VEON Ltd (VEON) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to the Vimpelcom Ltd first-quarter 2011 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Alexandra Tramont with Financial Dynamics. Please go ahead.

Thank you. Good morning and welcome to Vimpelcom's conference call to discuss the Company's first-quarter 2011 financial and operating results.

Before getting started, I would like to remind everyone that, except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties. These statements relate in part to, one, the benefit of the Company's combination with Wind Telecom, including expected (technical difficulty) expected future margins (technical difficulty) expenditures.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in, one, the Company's press release announcing the first-quarter 2011 financial and operating results and related presentation; two, the Company's proxy statement filed with the SEC on Form 6-K on February 15, 2011; and, three, other public filings made by the Company with the SEC, each of which are posted on the Company's website at www.vimpelcom.com or the SEC's website at www.sec.gov.

Vimpelcom disclaims any obligation to update developments relating to 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 first-quarter 2011 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 reconciliations of non-GAAP financial measures presented on this conference call, can be downloaded from the Vimpelcom website.

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

Thank you. Good afternoon for those joining us in Europe and good morning for those who are from the US.

And now let me introduce the people participating on this call. Here with me in Amsterdam are Henk van Dalen, our Chief Financial Officer; Khaled Bichara, President and Chief Operating Officer; Elena Shmatova, who runs our business in Russia; Dmitry Kromsky, Head of our CIS Operations; Artem Nitz, who is Acting CFO in Ukraine; and Gerbrand Nijman, our new Head of Investor Relations.

On this call, we will discuss our first-quarter operational and financial results, as well as the recent developments at Vimpelcom. Before we discuss the first quarter, though, we want to mention several important items.

We completed the combination with Wind Telecom on April 15. However, the information we're discussing today on Vimpelcom does not include the merged assets of Wind. We will publish full pro forma data, including these assets, in early August, well ahead of our second-quarter results. For your information, we have provided a few results for the new combined Group on a pro forma basis. In addition, we have included key highlights of the already reported results of Wind Italy and Orascom on a standalone basis. So today's presentation will focus on the actual first-quarter results of Vimpelcom.

Well, now let's turn to slide number five. Vimpelcom's operational and financial performance during the first quarter of the year was strong, compared to the same period last year, and our business continues to develop as planned. Russia remains our top priority. And while the situation there remained challenging in the first quarter, we were pleased to see some early progress from our programs as we have continued to grow our active subscriber base.

We see good progress in Ukraine, driven by market improvement and synergies well ahead of schedule, in a challenging competitive environment where aggressive tariff campaigns are targeted at regaining subscriber market share. In the CIS, we're steadily growing revenues while maintaining healthy margins.

Recently, we also made substantial progress in South East Asia, where we completed the acquisition in Laos and signed new arrangements with our Vietnamese partners, which gives us firm operational control and reignites our operations in Vietnam.

Obviously, the hallmark of the year is the completion of the transformational deal with Wind Telecom in April. It has more than doubled the size of our subscribers and business, and positioned Vimpelcom among the top tier of international telecom companies. Along with the recent management changes that we announced, we have already launched the integration process and are confident we will be able to realize the full advantages of the scope and scale that we targeted with this transaction.

Now, I'll pass the floor to our CFO, Henk van Dalen, who will describe the Group's financial performance. Henk, it's yours.

Thank you, Alexander. Let me remind you that we are presenting the quarterly consolidated financial results only of Vimpelcom Limited, with Kyivstar's operations incorporated starting from April 21, 2010, when the acquisition was effectively completed. In the press release that we issued earlier this morning, you will also find pro forma statements on a consolidated level and for our Ukrainian business unit.

Our revenues increased with over $500m or 23% over the first quarter of 2010, with $2.7b. Consolidation effect of Kyivstar was $314m. Organic growth and positive ForEx effect accounted for the remainder of the increase.

Compared to the first quarter 2010, the gross margin grew by 20%, mainly due to the consolidation effect from Kyivstar and positive ForEx effects. Increased gross margin in the CIS was set off by a lower gross margin in Russia, where direct cost of sales grew by 29% due to changes in the traffic mix, causing higher interconnect expenses and negative margin on devices.

Compared to the first quarter 2010, SG&A increased by 26%. Organic growth of SG&A was almost 13%, of which Russia was about 10%. Consolidation effect of Kyivstar accounted for the remainder.

OIBDA also grew substantially year on year to $1.2b, reflecting the fundamental strength of our business despite increased spending and investment in certain markets. Compared to the same quarter a year ago, OIBDA increased by almost $170m as a result of the consolidation of Kyivstar and positive ForEx effect and lower OIBDA in Russia.

OIBDA margin decreased slightly from the fourth quarter '10 to the first quarter '11, mainly as a result of revenue growth investments in our Russian business. Despite that, we had a record level of net income, primarily due to foreign exchange gain compared to the first quarter 2010, which is up nearly 28% sequentially despite the impact of normal seasonality on our revenues, which declined almost 3% from last quarter.

Net cash from operating activities continued to be strong over the quarter, enabling significant CapEx and interim dividend payment.

I go to the next slide, slide number seven. As you can see here on this slide, our financial position remains strong. Net operating cash flow was $1m -- $1b, and that funded our investments in our infrastructure, which totaled over $550m on a cash basis. CapEx increased in the first quarter compared to a year ago, reflecting the acceleration of network development and a more normal phasing of CapEx throughout the year. We also paid nearly $250m in dividends in cash in the quarter. In the second quarter we will pay the final dividend for the year 2010. And net debt was essentially flat, sequentially.

As you can see on the slide, we finished the quarter with a healthy balance of cash and cash equivalents of almost $1.9b. Moreover, our balance sheet ratios are solid, with total net debt to OIBDA over the last 12 months at approximately 0.9.

All in all, a sound basis (technical difficulty) investments in profitable growth of the Company can be funded going forward, effectively, as you know, have been funded going forward due to the merger with the Wind Telecom Group.

Now, on to the next slide. The debt structures are US dollar denominated. Debt has increased in the first quarter. However, we continue to maintain a significantly more balanced debt profile than we have had historically, with a roughly 60/40 split between dollar and ruble denominated debt.

The change from the fourth quarter reflects the successful placement of a dual tranche $1.5b bond in February, which includes a $500m five-year tranche yielding just below 6.5% and a $1b 10-year tranche with an interest rate of slightly above 7.7%. Included the above mentioned $1.5b, we were able to complete the new round of financing of $6.5b in relation to the Wind Telecom transaction for refinancing the existing obligations, and of course also for certain further business expenses.

Then I'll take you very briefly through the financial structure post merger. These are preliminary figures and they are results on a pro forma basis. And we intend to provide the market a full set of pro forma data in early August and that will include also the way in which we will then look at the segmentation of the Group, at least for the levels of revenue and OIBDA.

The additional information that we provide here shows that the first quarter of this year would have been $5.5b revenue, assuming that the Group would have been there in that first quarter already a combined Group, and an OIBDA of $2.3b. For the total of 2010, this would have been $21.8b and $9.3b. The total gross debt following the merger is approximately $27b and the net debt is around $23b, leading to a net debt to OIBDA ratio of around 2.5.

Then, finally, I'll take you through the dividend. In April, our Supervisory Board declared a final dividend payment for 2010 in the amount of $244m. This brings the total dividend payments over 2010 to $1.1b. As announced, the dividend will be paid before June 30 this year.

We would also like to give a brief update on the new dividend guidelines for 2011, as also published on our website. Barring unforeseen circumstances, the Company aims to pay out at least $0.80 per common share per year, assuming not more than 1,628m common shares are issued and outstanding.

The Company plans to pay the annual dividend in two tranches. The first tranche will be an interim dividend paid during the second half of the year. The second tranche will be the final dividend that will be paid out following the annual results announcement. The details of each payment are of course, as always, subject to approval by the Supervisory Board. And the update of this guideline and the increase in the annual dividend is a reflection of the increased scale of our business and the strength of our enhanced financial position.

Now I'll pass the floor back to Alexander, to discuss the results of our business units.

Thanks, Henk.

As we mentioned before, Russia remains our top priority. In line with the initiatives we announced during the last call, we continue to improve our operations and are already seeing the first results of our efforts. We have reversed the negative trend in active subscriber base and gained 1.7m active customers in a year, of which 1m in the first quarter of this year alone. Despite the growth in subscriber base, we were able to keep ARPU stable year on year.

We invested heavily in the 3G rollout, to improve the coverage in densely populated areas. In addition, we make selective investments in 2G to improve the quality of our mobile voice services. We achieved leadership in distribution, whereby our products are available in the maximum reachable point of sale throughout the country. Sponsored sale of devices led to 20% more mobile broadband customers at the end of March compared to the end of December.

ARPU and MOU dynamics reflect usual winter seasonality, as people travel less and spend more time indoors. It also reflects the B2B customers, as there are 11% less working days in the quarter if you compare it with the last quarter of 2010.

Our fixed line business continues to evolve as well. In the FTTB segment, we continue to grow the active customer base and see encouraging ARPU dynamics. We continued to roll out our IPTV offering, which is now available in 25 cities. We're confident that with our high-quality integrated product offerings Vimpelcom will become the top player in the Russian broadband market.

Now, a few words about our financial results in Russia. Our revenues in Russia increased 5% year on year and amounted to more than RUB60b. The main driver for this growth is data services, both in fixed and mobile segments. And a substantial part of mobile revenue growth came from the sale of handsets and other equipment, which amounted to RUB1.4b.

Quarterly mobile OIBDA margin in Russia was 45.5%, in line with our indication of last quarter. And it reflects our ongoing market activities, including discounts for 3G devices and rapid network expansion, which is driving additional costs. In line with our expectation, the consolidated OIBDA margin in Russia stayed at 42.1%. Going forward, we expect the competitive situation in the Russian market to remain challenging, and it will require us to balance the level of investments and OIBDA margin.

The CapEx in the first quarter was lower than the last two quarters of last year. We return to our normal investment pattern in Russia and we will adhere to our philosophy of investing as we grow, with an improved phasing throughout the year. We continue to expect the total 2011 CapEx in Russia will be at around 20% of our revenues. We believe this will be sufficient to ensure our competitive position in existing businesses and to benefit from growing demand for new services in the data segment.

Let's move to our next business unit, Ukraine. In Ukraine, during the fist quarter of the year, aside from the usual seasonal patterns and interconnect rate cuts, we continue to see further improvements of our operations. We continue to promote high on-net usage, mainly targeted at the price sensitive segment. This helped us to reduce churn and reverse the customer attrition trends. Our active subscriber base remained stable at 24.4m subscriptions.

On the back of growing usage, the ARPU trend indicates the good quality of our new customers as ARPU was up 3% when compared to the first quarter of 2010. We see this as a clearly successful result of our new pricing policy and expect it to support an upward ARPU trend going forward.

We are the fastest growing broadband provider in the country, with 35,000 new active customers added in the first quarter of the year. We continue to invest in FTTB and aspire to become the number one alternative broadband operator in Ukraine.

On a pro forma basis, our quarterly revenues increased 4% year on year despite substantial cuts in interconnect rates. Compared to the previous quarter, our revenue dynamics reflect the usual seasonal trends. Our quarterly OIBDA increased year on year by 15%, while our OIBDA margin remained in our targeted level of the mid 50s.

We are continuing our operational excellence program and synergy initiatives to maintain our margins. The synergies from the combination of Vimpelcom's business in Ukraine with Kyivstar have thus far exceeded our expectations. We expect to continue to see the effect of synergies going forward.

In order to accommodate the growing demand for more sophisticated voice and data services, we continue to invest in our networks. The CapEx to revenue ratio was 12% in the first quarter of the year. We expect the CapEx to revenue ratio for 2011 to be in the mid teens range. We are pleased with the development of our operations in Ukraine and look forward to consolidating our leadership position.

Now let's turn to the CIS segment. Our business in CIS continues to show strong financial results. We are growing revenues year on year at double-digit rates in virtually all of our markets, despite the intensified competition in all CIS countries. Our efforts in our two largest markets in the region, Kazakhstan and Uzbekistan, are paying off.

In Kazakhstan, in the first quarter of 2011 we observed continued subscriber growth, 15% on a year-on-year basis, and a robust OIBDA margin of over 50%. However, going forward, we expect more margin pressure due to the long awaited operational entrance of Tele2 and the introduction of per-second billing. At the end of the first quarter of 2011, all operators in the country introduced per-second billing for their subscribers, in compliance with the new local legislation.

We continue to accelerate the rollout of 3G in the country and we are honored that our coverage was recognized as the best in Kazakhstan. Additionally, data revenue has increased on a year-on-year basis by approximately 66%.

In Uzbekistan, our turnaround efforts have started to pay off. Our sales and marketing push resulted in a 46% increase in the number of active subscribers, as compared with the first quarter of 2010. Our revenues have increased by 30% year on year, with strong OIBDA margin of 45.7%, demonstrating the underlying strength of our core business in the country.

Now, let's turn to South East Asian operations. With just under 2m subscribers, our operations in this region are still in a very early stage of development. We stick to our philosophy of investing as we grow and are taking cautious approach to our investment decisions here.

In Vietnam, following our financing in May, we increased operational control and developed a more focused strategy with a comprehensive commercial re-launch and with more focused investments in the network. First-quarter results were according to management expectations.

In Cambodia, we managed to turn around the negative impact of 2010 regulatory action. Our first-quarter dynamics look very encouraging, in terms of double-digit quarter-on-quarter growth in both revenues and subscribers.

We successfully acquired the Laos operation from Millicom in March 2011. Laos operations continue to be on a very strong growth path. On a pro forma basis, Laos showed year-on-year growth of 60% in active subs in the first quarter of 2011.

With a population of more than 110m, we remain optimistic about the potential of South East Asia mobile market and we continue to enhance our presence in this region.

In summary, the first quarter saw solid financial performance with year-over-year growth across our business units, as well as strong performance from the Wind Telecom assets which we will be consolidating in the coming quarter. We're pleased to see that the efforts we have taken to enhance our market position have achieved the results, even amidst the backdrop of strong seasonal effects and increased competition.

Looking ahead, in Russia the Company will continue to focus on sales and marketing in both mobile and fixed line broadband, and we're confident that we will be able to continue to improve our market position. In addition, we have started cost saving initiatives, our focus remaining on accelerating our growth in this key market. In the Ukraine, we continue to exceed our synergy targets and our market share is recovering nicely, consolidating our leadership position. The story in the CIS continues to be steady, strong revenue growth and healthy margins.

I would like to close with a few brief comments on our next stage of development, the combination with Wind Telecom. This deal takes our business to the next level, with significantly expanded scale and scope, and creates a leading global telecom company. Now that the transaction is behind us, we're fully in the integration mode. Our expectation is that we will achieve $370m of combined operating expense and capital expenditure synergies per annum on a run rate basis, beginning in 2013. And the net present value of the synergies would be $2.5b.

Furthermore, we've put the management team in place to lead the combined Company. As we announced last month, our Supervisory Board has approved a new corporate structure designed to support the successful development of Vimpelcom's enlarged commercial and geographic footprint, while maintaining a lean corporate and management function.

Finally, as you know, I will be stepping down as Chief Executive Officer at the end of the month. I was hired to lead the transformation of Vimpelcom into a leading global telecommunications company with strong growth prospects, and this is now clearly a reality.

The job of leading the Company into this exciting future now passes to Jo Lunder and the rest of the senior management that we have assembled, both here in Amsterdam at the headquarters and at the business unit level across the Company. All at Vimpelcom will work to deliver on the promise of our growth platform. The focus is firmly on strengthening the financial position through rapid debt pay down, driving sustained growth in our business and delivering enhanced value to our shareholders.

With that, we are happy to take your questions. So, operator, could you please instruct the audience on how we proceed now with the questions?

Thank you. (Operator Instructions). And our first question we'll hear from Alex Kazbegi with Renaissance Capital.

Yes. Hi. Good afternoon. My two questions, I guess. One would be if you can maybe elaborate a bit more on the gross margin decline. Presumably the reasons are interconnect, the subsidy. So especially I'm just curious to find out -- you were saying in the presentation as well that you clearly subsidized the -- I don't know whether it's USB modems or modems in general for the broadband. You had quite a good uptake of subscribers on the residential side. So I was wondering for the reasons again to have the gross margin lower.

And also, just going forward, what should we expect in terms of the subsidies you see the reasonable level. Are they going to be still very aggressive going forward, or you think that period has sort of lapsed now?

Secondly, just wanted to comment, it's not our job to compare you with some other operators but your revenue growth in data has been actually markedly slower than what we have seen with your immediate competitors in Russia. So I was just wondering, again, what do you see impeding that and how do you see that changing going forward? Thank you.

Alex, hello. This is Elena. Thank you for those questions. Gross margin definitely was impacted both by our bundles which we provided for USB modems, because we really went into this activity in order to stimulate their traffic and the usage from our subscribers. Because we think that for us it was very important to launch that company, as I would say, try and buy.

Our 3G network was not very well developed, I would say, in 2009/2010, and that caused subscribers kind of more looking towards our competitors to get that service. And so when we launched the network build out, we wanted to show the subscribers that, yes, the service is already there, and we have to stimulate then somehow to start using it. So that was kind of a natural development, to follow the network construction with the marketing activities.

And that's the data story. And that's why we haven't yet seen maybe such a huge increase in data revenue, because initially we have to concentrate on the growth of subscriber base and traffic. So that's the data story.

Going forward, of course, we are planning to rebalance our approach and to provide, I would say, more services on (inaudible), and using the opportunity to give more comfort to our subscribers with predicted tariffs and predicted, I would say not tariffs but predicted level of spending. So that's the idea going forward.

But also gross margin was impacted by rebalancing of our voice tariffs, because you know that for quite a long time our prices for voice was far above the market -- the average on the market. So of course we needed to rebalance it, and that also was part of the story on pricing excellence, that definitely our offer should be a combination of value versus price. So that was the major reasons for decline in gross margin.

But do you see the subsidies then on the bundles and everything to continue for the time being, or you've been less aggressive on that side?

Yes. In certain regions where we think that we should promote the idea that our network is already there, yes, we will continue. But generally speaking, in some of other regions where we see that the situation is already fine, then we will start to kind of limiting that activity.

Okay. Understood. Thank you.

And next we'll move to Tibor Bokor with Otkritie.

Yes. I would like to continue on the Russian strategy, specifically with the fixed line strategy. And is it a build or is it a buy strategy? Going -- expanding into Russian regions, are you going to invest into building FTTB or do you see good acquisition targets on the horizon? That's my first question. Thank you.

Thank you for the question. Initially, yes, our assumption was that we have to go with the greenfield in FTTB construction, and we are following that policy. But nevertheless, of course, if we see good opportunity on the market for acquisitions, of course we are looking into it as well. Especially in certain cases in the cities where there are already several competitors, it's much more efficient to go through M&A rather than build out, so it's both combination.

Is there any target that you can share with us in terms of what is your target market share in terms of fixed line broadband in Russia?

No. Actually, no. It's pretty hard to give targets on the market where there is no specific, frankly speaking, information about the size of that market, because a lot of small companies which are operating in that segment there just are not publishing their data.

Understood. And the last question is on Euroset. Can you give us the number how much Euroset contributed into the P&L in the first quarter?

In which sense? We are not consolidating Euroset.

In terms of the net income impact, the equity method consolidation.

Yes, the -- most of the step-up that you see in the comparison on the statement of income between March 31, 2010 and March 31, 2011 under the heading of equity in net gain or loss of associates comes from that. Total amount was $63m.

$63m in the first quarter, correct? $53m.

$63m.

$63m. And most of that comes from Euroset, is that correct?

Yes, that is Euroset.

Okay. Thank you.

And next we'll move to Will Kirby with Nevsky Capital.

Thank you. Yes. Just one question, please. Sales and marketing expense in the income statement was quite well controlled, especially given advertising rates in Russia, for example. Should we be expecting that normalized through the balance of the year, or do you think this low level of only 8% or so of sales is sustainable?

Talking about sales and marketing, there are two sides, I would say. It's real advertising and dealer commission. So, in advertising, it's all seasonal. You know that of course there are certain seasons that -- where we spend less, and in certain cases where we have promotion campaigns, of course the campaign definitely it will be high.

Talking about the dealer commission, we think that for dealer commission -- as long as we continue to be pretty active in our sales, we think that the total spending on the dealer commission may go up. But spending per each gross sale will continue to be the same.

Okay. Thank you.

And next we'll move to Herve Drouet with HSBC.

Yes. Good afternoon. My first question is regarding CapEx. Historically, we've seen your CapEx more back loaded at the end of the year. It looks like this year is quite different and looks to be front loaded in the beginning of the year. So the question I have is, is this CapEx increase driven by your catch up, and you believe increasingly CapEx is used as a competitive criteria versus your competitors, or is it driven by increased usage on data you are currently experiencing? And do you believe CapEx for the full year could be above the guidance, if there is a chance you think we may see CapEx higher than what you previously guided? So that's my first question.

And the second question is regarding what for you is the more important in terms of driving broadband data for you. Would you prefer to grow the USB modem segment or the FTTB?

Let me start maybe with CapEx, because I guess that mainly relates to Russia.

Yes.

Everything seems to be relating to Russia today.

(Inaudible) or CIS, they also spend somewhat. So, CapEx in Russia. The whole idea of, I would say, milestones which we indicated at the end of last year is to make our network construction process better, and that's why not to have that that peak which we saw before in bringing everything to the end of the year. So we put together the processes that allow us to be more smooth in capital investment.

And of course that capital investment serves both to improve quality and capacity of the network in any shape or form, both in fixed and mobile. Because the network itself we are now kind of integrated operator, and of course we have to develop all the parts of the network, including radio part, including local connections with FTTB, including transport network, everything. So everything should be linked and everything should be developed in line, in order to avoid situations where we have excess capacity, for example, in one part of the network, but do not have enough transport to carry the whole traffic.

Talking about our preference in broadband, whether it's USB modems or it's FTTB, it's kind of the preference between your right and left hand. Because again, as we nominated assets, integrated operator, we think that we should be able to provide absolutely all range of services everywhere and at the high level of the quality. So that's the whole intention of our build out. And meanwhile, saying that, of course we have very aggressive plans in terms of improving the quality of the network. But we still think that currently we will be able to stay on this level, as we indicated, approximately 20% of revenue.

Right. Thank you very much.

And Stefan Gauffin with Nordea will have our next question.

Yes. Hello. Stefan Gauffin, Nordea. I will also continue with some questions on Russia. First of all, regarding the rebalance of voice tariffs, how much did you on average reduce your tariffs? And when did you make the change, i.e. have we seen the full effect of this in the quarter?

Secondly, a little bit around margin development in Russia. Both you and your closest competitors have seen a recent decline in EBITDA margins, even if we assume 0% margin on handset sales, so underlying mobile EBITDA margin seems to be in decline. Why is that? And what should we expect going forward?

Actually, it seems to me that these two questions are very much linked, because of course OIBDA margin to a large extent impacted by the development of prices. And development of prices, of course, roughly speaking, on the presentation slide we can see that our ARPU year on year stays the same, but minutes of use increased somewhat around 7%. So, theoretically, we can derive from this that the prices declined 7% on average, and that means that ARPU stays on the same level.

But of course average is always very tricky, a tricky point. In reality, what we did with the rebalancing of tariffs, and so what we are referring to, is that we put our tariff plans and our proposals in the market absolutely on par with our competitors, so really to be competitive. And that's why we see that permanent growth in subscribers, which we saw already approximately five, six months, and specifically an addition of 1m of subscribers in the first quarter. That's also part of the strategy with pricing excellence and development of distribution channels.

Talking about in general the gross margin in mobile, of course the competition is increasing. And if we are talking about voice prices, yes, most probably we should expect that they will continue to decline. And actually, the whole history was showing that, yes, voice prices were declining. But meanwhile, we think that there can be positive impact on gross margins if we will go more into the data services, because data services they have a higher margin than currently voice services. So it will be a combination.

Okay. Thank you.

And next we'll move to Igor Semenov with Deutsche Bank.

Yes. Hi. I noticed your income tax is quite low. I was just wondering what should we expect going forward.

And also, in Kazakhstan you reported a decent growth in revenue, but at the same time it's really far behind TeliaSonera. I was wondering if we should assume -- first of all, what's going on in Kazakhstan? Why are you so significantly behind the competitor? And is there an action plan to close the gap? Thank you.

It's Dmitry Kromsky. Thank you for your question. Yes, if we compare our first quarter of 2011 with the first quarter 2010, our growth is behind our main competitor. And one of the reasons was because in 2009 and part of 2010 we were very slow in investments, and we have some gap in coverage in the country. But if we compare the first quarter to the fourth quarter of last year, both competitors show the same dynamics. So the market -- we are growing in line with the market. And our main efforts are acceleration of 2G and 3G rollout and the improvement of our sales distribution channels, so this plan of activity is in place and we see the positive trends.

Okay. And on the income tax?

On the income tax side, there are a few one-off elements in the first quarter that depress this income tax expense. But we expect for all of the year that they'll be more or less in line with what we saw last year.

Okay. Thanks.

And next we'll move to Will Milner with Arete Research.

Thank you. My first question I guess is to Alexander. I just wonder if you could -- as much as you're able and I appreciate your hands may be slightly tied, but if you could give us a bit more detail behind your decision to leave the Company after such a short time, I guess your second tenure as CEO, I'd be really interested to hear that.

No, actually my hands are not really tied. And I thought that I would go on my last call without any questions actually directed to me, so thank you for that.

The decision was very simple. Actually, I came back truly for a very specific mandate. And it wasn't obvious at all that the transaction when I started, a transaction will happen or what kind of transaction it will be. So the task was actually to set VimpelCom off onto a new platform and to establish presence in Amsterdam and create new modus, the way of operating, with a light headquarters which is detached from the operation, if you wish, and runs it on more financial basis, while exploring what are the strategic options for Company's further expansion, because large shareholders from the outset actually saw it as the main objective for establishing Amsterdam platform to realize that. So that's what I was focused on.

Now, when we are done, it's clearly a right point in time for the CEO to make a decision whether to stay on and commit for quite a few years and for a different intensity of involvement into the operations and see the Company through this period, or to step down and let somebody who is prepared to take this longer-term commitment to take the helm. To lingering and sitting there the lame duck doesn't do any good to anybody. Hence, the decision was somewhat more accelerated. Normally, I would step down at the year-end, when my contract would expire. But we decided to accelerate, given that succession is so comfortable, in a way, because Jo was deeply involved in many of the aspects of running the Company and that's territory very, very well familiar to him.

So it's also been driven to some extent exactly as the first time I left; it was exactly the same reasoning. And it hasn't changed that being involved into an operational side of the Company intensely requires different type of commitment both from the traveling standpoint, emotional standpoint, and in this particular case would involve the relocation to Amsterdam, full relocation to Amsterdam, which I wasn't prepared simply to do. So, in that sense, my reasoning is pretty much the same as it used to be. The mandate is fully fulfilled, completed, and now it's a logical point in time to step down.

Okay. Thanks. That's very clear. And I guess good luck, whatever you decide to do next.

Thank you.

My second question is actually a slightly more boring question, just on the net debt figure, the pro forma net debt figure which you gave of $23b at the first quarter. I just wonder if you can help us understand that a bit better. Because if I take the net debt figures of VimpelCom, Wind and Orascom at the end of the first quarter and convert to US dollars at the appropriate rate, then subtract the cash payment to Weather of $1.5b and the final dividend, I get to around $21.5b, so there is a $1.5b difference. But I know in the footnotes you mentioned there were some appropriate adjustments, and I just wonder if you could explain a bit more about what those appropriate adjustments are and maybe what I've missed.

Yes, certainly. There is always -- when you integrate companies or when you integrate balance sheets, there is a factor of how you factually define the net debt structure. And what turned out to be was that in the way in which Wind Italy and Orascom define net debt that has a slight difference with the way in which it is done at the level of VimpelCom Limited. There corrections were made for the value of derivatives and certain receivables on the balance sheet and we kind of corrected that back, and that more or less explains that delta.

Okay. Thank you.

And we'll move on to Viktor Klimovich with VTB Capital.

Hello. Alexander, before you left, I have a question. There was an information today that you will do another round of negotiations with Algerian government. Can you give us a bit more light, if possible and where possible, what will be these negotiations? Was this initiative came -- this initiative came from the Algerian side or from your side? Anything which is possible to comment regarding this.

I think the information is coming from the press conference we had earlier on and the press release.

Yes.

A bit too quick to put it into the definitive terms. What I said there was that, yes, we have initiated an approach, exactly as we said before, that we will be seeking ways to arrange a formal -- open a formal dialogue with the Algerian government. We haven't received any formal reply yet, and we are hoping to see something coming back to us in the near future. All the feedback we are getting through the back channels that, yes, they are willing, and we are basically waiting for the confirmation there.

As long as I am in the office, I guess I will be carrying it on. If the discussion opens up, clearly it makes sense for me to see it through to the extent possible, even after I step down, just simply for the sake of completing an activity which has been opened and some relationship been established. But if it doesn't start in June, so then of course it's my successor who will pick up the torch.

So, in that sense, there is nothing definitive to report. It's simply we are confirming that, yes, we are seeking, and we haven't received yet formal response, although back channels indicate that it's likely to happen.

Okay. And may I ask the second question to Elena Shmatova, if I can? Elena, Alexander -- you said that in Russia you -- answering the first question to Alex Kazbegi, that your gross margin declined due to some decrease of tariffs. But if we take a look at average price per minute, when we divide ARPU by MOU, then we see that actually average price per minute hasn't declined during the quarter. So can you comment on this?

During the quarter, of course on average it's the same story that you won't see it first of all on the short period that impact of the new tariff plans launched. Normally, we see the trend that the new subscribers who are connecting to the new tariff plans, their impact on the average price per minute takes kind of longer time and depends on how quickly the composition of subscriber base will be switched from old tariff plans to the new tariff plans. And that's the major reason.

But if you look in the shops and outlets, you will see that, yes, the rates we are launching, the new tariff plans which are more competitive. And the impact on this, as I discussed previously, answering for other questions, that, yes, the voice prices will continue to be on the lower level than we used to see it before. So that's kind of normal trend and we have to cope with this. And to cope with this, of course we have to be more active providing value-added services which we can price higher, and of course working on our cost structure. So that's why we think that we are still on a pretty robust position in terms of our future OIBDA and cash generation in Russia.

And one follow-up regarding this, do you intend to play more with the on-net prices in tariffs or both on-net, off-net, so any indications?

No, of course on-net is much more preferable because of course it gives you more margin, but off-net is also a very interesting point, especially in our case. Because, for example, if we are looking just separately on Russia business unit, for example, a call to VimpelCom Limited business unit in Kazakhstan will be off-net, but in reality on the Group level it's on-net. So that's a tricky point, but you have to -- really to forecast and foresee this. Because, for example, we launched a tariff which is called Beeline World, and on Russia standalone basis you may see it as lower tariffs off-net, but on the Group level that's a pretty good tariff plan which serves everybody.

Okay. Thank you very much.

And we'll move on to Howard Goldberg with Credit Agricole.

Thank you very much and good afternoon. I was hoping you could speak for a minute about the prospect of refinancing the Wind acquisition, high-cost debt, the 11.75% and 12.25% coupon bonds. Can you give us any thoughts about where you stand in that process, and if there is any possibility of taking out that debt soon?

Yes. I can basically repeat the same thoughts that I repeated in the previous conferences, is that there is an optimum timing for looking at the restructuring of the debt for the total of the Group. And particularly the high-cost notes that you find in the Wind Italy structure, that timing will be towards the end of 2013. And if you do it earlier than that, that would have quite significant make-whole cost. So we would probably wait till the optimum moment, but then certainly we will look at the total structure of the Group, as I indicated earlier, to do that by the second half of 2013.

On the other hand, the whole restructuring and refinancing of the debt at the Orascom holding level, that has been done in the meantime. So all of the debt holders have been paid and we have actually acquired that debt via an inter-company funding structure, completely in line with what was disclosed and discussed in the Orascom General Meeting.

Okay. And along those lines, is it fair to say that you would not consider issuing equity to redeem the Wind bonds at lower prices? Is that off the table or not?

I am not aware that we ever indicated that there would anything be on the table, but I will certainly not go into any detail of structures that we might develop over the next one to three years. It's always better when you have something. We will announce what it is and not do it earlier.

Okay. I appreciate it. Thanks very much.

And we'll move on to Konstantin Belov with Uralsib Capital.

Hello. I have a question to Elena Shmatova. I want to come back a bit to the issue of on-net calls. So can you please indicate what is currently your share of on-net traffic in Russia and whether you see the trend is increasing or stable or not? Thank you.

Yes. The trend is increasing, although slowly, because, yes, of course we are trying to put more -- have more traffic on-net. As for exact numbers or what is the percentage, I guess that our IR will answer this.

Okay. Thank you.

Yes, are you ready to move on to your next question?

Thank you. That's it.

Next we'll move to Viacheslav Shilin with Deutsche Bank.

Good afternoon, everyone. This is Viacheslav Shilin from Deutsche Bank. Is it possible at this stage to provide a total CapEx, EBITDA and EBITDA margin guidance on the level of new VimpelCom, or post the merger with Wind Telecom?

Viacheslav, we never guide. We never guided in the past and we are not going to change our policy. We indicate the total level of CapEx, or rather the ratios of CapEx to revenue. And these we will provide when we report the second quarter for the Group. For VimpelCom as it was in Q1, we said that our CapEx will be in the ballpark of 20% and maybe slightly above the level of the last year. So, beyond that, we don't disclose and don't guide.

Okay. Understood. And the second question, just to understand whether the -- your position in terms of the outlook on the leverage remains unchanged, or if there is a change please correct me, following your transaction with Wind. So, do I understand correctly that you expect a net debt ratio -- net debt leverage ratio to trend towards 2 times by the end of 2013? Is this the right understanding?

Yes, that's the correct understanding.

Okay. Thank you.

And Alex Wright with UBS will have our next question.

Yes. Thank you. I just had a couple of clarifications on the new dividend guidance that you've given, please. First thing is, is the -- does this supersede the 50% payout of free cash flow from Russia and Ukraine that you'd previously given as your policy, or is that still valid alongside the new guidance that you've given?

And secondly, can you just clarify, when you say that you intend to pay out a minimum of $0.80 annual for 2011 to 2013, is that on a cash basis or an accrual basis? So, in other words, for 2011 should we expect $0.80 minimum to be paid out during this calendar year, or is that the total of the interim plus the full year dividend for the year 2011? Thanks.

With regard to your final point, indeed that is the total of the interim for 2011 and the final dividend that will then be paid in the year 2012.

And with regard to the first point, in the shareholder agreement this 50% notion is established, so that will remain to be in place. But what we have done is increased the scope of where we look at and that is factually the range of what is called net cash from operating activities, because that will factually widen the level and the size of the cash flow that is available to look at in terms of dividend. And we indeed indicated that we aim to pay out at least $0.80 per share, assuming the amount of shares as mentioned.

Okay. Thank you. But the 50% minimum payout for Russia and Ukraine, this definition of the free cash flow that you used in the past for that is unchanged?

Yes, that definition is unchanged, but that is part of the shareholders' agreement. You should now look for the indication into the guideline, and that looks at the net cash from operating activities minus the CapEx, as you will find it in the cash flow statement.

Okay. Very clear. Thank you very much.

And we'll move on to Alexander Vengranovich with Otkritie.

Yes. Good afternoon. I have a question regarding your amortization charge, please. In the fourth quarter there was [$120m] charge. This quarter it's (inaudible) less. I am just wondering what drives that, what was the maybe one-off fourth quarter, and what are you expecting for the rest of the year (technical difficulty)?

Sorry, your question was very difficult to hear. Can we -- because it is probably also a question that we cannot immediately answer now, can you give the question to investor relations and I will come back on that?

Okay. Thank you.

Okay.

Thank you.

And next we'll move on to [Kay Hope] with Bank of America.

Hello. Some of my questions have been asked, but I wanted to ask a little bit about plans for new issuance, what kind of timing you may have for that. I know you had spoken about potential issuance at the end of this year on a previous call and I wondered where that stood, and also at what level of the Company you would expect that to take place at.

I am not aware of having talked about anything like new issuance on the previous call, so there are no plans for a new issuance.

And that's for the remainder of this year?

Well, there are no plans. So that is not only relevant for now. There are no plans, and when there are plans we will inform you.

Okay. That's fine. Thank you.

And we'll move on to Kathleen Middlemiss with UBS.

Yes. Hi. Good afternoon. Can you just confirm or not confirm is the debt at the Wind level ring-fenced from the VimpelCom Group or not?

Yes.

It is ring-fenced. So it won't be at the VimpelCom Group level; it's at the Wind level. Okay. And we did read somewhere that there was some debt paid at the Orascom level after the first quarter. Can you confirm if anything has been repaid since then?

Well, there was a -- I think there is a little bit -- there are two elements. One is of course that at the Orascom holding level the complete refinancing took place, which was already foreseen and also discussed and approved in the General Meeting of Orascom, and I think you probably relate to that point. So, in that sense, there is now only at the Orascom holding level the inter-company relationship with VimpelCom.

Okay. Just coming back, sorry, to my first question, the ring-fenced amount at Wind, what is the exact amount that's ring-fenced then at Wind's level?

I do not recall the exact amount at the Wind level. I think it's about $12b, if I am correct. And that is the amount which is fully ring-fenced at the Wind Italy level, so that's (multiple speakers).

Right. Okay. Thank you very much.

Thank you.

And we'll move on to Nadezhda Golubeva with Unicredit.

Yes. Good afternoon. I have a question [please for Alexander]. So, compared to the market performance, your revenue growth is not very impressive, although you're clearly making efforts. And so do you have any expectation regarding when I can see a turnaround, so like do you expect your growth to improve next quarter or like -- and talking about the total year, what's your target, let's say compared to the growth which we saw last year? Do you think you can surpass it or -- so I understand that you don't guide, but -- so could you give some -- could you share some like of your plans and visions regarding your position in the market in the end of the year? Thanks.

Nadezhda, hello. Thank you again for tough questions, as usual. So, definitely, yes, the revenue is following -- the growth in revenue normally follows the growth in active subscriber base, and that's what we start seeing and we see it as a good basis for further revenue growth. Of course it's pretty hard to say at which exact and specific point we may turn the situation around, but we see the progress.

We see that if you look on the month-on-month basis, according to our estimations, we already have some improvements in our position. But maybe it's too early to say about this. And of course our target is to improve our position on the market in all the segments. And looking on us not only as a mobile, just pure mobile operator, but taking into account how much we are investing into the fixed side, we think that, yes, we should be treated as integrated operator. And we think that we will establish ourselves in a very solid position as integrated operator and showing growth both in mobile and fixed.

Okay. Thank you. And I have another question or a different one. Do you think and do you have some plans regarding inclusion of VimpelCom into some index and when you can address this thing?

Yes. We will certainly look at the whole structure in terms of indices and listings towards the end of the year. You have seen also in our press release that we announced that we will step over to IFRS. IFRS in itself is still an accounting method which is completely allowed under the New York Stock Exchange listing. But it is also a moment to look at opportunities to use that step to IFRS for other purposes. So, we will certainly do that and we'll certainly inform the market when we have come to any conclusion in that sense.

Okay. But basically it's not a near-term issue, yes? You think that it will be closer to this -- let's say to the end of the year, yes?

Yes.

Thank you.

Closer to the end of the year.

Thank you.

Thank you.

And next we'll hear from Rita Tsovyan with Renaissance Capital.

Yes. Hello. I have a couple of questions following that. First of all, the bridge loan refinancing, did I understood correctly that you don't plan to raise funds on the bond market? So will the refinancing be through bank borrowings or some other sources?

Yes. The bridge loan we always indicated that over time we would take them out via a bond and that is still the plan.

Yes. And so when should we [weight it]? And will it be in the ruble bond market or in the euro bond market?

That is of course asking for information that we cannot provide. We will always inform the market at the moment that it is going to become reality.

Okay. One more question on the Orascom high-yield bonds which you were planning to redeem after the acquisition. So do you plan to collect (inaudible) in near future?

Sorry. It has been, you could say, paid back from the original debt holders or bought back from the original debt holders, so this is now in the hands of VimpelCom via an inter-company loan.

Okay. Thank you.

Yes.

And next we'll move on to Marina Vlasenko with Commerzbank.

Yes. Hello. Quick question. In the presentation, you are saying that the pro forma results are not adjusted for the impact of de-merger. Are these de-mergers only (inaudible) or are there any other de-mergers? And could you give any rough guidance of those -- on those de-mergers?

Well, there are two de-mergers that have been in detail announced, and maybe you could look back at the press releases of that time when we announced the transaction with the merger with Wind Telecom. So there is a de-merger of smaller activities, more Internet related activities and cable activities in Italy that factually has in the meantime also been done. And then it was in Orascom mainly the de-merger of the Koryolink business in Korea and the MobiNil share that was in Egypt. And the rest are cable businesses, mainly.

Is it possible to give any guidance how it affects the debt and the EBITDA?

No, because all these effects were already included in the figures that I -- that we mentioned here today. So there is no further effect from that to be expected.

Okay. Thank you.

And we'll hear from Igor Semenov with Deutsche Bank.

Yes. Thanks again. Can you provide a little bit of information on your Russian operations? For example, how many of your -- how much overlap is there between your fixed and mobile subscribers? How many of your broadband subscribers are also your -- sorry, how many of your broadband subscribers are also your mobile subscribers and vice versa?

And the second question is what is currently the smartphone penetration in Russia on your network? And what have been the trends in both areas, the overlap and the smartphone penetration?

The -- Igor, you know the questions are too specific, so maybe I will answer you kind of in written and provide you this -- all information through Marine Babayan.

Good. Thank you.

And next we'll hear from Anna Lepetukhina with Troika Dialog.

Sorry. Actually, all my questions were answered. I have no questions. Thank you.

And there are no further questions at this time. I would like to turn the call back over to management for any additional or closing remarks.

Well, thank you very much. Thank you for participating in our call. And as we already indicated, some of the questions will be answered by our IR team. We'll provide you with more specifics. But if you have any further questions, please do not hesitate to contact them. And have a nice day and goodbye.

And that will conclude today's call. We thank you for your participation.