VEON Ltd (VEON) 2010 Q2 法說會逐字稿

Please stand by; we're about to begin. Good day everyone and welcome to the VimpelCom second quarter 2010 earnings conference call. Today's call is being recorded. At this time I will like to turn the call over to Alex Tremont of FD. Please go ahead.

Good morning and welcome to VimpelCom Limited's conference call to discuss the Company's second quarter 2010 financial and operating results.

Before getting started I would like to remind everyone that, except for historical information, statements made on this conference may constitute forward looking statements that involve certain risks and uncertainties. These statements relate in part of one, expected synergies in our Ukrainian operations; two, the Company's 2010 capital expenditures; three, the Company's future liquidity, revenues, margins and cost of debt savings; and four, 3G allocation in Ukraine.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements including the risks details in; one, the Company's press release announcing second quarter 2010 financial and operating results; two, the Company's second quarter 2010 earnings presentation; three, the Company's registration statement on Form F4 filed with the SEC; four, OJSC VimpelCom in the report on Form 20F for the year ended December 31, 2009; and five, other public filings made by the Company with the SEC each of which are posted on the Company's website at www.vimplecom.com.

In addition, the Company's second quarter 2010 financial and operating results press release and Form F4 and OJSC VimpelCom's Form 20F are posted on the SEC's website at www.sec.gov. VimpelCom disclaims and 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 correction to reflect future events or developments.

If you have not received a copy of the second quarter 2010 financial and operating results press release please contract 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 measure presented on this conference can be downloaded from the VimpelCom website.

At this time I would like to turn the call over to Alexander Izosimov, Chief Executive Officer of VimpelCom.

Thank you very much. Hello everyone. Thank you joining our quarterly conference call today.

Let me introduce the people participating in this call. Here with me in Amsterdam are Henk van Dalen, our newly appointed Chief Financial Officer; Dmitry Kromsky, Head of the CIS Operations; Taras Parkhomenko, Chief Marketing Officer of Kyivstar; and Alexey Subbotin, our Head of Investor Relations. Elena Shmatova, who runs our business in Russia has joined us from Moscow, together with Martin Furuseth, our Chief Marketing Officer in Russian.

On this call we'll discuss the operational and financial results for the second quarter of 2010.

Overall, during the second quarter, business was up across all key segments. Our margins stayed high at 14% with operating cash flow exceeding $1b for the quarter and amounting to $1.8b for the first six months of the year. The numbers reflect positive market economic trends and industry development, and naturally, we return to more normal investment levels shifting attention from cash preservation to growth.

During the last quarter we put in place a new logical and straightforward structure with four business segments - Russia, Ukraine, CIS, and Southeast Asia. We've even split of competencies and responsibilities between different management levels and launched Amsterdam's headquarters, which we intend to keep very lean.

Recently, Henk van Dalen joined us as the CFO of VimpelCom Limited while Elena Shmatova took over as the General Manager in Russia. More than ever before I'm certain that the full evolution of VimpelCom will depend on our ability to attract and retain the best managers and make sure that they realize their potential in full.

With this I'll pass the floor to Henk who will describe the Group financial performance. Please all welcome our new CFO Henk van Dalen.

Thank you Alexander. It's certainly an honor for me to be here today. VimpelCom is a great company with lots of amazing opportunities and I'm sure that we will be able to capitalize on many of them.

Today we present the consolidated financial results with Kyivstar's operations incorporated starting from April 21 when the transaction was effectively completed.

As you can see on the slide the quarterly dynamics were strong for revenue and OIBDA. We improved the consolidated OIBDA margin mainly due to seasonal trends, good performance of Russia and CIS, inclusion of Kyivstar, and despite a negative ForEx effect.

In line with seasonal trends, the revenue increased 7% year on year for the second quarter. On a like for like basis, to more than $2.6b.

We maintained high profitability with consolidated fixed and mobile OIBDA of close to $1.3b and the best in class margin of almost 48%.

We intend to maintain these levels of profitability and cash generation, which we see as a foundation for further business development and improving shareholder returns.

The Group's net income this quarter declined to $335m due to a year on year negative ForEx effect of around $450m on a pre-tax basis.

Although the VimpelCom Limited transaction slightly affected our return on capital employed in the second quarter, going forward we intend to keep this parameter at the targeted level of above 20%.

Now I'll take you into the Group financial position. As you can see on the chart our liquidity position is extremely strong. Consolidation of Kyivstar significantly enhanced our free cash flow yield and we expect the free cash flow yield to improve further once the integration of our two businesses begins.

The total debt to OIBDA ratio also improved substantially, declining to 1.4, while the net debt to OIBDA ratio is even below 0.9.

During the quarter, we substantially stepped up investments to capture re-emerging growth opportunities across all markets where we operate. We expect consolidated CapEx for the full year to be in the targeted range of 15% to 20% of revenue.

Financing of the investment program can be easily done from the cash we accumulated on our balance sheet. However, we are constantly in touch with the credit markets exploring various opportunities to optimize funding.

So now let's look at the consolidated debt position. As promised, we continue to optimize the debt currency structure in order to align cash flows and outflows; cash in flows and out flows. By the end of the second quarter the proportion of ruble debt increased to 30% compared to 7% a year ago in the total debt composition.

For the most part, it has been achieved by scheduled repayment of our dollar denominated debt. As of today, we repaid more then 88% of our debt due in 2010, bringing the net debt of the Company to less than $4b.

In July 2010, in order to finance the squeeze out of VimpelCom Limited, raised $470m as a bridge loan from a consortium of leading international banks. We plan to repay this debt from our cash flow, or refinance this facility in the near future.

We have established a consolidated treasury function in Amsterdam to manage our balance sheet and cash flows more efficiently. Given the size and scale of our operations, we expect to achieve significant cost of debt and liquidity improvements over time.

I'm going to pass the floor back to Alexander again, present the operational and financial performance in each of our business units, starting with Russia.

Thanks, Henk. Let's now look at the financial performance in Russia. Our quarterly revenues here amounted to almost RUB62b on the back of continuous macroeconomic recovery and strong seasonal trends.

We can say that the Russian telecom market has resumed its growth as we see encouraging signs like increase in voice and data usage, high penetration of smart phones and growing demand from corporate clients.

While sustaining our competitive proposition in the voice market we observed that the focus of competition is shifting towards data. This shift, while opening ample opportunities for growth, must be managed properly to create value before we continue with our policy of efficient investments.

Our ROIC parameter, return on invested capital, has been steadily improving over the past 18 months to reach 33%. Going forward, we intend to keep it in Russia above 30%.

Now let's look into the operation. Our active subscription base reached almost 51m. We're sharpening our focus on its quality.

The quarterly increase in MOU follows seasonality and relatively calm competitive dynamics reflected in stable pricing. As a result, quarterly ARPU demonstrated growth of 7%.

We increased our fixed and mobile broadband customer base by 7% and observed continuous increase in demand for data services in both segments. To accommodate this, we substantially stepped up investment in data networks.

However, as I mentioned before, despite a significant growth potential, the proper value accretive pricing model has not been worked out yet. Therefore, we are in a process of assessing all the elements of the data opportunity.

In the fixed segment, we continue to increase our customer base and achieve revenue growth in ruble terms of the first time in four quarters. The corporate fixed line market in Russia is undergoing structural changes with increasing voice data substitution accompanied by a significant price adjustment.

During the second quarter we achieved good progress in the mobile B2B segment, especially in the regions. We continue to cross-sell our services and by now doubled the percentage of our B2B clients who use our mobile and fixed solutions as compared to the previous year.

We maintain a leading position on the wholesale market in Russia as we expand our interaction with voice and data carriers both in Russia and abroad.

We also continue to increase our fixed broadband presence. Currently, more than 8m households are covered by our DTP networks. We increased the number of residential customers by 34% when compared to the second quarter of 2009.

The fixed broadband revenues were up 24% year on year reaching RUB1.3m. The broadband market in Russia is an active line grabbing phase. We continue to invest in coverage and engage in aggressive promotion campaigns, which together with seasonality factors temporarily affect our ARPU. Overall, we believe that the Russian telecom market is approaching new growth phase and we are in a good position to capitalize on it.

Let's move to our new strategic business unit Ukraine. In Ukraine, the consolidation of Kyivstar financial result is now complete. This significantly increased the scale of our operations there.

Beyond the consolidated numbers, our revenues increased almost 8% quarter on quarter on the like for like basis driven by the overall macroeconomic rebound in the country, seasonality and less aggressive price competition.

We increased our OIBDA quarter on quarter by 18% on a like for like basis. As promised, the consolidated OIBDA margin improved to 54%. Primarily, this is the result of seasonal increase in revenue and ongoing cost saving measures.

On top of the voice market recovery, we expect the data market in Ukraine to become a major growth opportunity. Already 250,000 customers in Ukraine use our USB modems for mobile Internet access. We expect the government to proceed with the 3G license allocation in the second half of the year and have been preparing to launch the 3G networks as soon as practically possible.

As in Russia, we're stepping up CapEx to accommodate growing demand and investing in a similarly efficient manner with a focus on returns. We will start reporting ROIC for Ukraine after the regulatory situation clarifies.

On the next slide there is a more detailed view on our operational performance in Ukraine.

The focus for the last few quarter was to stabilize our active subscription base, which we have successfully accomplished. It now stabilized at about 24m.

The blended ARPU increased almost 9% on the like for like basis as a result of seasonal usage increase, arrested price erosion and changes in revenue mix. We are the fastest growing broadband operator in the country and we continue to invest. By now, our fiber networks cover 1.7m households while we serve more than 160,000 customers. Fixed broadband ARPU is higher than in the mobile sector.

We are ready capture synergies from integration of our operations in Ukraine. Detailed analysis confirms our preliminary estimates of the nature and economic value of synergies. Largely, this can be achieved without full integration of legal entities, but we are awaiting clarity from the antimonopoly committee, recently proposed regulatory changes, including MGR price, M&C and some uncertainty to the Ukrainian outlook. However, we feel very positive about the Ukrainian telecom market.

In our new structure, the CIS segment includes operations in six countries - Kazakhstan, Uzbekistan, Kirgizstan and Tajikistan in Central Asia, and Georgia and Armenia in trans caucuses. You can see the blanket figures for each country in the attachments to our earnings release which we published earlier today.

In general, our performance in this market was very good. Particularly, I would like to note substantial growth in the revenue both on a year on year and a quarter on quarter basis.

OIBDA margin also improved quarter on quarter to exceed 48%.

Naturally, the situation differed from country to country. However it is very, very important that the best quarterly performance was observed in Kazakhstan, our largest CIS market where we recorded year and year and quarter on quarter revenue growth just under 15% and OIBDA growth at around 20%.

The OIBDA margin reached more than 57% in that market. We attribute this result to our prudent marketing policy as well as to economic recovery in Kazakhstan after two years of economic downturn.

Our CapEx in the CIS markets increased substantially in the second quarter to support the 2G and 3G rollout as well as our growth and projects.

The relatively low level of ROIC reflects the fact that the most of the markets in this segment are in the development stage. Overall, we see great potential for further progress in our operations in the CIS market.

Now to Southeast Asia. Our operations in this area still in a very early stage of development. In Cambodia, after the first year of operations, we have more than 500,000 active customers and are the fastest growing operator in the country.

In Vietnam, we operate in 51 out of 63 provinces and our networks cover approximately 58% of total population. Our active base comprises 800,000. Unfortunately, we had to temporarily slowdown development in Vietnam while we and our joint venture partner determined the optimal way to further finance our Vietnamese operations, which we hope to resolve shortly.

Overall, we continue to be optimistic about the potential of the Southeast Asia mobile market and continue to enhance our presence in these regions. We stick to our philosophy of investing as we grow and are taking a cautious approach to our investment decisions here.

To summarize, I can say that we are pleased with our second quarter results. Our revenue grew across all key business segments. All of the margins stayed high. We demonstrated very strong cash flow generation ability and good returns on capital. We completed the combination of VimpelCom and Kyivstar, set up our headquarters in Amsterdam, and put in place a new organizational structure.

During the second quarter, we observed a macroeconomic recovery in all of our major markets, which stimulated the resumption of growth in the telecom industry. With our strong financial position and experienced management team, we're well prepared to take advantage of the re-emerging growth opportunities.

And now we are ready to take your questions.

(Operator Instructions). We'll go to Haim Israel of Bank of America.

I'm quite sure you were expecting to be asked this question, so I'll be the first one to ask it. But can you comment, or give us any kind of color on the recent announcement, or the recent news flow, regarding VimpelCom acquisition of whether Wind or Orascom or anything or any other assets?

And I guess you could expect the answer that we have no comment on the rumors.

Okay, fair enough. I'll leave it. The second question is about the Ukrainian market. Can you just give us a little bit of color on where the situation with authorities is regarding the final approval of the consolidation with those two companies?

No, we haven't got any news yet coming from antimonopoly committee. As we said before, we're absolutely open. We answered all of their questions, passed all the information, but we still haven't received the final decision from them.

As I said in the presentation, we have analyzed in-depth all the synergies possibilities and we are very comfortable with the assessment which we indicated at the stage of presenting the transaction to the market. So we are talking between $400m and $500m NPV of synergies. And what was even better, that most of it can be captured actually without legally combining the companies. We, however, decided to be prudent and wait for the decision before we embark on this process. But we are absolutely ready and on standby.

Okay, thank you very much,

We'll go next to Elena Mills with Alfa Bank.

Hi, yes, good afternoon everyone. I have a follow up question actually on the Ukrainian market. I'm wondering if you could help us out with the ARPU figure for Kyivstar on a standalone basis during the quarter. Because as you haven't yet, as you mentioned, officially consolidated the two companies it would be quite interesting to know how Kyivstar is doing.

And also, generally, please explain your blended ARPU calculation because I'm having difficulty backing into the historical blended ARPU that you report for the second quarter of 2009. Thank you.

Taras Parkhomenko, CMO Kyivstar. The Kyivstar ARPU is about 40% and it's showing a slight decline compared to last year because of -- mostly because of the interconnect rate reduction. But now has a situation in Ukraine when all players -- we see clearly that signal from all players so therefore we anticipate to maximize ARPU. We have an ability to improve significantly the ARPU. That's what we are doing and doing our repricing initiatives during whole second quarter.

43.

Yes, that's so the level is on [43] now for Kyivstar.

Sorry, what was the second question?

Yes, the second question was just really on your methodology for calculating blended ARPU for the Ukrainian market because I can't seem to back into your historical ARPU figures. If I look at the URS business and the Kyivstar legacy business I can't actually back into the ARPU figure that you have reported for the second quarter of 2009. So if you could just explain your methodology for the blended ARPU calculation I think that would be very helpful. Thank you.

I will ask Elena Shmatova, who was acting as the CFO in the second quarter, to address this question. Elena, please.

Yes, actually the definition of how we calculate ARPU is given in the attachment of the press release on page 10. So monthly average revenue per user is calculated by dividing service revenue during the relevant period, including roaming revenues and interconnect revenues, but excluding revenue from connection fees, sales of handsets and accessories and other non-service revenue, divided by the average number of subscription during the period then dividing by the number of months in that period.

Thank you Elena. I did note your definition of ARPU in the press release. Maybe if I could just ask the question in another way. I'm sorry to persist on this. What proportion, what sort of weighting is applied to the Kyivstar ARPU or revenue within that calculation compared to the URS calculation? Again, I'm just thinking about the fact that I can't arrive at the historical figure that you report based on that methodology that you've just described.

Well, actually we make proforma calculation of consolidated revenue of Ukraine and based on this, calculated ARPU.

Why don't we check it and we'll come back to you with more specific details how we calculate? I assume that it would be effect of eliminations between the two companies and interconnect.

Yes, that was essentially what I thought it might be related to. But maybe, if you could provide us with a bit more color on those figures later in the call that would be helpful. Thank you.

We'll go next to Alex Balakhnin with Goldman Sachs.

Yes, hi. My question was on your statement on the press release where you say that for you there's still one of the targets to keep, which are capital employed of more than 20%. And my question basically is related to your strategy in general. My understanding is that maintaining return on capital employed of above 20% is impossible if you do acquisitions, because like every more or less acquisition of a basically big size -- or not a very big size dilutes your returns of capital mightily as we saw with the acquisition of Kyivstar.

So basically saying that 20% return on capital is your target. Are you saying that large scale acquisitions are off the agenda, or you understand the return on capital in a bit different way, or you set acquisition targets with weighted average cost of capital of 20% plus? If you can elaborate on this, it would be really very helpful.

Yes, this is multi-faceted question. Let's try to peel this onion. First, we are trying to safeguard our investment in, particularly CapEx, our investment in terms of its efficiency. And from the operating company perspective, return on invested capital would be the key driver how the Company performs. And there we actually look at both including goodwill and excluding goodwill.

Second, when we say the targeted level, we believe that we are creating a certain business model which provides certain ratios between the revenues, EBITDAs, CapEx per minute, sub, and therefore, that business model is well defined, or rather well defined. And no surprise that in most of our markets, over time we arrive to roughly the same return on capital, on invested capital. And we believe that whatever operations we will be taking on board, we will be targeting over a period of time to bring them to that level.

However, your caution is absolutely correct, that if we look on return on capital employed, which is supposed to reflect all of the goodwill and so on, of course, it will be affected. And in that sense, how fast we will be able to work ourselves out of it will be an important issue and will depend largely on how accretive or dilutive the acquisition is.

One of the remedies to this would be actually the element of M&A strategy, which we tried to describe before, that we would be looking more favorably towards mergers of equal concepts rather than acquisition at premium. Mergers of equal will help us to minimize to the extent possible the premiums paid and therefore, will help us to sustain the return.

But I'm with you that to guarantee that after every acquisition we'll have resulting returns above 20%, we cannot. But over time, we will be returning, or aiming to return, to this type of performance.

Thank you for the answer and probably a quick follow up on this. When you talk about the merger of equals, that's very clear basically what you mean. But do you think it is appropriate to issue equity at the valuation of basically below 4 times the EBITDA? And just if you look around VimpelCom is probably the cheapest company. So basically, whoever your target is, or whoever this equal is, the valuation will likely be higher than the valuation of VimpelCom. Is this a problem for you or--?

That's of course a problem. I mean we cannot say that our currency is the strongest and clearly, we cannot claim what Vodafone claims that they brought assets with the front paper. Going for the mergers we clearly cannot do that.

But on the other hand, if we approach the valuations and comparison of the companies on the proper basis, let's say this year's basis, understanding, trying to eliminate the discount, favorably or fairly or unfairly applied by the market, and tried to compare companies on that basis, it might help. But in general I wouldn't deny it. This is of course a bit of a barrier and we kind of need to navigate between [Sila] and [Haribda] how much of cash we want to involve and therefore, in what premium versus equity and stick to the idea of merger of the equals.

It's not a trivial question and academically, we can pontificate about it. But of course, the proof is in the pudding, and when and if we have a transaction then, of course, we will be looking at it and then we'll probably need to discuss it.

And probably the very last one, I'm sorry for the third question, but what sort of mandate do you have from the shareholders in terms of the M&A opportunities. Are they prepared to pay a premium in the terms of dilution, basically given that the valuation of VimpelCom is low, or such discussions didn't take place?

I think the shareholders will look in absolutely. Nobody unnecessarily wants to take dilution. Actually, on the contrary, people would be reluctant of course to take dilution because strategic shareholders are not different from minority investors in that sense. And there is no clear cut mandate go and make details at whatever price. Naturally, every deal will be very, very carefully scrutinized and it must bring value and be accretive towards the shareholders.

That's very clear, thank you.

(Operator Instructions). We'll go next to Alex Kazbegi with Renaissance Capital.

Yes, hi. First of all I think you mentioned today, someone mentioned that you plan to pay dividend twice a year. I was just wondering whether you generally formulated a formal dividend policy and what will be the pay out which you are aiming at. And more detail from that one please.

The second question is a philosophical one. If you had to, do you think strategically, a Western European company would fit into VimpelCom's overall strategy, buying or merging with it, or if it comes as a part of a deal? I'm not referring to any deal, I'm just asking general question, what would be your view with regards to that kind of assets, whether run it, whether divest in the future and sell it? What is your general strategy with this regard? Thank you.

Let's start with the dividend question and I'll pass it on to Henk.

Yes, we are basically currently finalizing our discussion on the dividend policy going forward. It will, certainly as far as we can see now, have a strong relation to cash flow, free cash flow available over the year. But the final details are not yet ready and that also relates to the fact that we still need to finalize the last legal steps in the restructuring of the Group structure. And that needs to be done basically in September and October, and, if we have the whole package ready, we will also be in a position to publish the dividend policy.

So towards the end of the year sometime?

Yes, it'll be somewhere we expect now in November.

Thank you.

And as far as Western Europe is concerned, it's a simple question but unfortunately I have to give you a long and winding answer to that.

I expected that.

And the long and winding answer will be related basically to our view on how the industry will be evolving. In general, when we think about our strategic bias, or assumptions which we are making, we are of a thought that the growth opportunities in voice, whether it's in the emerging markets or the mature markets, are basically not fully exhausted but not far off that. And therefore, to expect a growth which would significantly exceed that of economic growth, probably would be too optimistic.

However the next wave of growth in the industry is likely to happen around data and data consumption. While everybody agrees that there is a massive pent up demand and all of the operators reporting increases in data traffic threefold, fivefold, tenfold, which confirms that, but everybody equally struggles how to monetize on that growth. And of course, there is a little bit of a gap, a little bit of a conundrum, that we have a massive demand but not clear monetization strategy for that. And here we believe that the industry will figure out otherwise industry will arrive to a situation where capacity will become scarce and we will experience bottlenecks and then automatically, carrier capacity will be re-priced and treated differently anyway.

If we take that view that the growth to be captured and the money to be made are on data consumption, predominately driven by our computing and video and so on, then it's also very logical to assume that, like the GSM story, it probably will develop from the West and more developed markets towards emerging markets. So this first wave of that growth will come there.

Then also you can look at how market currently values the cash flows. If we look at the industry at large, we will see that telecom industry is the industry with highest dividend yield among whatever we could find and compare it too as well as low SPs. So the industry is just, in general, not valuing any growth, not pricing in any growth. And no surprise because when the pricing model is virtually absent it creates huge uncertainty and the market, by the virtue of that, becomes fairly short optimistic in its way of pricing.

But again, if you look globally, telecom markets development and apply what's implied in the valuation, so the telecom companies, the market is expected to shrink in real terms anywhere between 5% and 7% per year, which is highly illogical given the demand and given the need in the broadband assets and what potential revenues can be generated there. I am, frankly speaking, not aware of any other industry which would face demand which is measured in 20, 30-fold in next five years and at the same time projecting revenue decline of 5%, 7% in real terms.

So that brings us to a conclusion that probably, again we cannot put our head on the block entirely on this, but it's a hypothesis which we compare it into our strategic thinking, that probably industry is systematically undervalued at the moment. And given the fact that industry will figure out how to price and as soon as that happens and we see actually early moves in the US with the AT&T moving into the stage pricing and so on, if that happens, then the market will re-rate.

Hence, if we take this assumption, we can say that Western operators and Western operations would be attractive not only from the potential growth perspective, but probably undervalued the cash flows as well.

And in that sense, to say that we will dismiss out of hand and say that we will dispose or will put outside of the perimeter Western operations, probably would be incorrect. It's more correct to say that our strategy now is more expanded and probably more open towards inclusion of the operations in the mature countries, in the mature markets.

Okay, can I just rephrase it? As far as I understand, the answer is that you will not specifically look for the let's say developed market operator to buy even though it might be cheap, but if it comes your way you believe it could be a good investment even for this reason that it might re-rate in a couple of years and you'll be able to resell it sometime later on if that would be the strategy, is that correct?

Absolutely, that's correct.

Okay, thank you very much.

Our next question comes from William Kirby with Nevsky Capital.

Thank you, yes, two questions please. Firstly, what are you seeing in terms of consumer demand for minutes, especially since the end of the second quarter which was a couple of months ago?

And then secondly, and I guess it's a related question on the competitive environment. We saw Megafon through the year has gained subscriber market share and perhaps it's been a bit less successful at gaining revenue market share, but are you still seeing them pushing to get more subs, please?

Elena.

Okay. So talking about the development of the minutes of use, we are quite happy with the development which we saw in the second quarter. So increase in minutes of use per subscriber increased 7%. And so that is of course, on one hand, connected to the seasonality and on other hand we can say that our subscriber base have pretty solid quality I would say.

And so that brings maybe the answer to your second question about the subscriber market share. So we are looking not for subscriber market share as such, but of course we are looking more on revenue market share. And to this extent, we are happy with the development of the last quarter because we managed to maintain prices on the same level and that's all increased the minutes of use, so was converted to increase in ARPU.

Okay, thank you. And coming back to the first question, have you seen consumer demand for minutes continue to accelerate I guess in the last couple of months since the quarter finished?

Well, actually, we are not kind of giving the statements about the not closed quarters. But generally speaking, yes, the overall environment continues to be pretty good.

Okay, great, thank you.

We'll go next to Tibor Bokor with Otkritie.

Hi, two questions if I may. Can you please give us a bit more color on CapEx guidance? 15% to 20% of the sales looks bit wide range given we are already in September. Can you be more specific on the [cost cutting] this year?

Let me start in general. As we said, that we see now markets coming back to growth and therefore, we're stepping up our CapEx. And 15% to 20% was a general Group level, which we communicated consistently sort of how we think about CapEx. The problem to provide with the specifics, more specific numbers is that it's unclear in Ukraine how we will be optimizing our CapEx, depending on AMCO, or the antimonopoly committee position. So that's the uncertainty. That's why we cannot give you specific number as we used to do before.

But I think it would be fair to say that we can probably give you a little specificity in Russia. Elena.

Well actually in Russia, as you saw in the presentation, that we are really start investing more into the network development and the numbers for the second quarter they much higher than the first quarter. And on a last 12 months basis our current ratio CapEx to revenue is 10% in Russia.

As long as we are planning to continue to invest, we think that maybe this year we will come to the higher end of that range in Russia specifically. But it also depends on certain questions how quickly the vendors will deliver us equipment and that's been the point.

So, generally speaking, we think that in Russia in general we will continue to invest and you will see that in the future quarters.

Higher end of the 15% to 20% range for Russia for the second half or for the full year?

For the full year.

For the full year. Thank you. And a quick second question on synergies in Ukraine. I think you mentioned a number earlier on the call. Can you please repeat that number, between fixed line and mobile in Ukraine?

No, we are not providing such a detailed breakdown. The number which we communicated is $400m to $500m NPV over five years.

Okay, that's it. Thank you.

We'll go next to Rhys Summerton with Citi.

Hi. Good afternoon. I think a lot of the questions have been answered. But I noticed in this presentation you put quite a bit of emphasis on debt. And I would just like to get a bit of an indication from you, or a bit more color from you on the preferential currency split of your debt going forward, and also the kind of targets, or the maximum debt/OIBDA ratio that you would feel comfortable with in VimpelCom?

Well we would certainly like to have a higher percentage of rubles in the total package of debt. But we haven't been precise on what the exact percentage will be, because it will also, of course, depend on what we are able to realize in the market. But it would certainly not be betting -- if it grows from the current level of 30% to a level of around 50% to 60% of total debt, given the mix that we have. So we are continuing to work on that as a very important target going forward.

And as a general notion, you should take that debt to OIBDA of 2 and below 2 is a reasonable range. We will continue to look at -- to stay below that level.

Okay. And if you went above 2, your cost of debt, can you give us some indication of what kind of increase you'd see in your cost of debt?

Well that's very difficult to say, of course, because it will very much depend on what the exact market circumstances in the debt capital markets are. So I would like to stay away from that.

I think, given the strength of the cash flow of the Group, we will be very fast able to reduce any of such an issue within a very short period of time.

Thanks very much.

Thank you.

We'll go to Igor Semenov with Deutsche Bank.

Yes, hi. Alexander, first of all, it would be interesting whether you're planning to make a proper strategy update and when.

And more specifically, on the results, can you talk a little bit about the data market in Russia in mobile? Can you provide a bit more guidance on where -- a bit more color on where the data ARPU are right now and what the margins are in the non-voice business?

And MTS were recently saying that in data, it's about 60% to 70%. In constant, it's about 40%. Can you confirm that the same figures for your business and what the trends have been over the last 12 months? Thank you.

Thank you. As far as strategy is concerned, I was explaining to the journalists doing the rounds today that the creative process unfortunately doesn't get its point well with the quarterly release schedule.

So we are working on the strategy. And we have general outlines and general principles, which I've mentioned before. So with you, for example, the voice story is pretty much mature and we will treat the voice element as a financing element through our cash cow, [Provergo]. And the growth will be coming from data.

But in data we need to be very careful how we invest and also how we try it. And therefore, we're putting more emphasis on developing our pricing capabilities. And we've already started that process, just really step up sophistication on how we work with our prices, as well as how we invest, because even before, any investment was almost guaranteed to make a return, it's not at all the case with data.

And I would argue that our approach as before investors would grow served us well during the development of our voice network, it will probably serve us even better with the data network as long as we stay with a reasonable gap and not allow competition to move too far away. And so we will be able to bridge the gap within 12 or 18 months.

I would argue that we are reasonably safe and probably more likely to generate better returns to our shareholders. Otherwise, the strategy of upfront, very heavy investments, it's probably considered probably a very risky one. Also, notwithstanding actually price erosion on the equipment which we can observe.

So that's another kind of big element of the strategy, taking voice as a financing model; taking data as the source of growth. I talked already how we think about it.

And probably one more important element would be the retail. Retail, we believe, is a crucial part of in-market play. And the role of retail is not diminishing. It's probably increasing. And we want to improve the quality of sales, improve the quality of channels which we are engaging. And to that end, we will continue to invest in both partially controlled and fully controlled presence in retail.

Of course, when you have this general outline and you have your key choices which are to be made defined in a very rough scale, then the real work on strategy starts, where you start detailing it and breaking down and converting the strategic statements into what you put actually in your operating plans and what you put actually in the budget. And we are currently going exactly through that process.

So I hope that we will be able, in our next call, to talk more about the strategy in a more structured way. But the outlines probably would be similar to what I said.

And now as far as data is concerned and specific information, that's over to you, Martin.

Okay. And of course, in Russia, all the three operators are in the middle of rolling out the 3G networks as quickly as we can.

To your question regarding ARPU, specifically measured on the USB users, we see an ARPU level of around RUB250. And this is, right now, measured by a criteria that we are trying to give away as little traffic as possible. So we are holding a bit more conservative our pricing than at least one of our competitors in order to be able to maintain a good service level for all the users of our network.

Can you say in your Russian service -- mobile service revenues, can you say what percentage is non-voice, and what the margins are between data content and various other non-voice services please and the trends?

Well actually, though the margins may be at -- I would like to comment. We are not really kind of sleeping in our reporting all the things. But generally speaking, data, when we looked at this on the gross margin level, data is more profitable than voice just because in data there is no interconnect. So to this extent, yes, what MTS said, as you mentioned, that margins and data are higher, that's -- yes, we fully agree with it.

If you look at the total value-added services, including content services and others, the share of revenue is around 20%. And in the content business we are the leader in -- among the three with a revenue of above RUB3b in the second quarter.

Thank you very much.

We'll go to Herve Drouet with HSBC Bank.

Yes, thank you. Two questions as well on my side. The first one is regarding broadband and data. In the second quarter, it looks like there has been a bit of pressure on margin, as well on ARPU, especially coming from residential. Just want to see if you can give us some color on that? Were there any specific events that may explain that? Do you think it's competition which may drive that or it's just some one-offs? And any view on the trend will be helpful.

And my follow up question will be regarding disclosure of data. In the past, you were used to disclose qualitative data regarding, at that time, Golden Telecom, in terms of own path by fiber, on broadband, to charge conversion rates such as churn. I was wondering if you can give some of those data, either during the call or later, if you can provide those data to us? Thank you.

Okay. First on the development of ARPU, you're right. It's gone down from about RUB260 in Q1 to around RUB240, as I said, in Q2. And this is attributable, or almost 100%, to increased competition. All players have launched a large number of new tariffs, partly very aggressive unlimited tariffs, across Russia and this is the major driver behind that decrease in ARPU.

Well, talking about the disclosure which we used to provide previously on FTTB, as far as I understand that was the question, so at the end of the second quarter, the household starts increased up to 8.2m households. And the take-up rate for the last two quarters was approximately 14%.

Okay, thank you. And just maybe a follow-up question on maybe the trend. You said competition are launching unlimited offer. With your fiber to the building, compared with other technology, you should have some advantage on speed. And is it something you think you can regain and maybe ask a pricing premium for that, or you think it would be difficult in the coming quarters?

No, we're working on bundled offers. And as you say, we have due to our assets in both fixed and mobile, we have a very good situation for doing that. So towards the end of the year, you might see the first effects of that policy. But I don't think in Q3, you will see it.

All right. Thank you for your answer.

We'll go next to Viktor Klimovich with VTB Capital.

Yes. Alexander, may we return back to your long answer to Alex Kazbegi regarding your strategy with Western Europe? I have a particular question regarding data pricing and potential in data revenues. This is not a new industry, actually and we see some trends so far. We see this trend in Russia. Of course, it's too early to say about further growth in Russia probably here at this point, but we see this trend in Western Europe. Do you see that in the future there will be a huge growth starting from, as you said, from Western Europe and then maybe in emerging markets as well, in these data revenues and how much can this growth be?

Well the answer here is do we see the growth in consumption? That's the first question. And the answer is yes. And there are a few sources which generated those reports. And one of the most widely referred to report is Morgan Stanley, which indicated in 2008, 60-fold, six-zero, for the increase over five years in data consumption of the mobile networks. That report has been supported by number of houses as well. And Cisco came with a massive piece of work this year where they indicated starting not from 2008 but from 2010 going onwards, 39-fold increase.

Interesting enough, the last two years' projections of that path have been confirmed. So in that sense, underlying growth is undoubtedly there. And it's generated mainly by video, as I said. That video moves onto the net. And that becomes the absolutely dominating feature of all media discussions about the future of the media industry. And second would be cloud computing, which will require much more intensive exchange between the cloud and the terminals. So in the enterprise world. So those two would be the biggest drivers.

This issue therefore is not the demand, as such, and how much it will be consumed, but how to hold the price and how sensitive that demand is to what pricing will be applied.

Clearly, launch of iPhone and iPad brought down to a halt basically networks of AT&T because they haven't anticipated. And that was the biggest learning they had, how much video will be consumed over the handsets, if handsets are properly designed for that. So iPhone was the first regulation. And I'm sure that with the whole slew of like devices coming, the Android-based or IO based, we'll see this trend just increasing, not decreasing.

And the risk here is mis-pricing will stimulate demand and therefore create unsustainable investments into that infrastructure. And that's where we're a little bit more careful at saying what would be the revenue. So that immense demand, what sort of revenues it will generate for the operator, depends heavily on what pricing will be applied and how much throttling will be applied to that data traffic.

In that sense, to answer the second part of your question, that what sort of revenues and what sort of growth we can anticipate is much, much more difficult. And that's a struggle, not Russian or Ukrainian; that's a worldwide struggle. The industry basically doesn't know yet how much revenues will be coming out of that data traffic growth.

But basically, you're saying that you expect higher risk here at this point because you cannot predict revenues. So don't you think, or don't your shareholders think, that it's much safer to be in markets with quite stable regulation, I mean Russia at least, and to kind of develop relationship with your customers, around your customers, and so on and so forth?

I don't see how one excludes the other. We're discussing, when we talk about data, the underlying nature of the development of the industry. And it's not dependent yet on which market it is happening or not. Meanwhile, that's exactly the cornerstone of our strategy, to say that of course we will be staying in Russia, developing the relationship with our customers and protecting our customer base. And it's a cash generating capability.

To that end, we're actually saying that we are not going to engage into competing and increasing the market share, or try to out-compete our colleagues, based on voice products and invest heavily into the voice infrastructure because that game is probably over whatever way you cut it; whether it will be through regulation, whether it will be through substitution, whether any other way. And therefore, it's more of a cash flow preservation in the mature markets and carefully investing into the infrastructure, or opportunities geographically, where we can develop data capability. So I don't see how you link whether to be in Russia or elsewhere to the data strategy.

Yes, but well, I'm probably -- I'm talking about the ideas that in Russia probably you will have more stable cash flows within VimpelCom because you have this structure what my colleagues discussed previously with you. You have quite low valuation in Russia right now. So probably if you will go to some other markets, to let's say even Western Europe, and you will eventually pay some premium because of VimpelCom's current low valuation and you will -- but in the end, you will play just a very risky game. So this is a question; why don't you stay in Russia with your current business, not going somewhere else, taking even more risk there?

Well I'm not sure. What else can I say? It's simply, if you take -- if you therefore decompose data-driven growth and voice on the free cash flows, that the argument was, which I was making in my discussion with Alex Kazbegi, that the cash flows currently generated in Western Europe are under-valued. And they're value like they will dissipate in the near future and that probably is not going to happen.

So in that sense, how risky is the data game? It will be risky both in other geographies and in Russia. How attractive or not attractive the voice game is, it depends how you view it. Either you go after steady cash flows or you go after growth. So clearly, the balance between risk and value, or in this case, valuation, which is attached to any asset, will be essential. So there is no clear-cut answer here unless we put a very specific situation on the table.

I see. Thank you very much.

(Operator Instructions). We'll go next to Alex Wright with UBS.

Yes, thank you. Just have one quick question remaining and also, just wanted to follow up on the return on capital questions earlier. The new question if you like was on the income from associates. If you could provide some breakdown there if possible, please, between [Eurosat] and Vietnam and would you agree perhaps that Vietnam is more profitable or less loss-making than it would normally be if you were still investing for growth there?

And then, just returning to the return on capital questions earlier on, Alexander, I think you -- I think I understood correctly that you believe that you will arrive at a similar return on invested capital in all of your markets eventually. So should we understand that to mean that you expect the operations in Ukraine and the CIS to reach a return on invested capital level similar to Russia? And if that is the case, is your target of Group return on capital of 20% not over-conservative would you say? Thank you.

Well let me tackle the second question first. To be honest, we're still wrapping our analytical capabilities around all the markets, and see how fast and where we're going and so on. Of course if by some stroke of magic we would bring all of our markets to the Russian level, it would be of course much higher return on capital. But pricing structures, for example, in Uzbekistan are three times lower than in Russia. And the core driver for the capital, in that sense, is the minute which we generate there. So I think that some of the markets will have inherently lower return on invested capital structure. And some of the markets, like Uzbekistan -- I'm sorry, like Kazakhstan, clearly will progress towards more normalized Russia-like performance.

And I think that Ukraine is a little bit of a question mark now because Ukraine is in transition between two worlds. One world is European, basically paper consumption type of pricing and the other world is more American, where you have budget pricing plans and Ukraine kind of gradually moving towards American model. But now all the players are very actively paddling back and trying to regain the pricing power, not just giving away the traffic.

So whether the market will acquire equilibrium soon will clearly affect where the return on capital will end up in that market. So in that sense, the ingredients are clear. And we will try, where possible. In most of the markets, we don't see any major hurdles to achieve the same business model and the same structure of the [occurrences] in Russia. But some, notably Ukraine, might be operating on a slightly lower level.

As far as goodwill amortization is concerned, we are trying to put as much as possible into elements which can be amortized. For example, licenses and so on, not put everything into goodwill. And that would, over time, improve our asset structure, after we acquire the companies. So that was general sort of where we are. And your first question was on --

Well actually, sorry, just before going back to the first question, if I could just follow up -- ask a quick follow-up question on that one. As you discussed earlier, it sounds as though you were a bit prepared, through some sort of M&A activity, potentially for your returns to be diluted below the 20% level temporarily. If so, could you perhaps explain for how long you think that may be acceptable to you and the core shareholders and if there is a sort of absolute lower level that you'll be prepared to go down to?

We haven't discussed it, frankly speaking, in that terms. But any acquisition, if we were to consider it, will involve in-depth analysis of the earnings dilution. And that essentially would be a proxy what you have on your return on capital employed dilution. And so far, we haven't arrived to a definitive answer. But a normal program, more normalized answer, would be two, three years to accept dilution on earnings but probably have accretion almost instantaneously on cash earnings. And that's how we -- we're kind of leaning -- I am very skeptical. And Henk here sided with me when we discussed that we are very skeptical of net income as a measure because net income is hugely volatile and subject to so many adjustments. So it's a very difficult measure it to deal with.

And therefore, if you take -- and we argued that actually, during our Kyivstar acquisition, if you take cash earnings, you deal with something much more tangible and clearly linked to value accretion. And in that sense, we would be reluctant to sustain longer periods of dilution here, so it should be cash accretive. But unfortunately, I cannot answer your question on return on capital employed because we haven't discussed it yet in those terms.

Okay. No, that's helpful. Thanks.

On the minorities, first I will comment on Vietnam and then I will say something on (inaudible). Vietnam is virtually non-existent. So by that virtue, being more profitable, it could be. But essentially, we don't have -- we have very, very little operation there. It's only 800,000 subscribers and it's running on still probably negative margins. So I'm not sure how it ended up positively contributing to our earnings. Elena, please qualify.

Well actually, I don't quite understand the question, sorry. What was the question?

So the question was, first of all, whether you can break down the contribution from your share of associates.

Yes. Let me see.

Maybe it is better if we come back to you on this one. It's predominantly on (inaudible), I presume. So we'll provide you with the details (multiple speakers) redirects itself on the call. We'll come back. Thanks.

Okay, thanks.

We'll go next to Nadezhda Golubeva with UniCredit.

Hello. Could you please talk a bit about the margin development in Russia? In the second quarter we saw a slight margin decrease, which is not like -- which contradicts normal seasonality. So what was the reason behind the cellular OIBDA margin decrease in Russia in second quarter compared to the first quarter? Was it about gross margin, or was it about marketing? And if you could possibly talk about what are the key risks that you see to the margin in the remainder of the year? And what's going on in the retail business? Do you see more competition with MTS setting up with their own retail?

And secondly, I wanted to possibly ask you to give the exact portion of non-voice revenue as a percentage of ARPU in second quarter.

Okay. Let me start with the margins. So for Russia, the impact of the margins in mobile was twofold, I would say. Yes, on one hand, there were certain declines in gross margin. But it's mainly connected with the sales of handsets, which is a low-marginal product.

And the second item which influenced OIBDA margin was our sales and marketing expenses. And here we can say that, yes, we increased our investments into the marketing in order to, again, as we discussed today already, to improve our position versus the quality of subscriber base.

And about competition, if you could give some color?

One comment maybe on the [Marcom] expenses which also increased considerably, which was due to the fact that the management decided in view of what seems to be a recovering economy, also they invest more in [Marcom], which gave us a lead in share of voice in Q2, with more than 40%. So the increase was also made on national television and out-of-home to reach that share of voice, which we expect will also be carried forward into Q3, when it comes to the effects of it.

And what was the increase, compared to first quarter, like roughly?

Well actually there is the tables which I attached and there you can see the exact numbers on the country level.

Well, but it didn't give a breakdown for fixed and mobile. Would you say about how much was the -- how big was the increase of your advertising margins in the second quarter number to first quarter like for cellular business in Russia?

Well actually, for mobile, this is -- this increase actually was not very huge. We are talking in --

Okay, if you can give this number, not to hold other people, I would appreciate it. And --

(Multiple speakers) But I just want to point out that actually, if we are talking just on mobile only, the margin change was not very substantial quarter on quarter. So the margin in mobile this quarter was 51%. Last quarter it was 51.2%.

Yes, but normally we see margin increase in the second quarter compared to first quarter. That's why I asked. And also another question which I had, could you please remind us on the shareholders' agreement regarding the potential entrance of VimpelCom to the market where Telenor is already present.

There is no non-compete as such, but there is a provision which says that if antimonopoly authorities will require some sort of a remedy, i.e. one of us would have to leave, then the rule locked in for ourselves will apply. So that applies to also Telenor and VimpelCom. So in that sense, if, for example, Telenor decides to come to Vietnam, an antimonopoly committee in Vietnam will say only one of you can stay, then Telenor will have to leave.

Okay. Thank you very much. And what about VAS as percentage of ARPU? The exact number, is it possible to give now?

It's around 18%.

It's about 18.5% of revenue the total VAS area

Okay, thank you.

We'll go to [Ceasar Tarron] with Morgan Stanley.

I've two questions, please. So, first, can you see - can you speak about any recovery you see in the corporate segment, and say when you think you will be able to renegotiate the contracts, please?

Well, yes, we do see a certain recovery in the business segment. And we don't think that we need to renegotiate any contracts because it looks like the development is going in the right direction. So --

Okay. And on the -- sorry, on the -- I just want to come back to this question that was asked previously on the sales and marketing costs. Can you please say roughly what was the increase in dealer commissions that you pay in Russia on a year on year basis, roughly?

Yes, again I can reference to the tables which we have attached. So total sales and marketing expenses in Russia, in dollar terms, was $185m in the second quarter. It was $166m in the first quarter. And it includes a portion of advertising, but --

Yes, but if I understand correctly, this number includes the fixed line as well, and I'm just -- my question is just on the dealer commissions for the mobile. I think it would be extremely useful if you could give at least some hint on what was the run rate on this number this quarter.

I would just allow myself -- this is Alexander. I would allow myself one observation. That we moved a year and a half ago to a single brand, therefore, most of the advertising expense, as such, is happening on the basis of single brands and -- so the weights which are both on the TV, the contracts with the agencies and so on. So advertising is very difficult to separate. In terms of -- and I'm talking about Russia, naturally.

In terms of things we pay to dealer commissions and so on, as well some of the retail is now working with six products and trying to sell it, although to a lesser extent, but those numbers would be -- that separation would be very notional, in that sense that most of the dealer commissions probably can be attributed to the mobile and advertising. Unfortunately, it is very difficult to split. You need to consider it as one.

I can say only that our total spendings on sales and marketing in fixed in Russia was around $8m. So you can subtract it from the numbers which we have in the table.

Okay, that's very useful. Just a very, very last question. Can you please say again what's your target leverage that you said previously, if you don't mind?

I've said previously this debt to OIBDA below 2.

Below 2, thank you very much.

We'll go to Anna Kurbatova with Gazprombank.

Yes, good afternoon. My question is about the developments in the Russian fixed line segment. Well, we see that with the revenues in the business segment continue declining year on year, although at a lower pace than in the previous quarters, but still, and OIBDA margin trends are also not very encouraging. So can you tell us the reasons why this segment delivers pretty weakly and where do you see the bottom of this negative trends, or where do you see the bottom of the demand? Or what's going on in the corporate segment, particularly with the competitive pressure which you mentioned in the press release? Thank you.

Well, definitely competitive pressure in business segment is pretty high but, frankly speaking, we don't consider that the performance of our business segment is that. On the contrary, we see the signs of recovery and, thus, we see the improvement in top line practically in all our lines of the activities; in fixed line in business segment, in wholesale and in residential.

Well, talking about the margins, actually, we think that a margin on the level of 27%, 28% is pretty strong for fixed business. The question is that last year in the second quarter our margin was exceptionally high because of the exchange rate fluctuations and part of our revenues in fixed business segment is linked to US dollars. And if you remember that in the second quarter of '09 the exchange rate, dollar to ruble, was extremely high and that's why we got additional revenues. So to this extent we think that we are moving in right direction.

So [that] represent some [clear it up] about the competitive pressure. Where do you see it higher in the cities like Moscow and St. Petersburg and the large cities or in the regional client base? And as well if you can explain from what type of competitors, like [Figaro] like Komstar -- MTS Komstar or [SMS] companies. Thanks.

Well, definitely competition in Moscow and St. Peter's is higher than in the other regions. And of course, yes, the competitors are mainly business companies and all commercial -- strong commercial companies, such as Komstar, yes. We compete with them.

Well, the question is where -- who of your main competitors began more aggressively developing that impact that's your business so dramatically? So that's the question.

Well, actually, we cannot say that somebody is much more aggressive than the others, so it's more or less the same picture as we saw before. So of course everybody wants to have that part of that pie and the competitive situation was always quite strong and has continued to be so.

We'll go next to Hugh Symes at Goldman Sachs.

Thank you. Most of my questions have been answered. So I wanted to focus a little bit about your organic Russian revenue growth OIBDA margin guidance. I missed some of the call, so maybe you talked about this. But can you just briefly repeat, for this year and next year, your view of the Russian revenue growth in rubles and your expectations of how OIBDA margins will evolve? Thank you very much.

Well, actually, we are not giving guidance in the revenue and margins. The only guidance which we were mentioning, that on the consolidated level OIBDA margin will stay in high 40s.

High 40s. Okay. Thanks very much.

We'll go next to [Ivan Kim] with Renaissance Capital.

Yes, a couple of questions please. The first one is what is the worst-case scenario of antimonopoly decision in Ukraine? Would it be like loss of frequencies or loss of licenses? And what kind of financial implications it might have.

And the second one is on the dividend. Irrespective of your dividend policy, do you plan to distribute a dividend this year as you did last year, or only next year? Thanks a lot.

Let me start on Ukraine. Well, it's hard to say because normally, one would expect that once the agency issues the decision it would stick by it, but okay, assume that the decision will be revised. Again, if you look at the European approach, European antimonopoly committee would say that, okay, we would refuse a combination of the businesses and would insist on disposing a part of something.

AMCO indicated, in the early part of the discussion, that frequency or, rather, the issue raised by [Asterly] was the concentration of the spectrum in a single company was too high. And that was the initial subject of investigation.

So I can imagine that it would be -- could be some sort of a redistribution of spectrum and so on. And in that sense, it will affect us very little from the synergy perspective. But we hope that it's not going to come to that.

If the decision is more dramatic, and saying that we need to dispose of the asset, then we will analyze it and say that, okay, what can we sell. But if the most straightforward answer would consider selling what used to be URSB line business, I think that we can fetch, for the business, a price which would be probably close to programmed synergies in that sense.

Thank you.

With regard to the dividend, was the question on dividend, or not? Yes. So we certainly aim to pay this year an interim dividend. But as I said earlier it's important that we finalize all of the legal steps that will enable us to do that in the optimal way.

At this time we have three remaining questions in the queue. We'll go next to Stephen Pettyfer with Merrill Lynch.

Thanks for taking my question. As a follow on from your comments about how you look at expansion opportunities, could you please share with us your thinking on the need or desire to control assets as opposed to owning minority stakes? Thanks.

Well, we still operate as an operator. So from that perspective we're viewing ourselves as an industrial investor where we want to pool together our both industrial knowledge and industrial scale, which actually probably will become more important going forward because there is a clear consolidation of the other elements of the eco-system -- industry whether it vendors or content side and so on. So to deal with that on a consolidated level is certainly easier.

And would we rule out entirely minority stakes? Probably not, if there is a path to control and there is a path to extract additional value for the shareholders. As such, to make a financial investment into a minority stake probably would be not our cup of tea.

Thank you, very clear. Thank you.

We'll go next to Elena with Alfa Bank.

Thank you. I have a question on your working capital. Can you please provide us with your movements in working capital in the second quarter of this year and the second quarter of last year please? Just the change in working capital, thank you.

Second quarter in this year the change -- we're talking about the changes in operating assets and liabilities. So you could say total working capital, was minus $45m and in the second quarter last year it was close to $80m. We're talking millions.

Of dollars.

We'll go next to [Vanchelsis Shimla] with Deutsche Bank.

Good afternoon everyone. One question and another follow up. The question, about the short-term debt that you show in the presentation amounting $1.5b. Can you please tell us how much of it due in the remainder of 2010 and whether you plan to refinance or to repay this portion?

I think it's only a relatively small portion that is still left for 2010. And we haven't made a decision yet on refinancing.

And would you be able to tell us what this insignificant portion is?

$250m.

Something like that. I don't know the exact figure.

That is also -- it's $250m of the scheduled debt which we always show and also there is a $470m bridge facility which we went into when we were doing squeeze out of OJSC VimpelCom. And the scheduled debt naturally we'll repay in the Q4 and bridge facility, as Henk said, we have yet to decide what we do with it.

So if you look at the text that I basically said, it's 88% of our debt due in 2010 we already repaid. You can see in the overview what the total debt maturity schedule is, so there is only [$213 less].

Okay. And the clarifying question, you mentioned earlier on that you see a debt to OIBDA ratio of 2 times as the mid-term target. Does it mean that --

I didn't mention it as the target. I mentioned this as what we would like to stay below.

Okay. So if you can answer my question. Does it mean that -- can I rephrase it and say that in any potential development where you have to either incur debt or assume debt you would not -- you would simply try not to exceed this 2 times' level?

I already gave the answer earlier as well. Even if it would be slightly above that level, the capability and the cash flow of the Group is such that you will be reducing to below debt to OIBDA of 2 in a very short timeframe.

Okay, thank you.

We'll go next to Igor Semenov with Deutsche Bank.

Yes, thank you. I just wanted to follow up on the synergies amount. I think, if I'm not mistaken, in the previous calls or this was in the media somewhere, the synergies in Ukraine were estimated about $500m to $600m. Now you're talking about $400m to $500m. And inside, I think, in the prospectus the figure was more like $1b. So can you maybe talk a little bit about this?

And a question to Henk. At T&T it seems to me that you used to give fairly straightforward guidance of the Group level. I think only 2008, 2009 were difficult in terms of the revenue outlook. So do you feel like maybe it would be a good practice to establish giving revenue guidance, EBITDA margin guidance at VimpelCom so we have a better idea of where you're going to, or aim to go to?

Well, I can at least tell you that in T&T in 2008 and 2009 we stepped away from being that precise, so I would like to continue that habit.

I think it was understandable given the situation globally. But it seems like we're out of the woods, don't you think?

Well, I sometimes see different views on the woods.

You have quite different perspectives.

Okay.

And as far as synergies are concerned, Igor, it's -- I don't remember $1b. It's always been discussed, indeed you're right, between $500m and $600m, but as I've explained during the transaction that that assumed much slower FTTB development. That was assuming basically elimination of a large portion of investments in VTB.

Okay.

And we brought it back in.

Okay, understood. Thank you very much.

Thank you very much.

It appears there are no further questions at this time. Mr. Izosimov, I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you. And thanks to all for participating in our call and, as usual, if you have more questions please contact our Investor Relationship department and then we clearly will follow up on those questions which remained unanswered in terms of providing specific stated numbers.

And, with this, have a nice day and goodbye.

That will close today's conference. Thank you for your participation.