, from 12% to 15%. We will not cut down -- or the breakdown of this CapEx. But of course, we have some license obligations to fulfill on both 2G and 3G. And we, of course, fulfilling all the quality needs and expansion needs with our customer base. We think that with this guidance we can fulfill all these necessary investments. And especially, we are looking at this very dynamically, reviewing both the amount and the priorities each and every quarter.

In regards to our pricing, in the first quarter, we really played out what our pricing strategy has been for a long time, which has been to focus on an overall stable pricing in APPM terms. We'll have one tariff that we'll have that will be competitive on the market and then we make some adjustments to other tariffs to keep us at a flat pricing. We've executed that strategy. And what we look at is how does it affect the number of active subscribers we have and how does it affect our gross sales? And without going into specifics in this call, we're satisfied with the results we've had so far.

Okay, so does it mean you don't see any change of trend compared with Q4 so far?

No we don't.

Okay, thank you.

Thank you. Our next question comes from Tibor Bokor with Otkritie.

Hi. Tibor Bokor from Otkritie, a financial corporation from Moscow. I have two questions, please. One would be regarding Cambodia and Vietnam. If you could guide us towards how much cash outflow towards these markets VimpelCom plans for 2009 in terms of CapEx or investments?

Second question would be regarding the Euroset. If you could tell us some financial results for Euroset and how does it impact your financials? Where can we see these results in your financials? Thanks.

I'll take the first part. Cambodia and Vietnam, we stated our investment of $267m in Vietnam, which should be enough for financing of the Company network rollout and operations for the year 2009. And for 2009 we do not foresee additional funds.

Very good. Thank you.

Euroset financial results were recognized only of course only our part of their results. We are minority 49.9%. And actually in the press release, in our P&L, you can see a line, equity in that loss of associates. And there you can see a combination of Euroset and other holdings of minority stakes, such as Vietnam.

Is it correct that was $18m for the fourth quarter?

No. On page 15 of the press release you can see that in that line in fourth quarter is $63.7m.

Okay. Thanks.

Our next question comes from William Kirby with Nevsky Cap.

Please could you just go through the trends you're seeing within the main cost items in SG&A? And are we likely to see that continuing to increase as a percentage of revenues in coming quarters? Thank you.

Major cost items in SG&A. You mean whether there is the possibility for an increase?

Yes, what sort of pricing trends you're seeing in advertising and rent, and in the cost of your employees.

Yes. Well first of all, the majority of our costs, especially of course the major contributors to our consolidated numbers is Russia. And in Russia a majority of our revenues and costs are linked to rubles. And so to this extent, of course there will be a certain inflation and some increase in that particular item. But we hope that we can mitigate that impact -- negative impact from the P&L by our measures -- attempt to operational efficiency. And the way we are now dealing with the suppliers is trying to optimize our costs. And specifically talking about marketing expense, it seems to me that we have great achievements. And Kent may talk about this.

Yes. From a marketing standpoint, we have renegotiated a number of our key agreements, including our media agreements with our television channels with the out of home advertisers, the out of home media placement, and our Internet providers, all three. So in the key areas of media, which is the bulk of our spending in marketing, we've made some reduction versus where we were in 2008 and been able to reduce our costs.

Okay. So given that you're seeing those price decreases, are you going to increase volumes so that you are still spending a similar amount in ruble terms or are you going to just not -- to place the same amount but spend less money?

In general, we're planning to spend about the same amount of GRPs, the same amount of media weight. So that would actually result in a decrease in our spending in the absolute.

Okay, great.

It should give us the same media presence that we've had in 2008 and in 2007.

Okay, thank you.

Folks, I'd like to comment on the headcount and HR component of our SG&A. As you know, VimpelCom acquired Golden Telecom last year. And in the fourth -- at the end of the fourth quarter of last year, the integration processes had started. So we made approximately a 5% to 6% reduction in our headcount. And the result of that is not clearly seen in the financials for the fourth quarter, but it's made. So you will see it in future. And also, we've frozen the headcount for CIS countries, so the -- this component will be stable or with slight negative. Thank you.

Our next question comes from Alex Kazbegi with Renaissance Capital.

Yes, hi. Could we talk a little bit on the fixed line side, please? Obviously your business and corporate service revenues fell in Q4. But I was more wondering how does it look in Q1? Maybe you can give us some color on that.

Secondly, on the same sort of topic, on the Fixed Line you've clearly had a very good increase in subscribers in Q4 with fairly limited increase in the revenues, which presumably means that you've signed a lot of subscriber side on whatever, free for a couple of months packages or something similar to that. Could you tell us what kind of margin or ARPU you are observing within the broadband at the moment and also comment on what do you see in Q1 in terms of, again, the take up rates of -- on the broadband subscription? And that would be very helpful.

And finally, I was just wondering, the -- I don't think you ever disclose what was the amount of goodwill which was related to, let's say, acquisition of Golden Telecom. So I was wondering if you can give us some -- well first of all, what was the goodwill amount?

Secondly, if you could also give us some understanding of what was used by the accountants to come up with the $315m whatever it was, of impairment charge. What kind of lock they use? What kind of -- what were the main assumptions? That would be helpful as well. Thank you.

This is Andrey Patoka. We'll start with the first part of the question regarding Fixed Line. At least in the fourth quarter, regardless of the beginning of crisis in Russia, we did not see any dramatic changes in the --

Sorry, I apologize. Can you move up to the microphone, please? Thank you.

Can you hear me better like this?

Yes, great. Thank you.

Well regarding the Fixed Line business, (technical difficulty). Basically, regardless of the beginning of the crisis, in the fourth quarter we did not see any negative changes in our business. On the contrary. Due to the specific price structure that we apply on the Fixed Line services, we've even managed to retain the volume of the revenues in dollars on the level that we expected.

As far as the first quarter is concerned, as the crisis deepens in Russia, we see certain effects on the operations of the -- the picture generally is that we do not see any churn in the customer base. But we see that the consumption of the services is slightly lower, especially in certain segments of the economy which were mostly hit by the crisis, such as mass media, financial sector, some others. So this is as far as Fixed Line and Corporate is concerned.

Could you please--

There were several questions.

It was on broadband, please. Take up rate broadband.

Take up rates, marginal ARPUs and so on.

The take up trend in broadband is exactly like we were planning. We see the continuous growth of the number of subscribers for the broadband services in all of the cities where our networks have been put into operations. As Boris said, our focus this year is to spend our effort mainly in the intensification of the sales in those cities where we have constructed the broadband networks and virtually cover now more than 7m households.

Just one other thing I would add to that is that the broadband numbers that are in the presentation include not only those from fiber to the building, but they also include those from mobile broadband. From our USB modems that we're selling and we sold those very actively during the fourth quarter. So a significant portion of the increase that you see in subscribers are due to the additions that we had in that quarter. And much of the revenue of that, you'll start to see that impact in future quarters.

But the USB modems -- the mobile revenues from the USB modems are recorded as Fixed Line revenues or as Mobile revenues?

No, they're recorded as Mobile revenues. But in this Broadband revenue and in the broadband subscribers, it's also counted there.

Right. Okay.

The point of this chart was to give an indication of the significant presence that we're building in the overall Internet market.

Yeah. Now that understood. Could you then maybe split the what kind of ARPUs you see for either of those?

At this point we're not breaking them out. We may do that in future quarters.

All right. But the overall trends which we saw in Q4, you're saying they are continuing into Q1.

We're saying we're continuing to see positive dynamics in Q1, yes.

All right. Thank you.

Thank you. Our next question comes from Alexander Balakhnin with Goldman Sachs.

Hi. This is Alexander Balakhnin. Actually there was a third question of Alex regarding the goodwill assumptions. Could you probably answer this before I ask my question?

Yes. Good impairment charge in Russia fixed units was attributable to the use of higher discount rate of 17% for ruble denominated cash flows compared to 12.8% used in the original valuation for Golden Telecom acquisition. And of course, the lower projection to future cash flows due to the negative impact of the current crisis. Actually, we assume that there will be practically no growth in major segments of the operations except FTTB. With FTTB, we still consider that we will see growth. But again, the assumptions were changed to a more conservative approach.

And my question is on the margins dynamics. In the fourth quarter EBITDA, in Russia in particular, suffered from higher sales and marketing expenses. And it was understandable, given that you had quite a healthy increase in subscriber base. But in the first quarter you also have an increase in subscriber base. So should we expect that the pressure on the profitability will continue, or you manage to renegotiate your agreements with retail dealers like you did with media companies?

And my second question. Overall, for 2009, am I understanding you correctly that, yes, there is a pressure from the crisis on the profitability but you will -- overall will try to mitigate this pressure by cost cutting, etc.? So you don't expect a huge deterioration of the profitability year on year or off cycle?

Taking about the margins, I think that when you compare the fourth quarter this year with the fourth quarter of past year, the only common -- one common thing is you have Christmas and the New Year always in the fourth quarter, so the margins are lower.

Compared these two quarters, what is the difference in 2008? We started to sell also iPhones which you cannot call high margin business. So you have to account for this also.

So we think that the results in the fourth quarter, both on the margin sides in Russia have been pretty good. We do not want to comment anything about the first quarter because this should be focused on the year 2008. But it's completely in-plan, how we planned the year 2009.

Thank you.

Our next question comes from Dalibor Vavrushka with ING.

Oh hello. Good afternoon. I have maybe some more strategic question to Boris if I can. First of all, when you came to the Company, obviously one of the key issues to deal with was these fourth quarter results and the discussion with the auditors. Obviously one approach would have been to take really conservative approach and write down a little bit more of the goodwill. I think that there's been some expectations of -- given the market repricing of all assets in Russia since the acquisition, that the impairment could be a little bit higher to clean up the balance sheet as much as possible. And it didn't seem to happen. So I'm just wondering if you can give some thoughts on pros and cons of this kind of solution.

And the follow up on that would be what would be your key priorities of the first couple of months? Is it focused maybe on the distribution problem in Russia? Maybe is some other issues in Russia, this entire crisis or cost issues, or are you going to be looking for -- into the expansion opportunities? So what are the maybe two or three main points that you're planning to focus on at the -- right at the beginning? Thank you.

Thank you for the strategic question. I will share the first part, together with Elena. First, my very personal view that I think that the view of the market to the assets in the East has been in the November, December, January, February, almost panic. It was nothing real. And I think I proved it personally as I came here exactly in the middle of this. So I believe in this market. So for this, I think that the prudent but realistic approach is the right one. And this is definitely defined, not by myself alone, but by the team. And I will hand over to Elena to give some more insight.

Yes, exactly as Boris mentioned. We wanted to be realistic in this regard. Just not to be over pessimistic or over optimistic. But really we move to aim to a very detailed -- into all spheres of our Fixed Line operations in Russia. And as I said, we've projected, I would say, cautious approach in the coming years, which we assume will be, to a certain extent, impacted by the crisis. So we postponed the growth to a longer -- later period. So that was one of the approaches.

And the real calculations show that that's really what we see now, again, to the best of our knowledge of the current situation is exactly what we reflected in our financials. So--

Can I ask maybe Elena on this, when you were buying Golden Telecom, using your approach at that time, what kind of premium? You paid, including the Corbina minorities, around $5b. Did you see the value significantly higher? So I'm just trying to see how much your view on this valuation of Golden Telecom has actually decreased with this new impairment test compared to the time when you were buying the assets.

Dalibor, first of all yes, you know that we paid for Golden $4.3b, and that -- in this we anticipated that of course there will be a no such huge impact of the crisis on operations and we will continue to see growth in business segments because of course this field still has very great potential in which we believe. And also, actually, currently, in our considerations of the impairment now, we also see very positive moments that for example certain portion of our contract with business segments are linked to US dollars, which helps us a lot to show more stability. And if we calculate our cash flow in ruble, so that gives us certain prudence in all the assumptions and takes kind of out, at least some portion of the risk of the devaluation of ruble.

Okay.

Yes concerning the key priorities and I think that you have seen in the set up of our presentation what is our focus. I will just go briefly through it. One of these is operational excellence and under operational excellence you can count the cost control, you can count the integration of the assets we newly acquired in 2008. So all of these should lead to a strong cash flow generation and this cash flow has two aspects. One of them is you saw that we reduced the CapEx significantly. CapEx of course being most in hard currency and new went from 26% CapEx to sales to the projected 12% to 15%, which is underlying this strong cash flow generation. And out of this, of course, the debt repayment, which was, I think, explained very in detail by Elena. So I think that these are the main points of this year.

The third one, which is on the let's call it growth side, this is the launch of Vietnam and Cambodia because this is a completely new business for VimpelCom, being until now in Russia, Russian speaking countries. And so these are the focuses of the management.

On the other side, good news, the 2009 half of the year has almost passed. So we know where we are heading and we are on -- in plan with this.

Oh. Thank you very much.

You're welcome.

Our next question comes from Alexi Soroca with BNPP.

Alexi Soroca with BNP Paribas. I have a specific question with regards to your debt covenants. Perhaps you can, if you already mentioned them in the previous calls, refresh them?

And secondly, a comment, where you are vis--vis their quantitative parameters and perhaps you can voice those parameters for me, at least for 2009?

Ah, well, in terms of covenants, we can say that we are absolutely in line with all the requirements of the agreements. We are not in any shape or form of violation of the covenants and actually I'm not quite sure what is the question.

Well, can you tell me which bank facilities contain covenants and mention financial covenants that you have to comply with for 2009?

Oh, there are certain. Well, of course there is different sets of covenants. In many agreements we have a covenant. For example, debt to OIBDA, which should be below 3 and then certain agreements. We have covenants on a level of equity, but practically, there is -- those are the major ones.

We are fulfilling all the criteria easily.

Right. So you said -- can you like list -- I'm talking about financial covenants. Obviously there is a whole range of other covenants that you have. But in terms of key kind of financial leverage coverage, equity, can you quantify them?

Yes. I said debt to OIBDA should be below $3b and we are well below that. So currently we are 1.7.

Yes.

And in certain agreements, we have equity level $3b. We are above it.

Yes. That's $3b.

Yes.

Okay. Coverage?

Interest -- OIBDA to interest, 5.

5 times?

All right. And is it tested quarter, annually? It's quarterly, I presume, right?

Quarterly, yes.

Quarterly. Okay. And there's nothing else? And debt, by the way, that's net debt to OIBDA, right? Not total debt?

Total debt.

Total debt.

Total debt. Okay. All right. That's great. Thank you so much.

Our next question comes from Nadezhda Golubeva.

Hello. Yes. This is Nadezhda Golubeva, from Unicredit. I wanted to ask you about price environment. You raised prices from March 1st while your competitors seem to keep them unchanged. What's your feeling about the price discipline? Do you see the risk that your competitors, possibly in the regions, or maybe major competitors, are trying to drop prices in order to gain market share or why else do you see some hidden price increase, or attempt to increase prices? I mean, in ruble terms, in the market? And so if you could talk about your like vision on what could be the price ramp, say, in the next quarter or so? And what are the key risks? It would be very helpful.

And also related to this price question, do you think you could defend your subscriber base given that your prices are above those of competitors, if they are so? And what makes you believe that you will be able to do so? Possibly if you could talk about how important is your 49% ownership in Euroset and sustainable is the leverage you can -- you have seen in terms of the market share?

And so this is the first question about prices. And the second question is about broadband. Could you possibly break down your broadband household part into Moscow since we just book on regions? Thank you.

Okay. First of all, on pricing, as I said earlier in the call, our strategy, our fundamental strategy is to, to the best of our ability, maintain stable pricing. And within that, we continually monitor the number of active consumers -- active subscribers that we have, the gross sales that we're making from new sales that are coming in and our churn levels. And the -- all of those parameters, we feel are in good shape.

We're in good shape in the fourth quarter. We had, as we reported earlier, an excellent fourth quarter in terms of gross sales. And the trends, fundamentally, have happened as we've come in to the first quarter as well.

We have not seen any of our competitors dive in a major way yet. And frankly, the overall pricing environment in Russia has been relatively benign over the last couple of years. So there's nothing to indicate that that's imminently going to change. Obviously, we'll continue to monitor and watch that carefully.

In terms of Euroset, Euroset is a piece of our overall distribution strategy. And we've talked about, in the past, that there are really a number of components. In addition to the minority interest in Euroset, we also have worked to shore up other national accounts and our position in other national accounts. We have worked to increase our own branded retail, particularly through the booths that we've built and we have continued to work to build relationships with local dealers throughout Russia.

This balance overall, which includes both multibrand and monobrand positions, has on balance, worked out very effectively for us. And while Euroset is an important piece, it's certainly not the only piece that is having an impact on our overall position.

Can I ask for some clarification? So on -- in March, you raised prices, yes? And so your competitors kept prices unchanged. So does it mean that you just brought the prices in line with the market? Or do you believe that you are able to charge some premium due to what else is that you have, yes? And so in case you think that your prices are below or in line with competitors, do you think as there is room for further price increase, could you maybe talk on this please?

Yes. First of all, I think your perception that competition has not raised pricing is not entirely correct. Each of the major competitors has raised pricing to different degrees, certainly. But each of them have raised pricing and that goes beyond, frankly, the three largest operators.

The second point I would mention, again, is that in addition to the fact that we have made some upward adjustments on some of our particularly legacy tariff plans, we also have worked to be sure that we had a competitive offering at all times on the market. And therefore, we have continued to be able to see good gross sales performance in the fourth quarter and carrying on into the first.

And if I may interfere, sorry for that, but we are planning to announce our financial results of the first quarter '09 shortly and today we want to focus on the matters related to the fourth quarter and the full year '08. And once we release the first quarter numbers, we can discuss the current trends in greater detail. I think that also our competitors will release their first quarter results then and we will have a comprehensive picture. But we are very easy on this side.

(OPERATOR INSTRUCTIONS) We'll take our next question from Denise Molina with RBS.

Hi, thanks for the call. Just a question on growth. In terms of the 7m home paths for fiber, how many of those do not have broadband at the moment and have PCs or some sort of computer under your estimates?

And do you expect to increase CapEx next year for the broadband expansion and also for Vietnam and Cambodia? I understand that this year you're focused on cash management.

Concerning Vietnam and Cambodia, we announced what we are planning for 2009 and that's it. Of course, the further years we don't want to comment now and they are very much related to the results of the first operational quarters in their respective markets.

Considering the development of broadband fiber to the home, the amazing number of 7.2m households passed is, in my knowledge, one of the biggest networks in the world considering the households passed. So we definitely are in a very comfortable situation that we focus more on sales. Meaning that the households passed should be served. This is a minimal CapEx to bring it from the roof, from the basement, into the home. So we are in a very lucky situation that we invested on the right time, meaning 2008, and we are benefiting now, 2009, out of it.

In my knowledge, but can also say it, I think that overall households in Russia are roughly 60% have a PC.

I'd like to intervene. In Moscow, the figure that Boris said is correct for Moscow and for the big cities. As far as the regions are concerned, there, the penetration of PCs in the households is lower.

Okay. And how many of those are currently broadband subscribers? I'm just trying to get at the number of potential customers that aren't already served by your competitors that have PCs of that 7.2m?

I don't know that we can give you an exact breakdown on that. It varies quite a bit by city. In Moscow, for example, the penetration is much higher of the number that would have broadband. In St. Pete it's high, but not as high a Moscow. But in most of the rest of the cities in Russia, the broadband penetration per se, is fairly small at this point and therefore, since we are expanding into a number of cities. We have a, we think, a very strong potential. And in addition to the fiber to the building, as we mentioned earlier, we also count as a very important part of our overall broadband strategy the mobile broadband component that comes through our USB modems. And that's something that can reach really throughout Russia and will often even be a second broadband connection in the home.

Our next question comes from Victor Klimovich with VTB Capital.

Yes. Hello. I have a question on probably you will shed some light on the traffic trends in the first quarter. I know that you don't give a guidance for the first quarter, but maybe just some ideas. Was it stable? Was it increasing? Or some kind of this information?

And the second question, very small, on the fourth quarter results regarding equipment sales in Russia. So you mentioned the figure -- the total figure for all your countries. Can you please give us a Russian figure on equipment sales? Thank you.

Excuse me, on equipment sales?

That's devices.

iPhones.

iPhones and USB modems.

Yes.

Okay. Just to answer the first part, we see that, as you mentioned, in the presentation that the minutes of use are flat. So you can consider it as good news or less good news, but we see it as a pretty good news because, of course, the networks can service in high quality. And coming to the point that we added a tremendous number of subscribers last year, having a penetration rate in Russia of 132%, the customers we are come -- which are new customers getting in there, of course, not heavy users, and despite of that, we kept average minutes of use constant. So I think this is a good news.

Concerning the equipment sales?

Yes. The equipment sales, if you look on page 15 of the press release, equipment sales are broken out for the fourth quarter, $64m. And that, again, that was a combination of iPhones as we started to launch iPhones. So we had some of that is actually filling up the pipeline as well as off take and as well USB modems.

Yes. But can you give us maybe if you don't have the exact number, but can you give us an idea of what part of these equipment sales came from Russia, particularly? Not all the CIS countries?

It's virtually all in Russia.

Ah. Okay. Okay. And as a breakdown, approximate breakdown, between iPhones and 3G modems?

iPhone is much more expensive.

Yes. But I mean -- yes, but probably the sales are lower so?

Contractually, we're not allowed to comment on the specifics of the sales of iPhones, so we can't break that out for you.

Our next question comes from Alex Wright with UBS.

Yes. Thank you. I just had a couple of questions on the Q4 numbers please. First of all, of the CapEx in Russia in Q4, can you just break out roughly how much of that $642m was invested in fiber to the building? And also, I was just looking through the release. I don't think you've broken out the stock option expense or reversals in Q4. Apologies if I have missed that. But can you just clarify what that was please?

CapEx, actually we are not breaking it to that level. Of course we only can break it to the country level. And the second question about stock options, I just missed it. What is it?

The impact of stock options.

The impact of stock?

Stock options. The stock options that we paid.

Just on the --

Could you repeat the part of this question?

Yes. Yes. The -- we recognized in 2008, stock option these kind of liability methods. And so the fluctuations of the shares is price. Share price also impacted our calculation of accruals of -- on our stock option lend. So what was the exact question?

Of course, the shares in the fourth quarter went down, so we had some reversal of the previously accrued amount.

But can you clarify how much that was because you'd broken it out in previous quarters and I couldn't--?

Around $45m.

Okay. So similar to the third quarter then? Okay. Thank you.

Our next question comes from Evgeny Golossnoy with Troika.

Yes. Hi. Just wanted to go back to the question on your goodwill impairment. I'm kind of puzzled. We're at some kind of very concrete and specific benchmarks against which you can measure the degree to which the asset prices have fallen and one of them is the fall in prices of managed telecom companies. And what I'm saying is that if last year you decided to write off, or to impair, roughly 10% of your investment in Golden Telecom, where the whole -- the rest of the market has fallen 70% or 80%, does that mean if you stick to -- if you change your guidelines, or your benchmarks in 2009, you will have to write off more of Golden Telecom goodwill?

No. The benchmark what you are referring to is exactly what Boris mentioned in the -- in his reply to that question that the market has kind of perception on what is right and what is good. And impairment is based on discounted cash flows and future cash flows. And so these two items kind of may not be similar. So we may change our assumptions for impairments. Only if we will see changes in the markets and that will lead to the changes in the assumptions for our cash flow projections.

Okay. But could I have a follow up question then? Well assuming 10%, 10% impairment charge, you essentially -- what you are saying is that the cash -- the revenue generation potential of Golden Telecom decreased just 10% as a result of, let's say, financial crisis. But in fact ruble has fallen more than 30% already. So how can that be?

No. First of all, we are calculating it based on ruble denominated cash flows.

And ruble--.

What does that change? Are there no--?

No, because then you will not see kind of the impact of ruble/dollar devaluation. It becomes a slightly different story because actually, again, as I mentioned, that's part of our contracts in business segments is linked to US dollars. If the ruble devaluates, of course, you will see that as increase in ruble in ruble revenue.

Of course there will be some kind of different considerations to which extent we can go further with that -- with all that assumptions. But currently, our understanding of the situation exactly is reflected in this level of impairment.

Okay. Thank you.

We'll have time for two more questions. And we'll go next to [Elena Samantanko] with Credit Suisse.

Yes. Good evening. This is actually Olga Bystrova from Credit Suisse. My first question is about your distribution strategy. Given what you have currently negotiated as well as some agreements articulated in the press on, I would say, potential seasonal agreements, etc, how do you view the breadth of your distribution in Russia? Do you think you still under invested into it? Do you think you over invested?

And in addition to that, given Boris's experience in a number of markets, do you think you will have to continue to pursue a multibrand distribution strategy or you will end up with monobrand rather? Or exclusive?

And the second is a follow up on CapEx. You mentioned that in the CapEx numbers you have some commitments on 2G and 3G licenses. Is your guidance include only commitments? And what is that magnitude, basically, of the commitments? Or the CapEx guidance also includes some discretionary CapEx, depending on let's say, revenue growth, etc. Thank you very much.

I'll start with the second question. Of course it's not only commitments. These commitments are more of a legal nature, due to the fact that we have to launch commercial operations in the regions of Russia and we have also a second checkpoint, which is in April 2010, with a particular number of node Bs to be installed in the 3G network, in commercial operations. So we have to work on this continuously. But this is, of course, far away from the overall CapEx number.

We think that with this CapEx number, we can firstly ensure absolute high quality operations for our customers. If we have a growth on data and all this stuff, we can work with this. And of course on the other side, I said one of the main goals for us is cash flow generation and debt repayment. So this is the balance we will achieve.

Coming back to the retail strategy, we will not give our -- will not give competitors, with respect to competitors, our retail strategy on the conference call. But you can be sure that we have a very balanced approach and Russia being such a huge country, with such a -- 82 different markets, I don't think that one size fits all and I don't think that just focusing on one item, monobrand or multibrand can be successful.

I think that we have to be very, very sensible of making the best for the customer, making the best for our sales and for the time being, I think we are in a very good position.

Oh. Okay. Thank you very much.

And to just sort of follow up on the CapEx, can -- could you suggest what the legal commitments, the magnitude of the legal commitments for '09 for you? Thank you very much.

No, no, we cannot because this is not a legal commitment in money.

This is a commitment of launching the service and it depends what your contact with the vendor. And we have different vendors, so this is -- cannot be quantified this way.

Our last question comes from Vladimir Postolovsky with UBS.

Oh. Good afternoon. A question -- a couple of questions, if I may. The first one is, could you comment on your performance relative to -- or UMMTS performance relative to Megaphone? The market shares already seem to have converted, but then gaining market share doesn't seem to change what you would expect, maybe, when your market share equalizes. Why are they still gaining market share? What is wrong on for UMMTS?

And the second thing is kind of same. We talked about it quite a bit already today. You are setting changes in the distribution strategy for the market as a whole. I mean, I don't think it's coincidental, but both in margins and in pricing of services, there seems to be significant deterioration of market discipline that has been great until you bought Euroset. So my question is do you believe it's coincidental? And if not, what can you do to stabilize margins and prevent your competition or both your competition from lowering prices in order to respond to what you have done?

I guess that's all. Thanks.

Commenting first on market share, certainly during the course of the year, Megaphone did make some progress, although in the fourth quarter, you may want to go back and review the Megaphone numbers in a little bit more detail. Because the fourth quarter numbers include a very high amount of equipment sales, which I think, if they're not carefully analyzed, can be somewhat misleading. And I think as we go forward, the impacts of that will be clearer and clearer.

And the question on distribution?

I think that this is very, very difficult to judge from one side. I think that every operator is looking to optimize his distribution power and this is, of course, a moving target all the time.

I would not say that the acquisition of Euroset is the trigger for some non-logical moves. And as Kent said before, there have been price increases with all the major operators. One of them made it more communication part, smartly, then another one more open. It depends, of course, on other stuff. And we see that our competitors are moving more to monobrands, which is fine. It's their business.

We still see that the Russian market is pretty, I would say, good and normal one compared with my experience from Austria now and this is a paradise.

Yes. Unfortunately, it might be paradise lost. But we'll have to wait and see.

Oh, no, no. It has to be a good and a sustained paradise. But if this was the last question, it was really a paradise won.

Thank you very much.

That does conclude today's question and answer session. At this time, I'd like to turn the conference back over to Mr. Boris Nemsic for additional comments or closing remarks.

Thank you very much. Thank you all for participating in our call. If you have more questions, please contact our investor relations service. And goodbye and good luck.

Thank you, ladies and gentlemen. That does conclude today's call.