VEON Ltd (VEON) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the VimpelCom Ltd third quarter 2012 investor and analyst conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Alex Tramont of FTI Consulting. Ma'am, you may begin.

Thank you. Good afternoon, ladies and gentlemen, and welcome to VimpelCom's conference call to discuss the company's third quarter 2012 financial and operating results.

Before getting started, I would like to remind everyone that forward-looking statements made on this conference call involve certain risks and uncertainties. These statements relate, in part to one, the timing of the dividend authorization; two, the company's plans to optimize costs in Russia and Italy and to roll out its LTE network in Russia; and three, the company's expected future debt position and refinancing plans. 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 earnings release and presentation announcing third quarter 2012 results; two, the company's annual report on Form 20-F; and three, other recent public filings made by the company with the SEC.

Certain amounts and percentages that are used here have been subject to rounding adjustments. As a result, certain numerical figures shown as totals including in tables may not be exact arithmetic aggregations of the figures that precede or follow them. Please note that the actual financial results of the third quarter of 2012 are unaudited.

If you have not received a copy of the third quarter 2012 financial and operating results release, please contact investor relations at +31207977234 and it will be forwarded to you. In addition, the earnings release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented on this conference call can be downloaded from the VimpelCom website.

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

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

Let me start by introducing the members of the team sitting with me here in Amsterdam. We have Henk van Dalen, our Chief Financial Officer, who will be covering the financials in detail later on the call and Gerbrand Nijman is here, our Head of Investor Relations.

In the third quarter VimpelCom continued to deliver on its strategic priorities as defined by the Company's Value Agenda for 2012 and '14, with profitable organic growth in almost all business units. The Group recorded a 3% organic growth in revenues year on year reaching $5.7b. Excluding the impact of reduction of MTRs in Italy, the organic growth would have been 5%.

EBITDA increased 8% compared to the same period last year, leading to a margin of 44%. This is the highest margin we have achieved since the combination with Wind Telecom in April 2011.

We are pleased with the continued positive operational developments in Russia where EBITDA in local currency grew double digits in the third quarter. Likewise, CIS also delivered double digit organic growth in EBITDA.

In Italy we are facing a challenging regulatory and economic environment, but our operations there continue to outperform the markets and Wind has further strengthened its market share. In Ukraine 2012 remains a transition year and we see an improved and accelerated migration to bundled offerings.

In the third quarter we achieved strong overall subscriber growth with an increase of 7% reaching 212m mobile subscribers. The largest contribution came from Africa and Asia and from CIS.

The Company was able to deliver a solid financial performance in the third quarter, despite a considerable negative impact from currency movements. Net income reached $538m, almost triple last year's third quarter results. And it continues to deliver strong cash flow with net cash from operating activities of $2b.

Before moving to our operations by business unit I would like to briefly touch on some important recent developments. The Supervisory Board of VimpelCom has decided to schedule the VimpelCom Annual General Meeting on December 21, assuming that the FAS claim will have been resolved by November 27.

We expect that once the FAS claim has been resolved the Supervisory Board will consider the payment of the final dividend for 2011. As you might have noticed, the dividend is not included in the AGM agenda, as this decision is a matter that rests with the Supervisory Board.

In relation to Algeria, we continue to negotiate with the local authorities on finding a mutually beneficial agreement. And discussions are still progressing well.

Turning to Canada, VimpelCom supports OTH's efforts to increase the voting stake in Wind Canada to 65%. And we are optimistic that the Canadian Investment Authorities will approve this decision.

And finally, we announced today that we will be hosting our Analyst and Investor Day on January 16 in London. And I hope you will all join us for this event.

Now moving onto the performance of the five business units, starting with Russia, In Russia, the company maintained the positive operating trends as seen in the first half of the year. The business saw organic revenue growth of 7% while EBITDA increased 16%, leading to an EBITDA margin of 43.2%, delivering on our strategic strategy of profitable growth. The revenue growth was supported by a 38% increase in mobile data revenues as we continued to promote these services.

We are also making significant progress on the operational excellence program. And we are well ahead of schedule on the RUB5b in annualized savings. This is also confirmed by an increase of just 1% of operational expenses, despite the significant growth of the business.

In addition, we have launched initiatives focused on increasing further operational productivity. Our churn rate in the third quarter was 15% down from 16% last year. But more work is required to secure our objective of reducing the churn. It is though worth noting that our churn rate partly can be explained with higher proportional migrants in our customer base compared to our competitors.

We also continued to improve the efficiency of our networks through agreements on network outsourcing and we will seek to expand this model to other regions in the near future.

We are on track to deliver continued improvement in the network quality and to drive the popularity of the mobile data services. We plan to launch LTE in Moscow and in six other Russian regions in 2013.

Last 12 months CapEx to revenues stood at 18% as we continue to effectively invest in building out the 3G network. In summary, we are pleased with the progress in Russia and we will continue to execute on our strategy there.

Moving then to Italy, in Italy Wind continued to outperform competitors and gain market share in the face of regulatory headwinds and a very challenging market environment. Despite this difficult context, total revenues were flat year over year if we exclude the impact of the mobile termination rates cuts. Our mobile data offering continued to achieve strong results with mobile broadband revenues up 40%, mobile messaging revenues up 9% and fixed broadband revenues up 3%.

EBITDA was impacted by the July MTR cut which was partly offset by our cost reduction initiatives. That said, the company was able to deliver a stable EBITDA margin of 40.4%, and operating free cash flow generation also remained solid at the stable level of the previous year.

Mobile subscriber growth in the third quarter was strong, up 3% with a record number of gross additions and 63% of the market net additions in the third quarter.

An important milestone was achieved in October as we made significant progress in optimizing our cost structure. We signed an agreement with our employees to adopt a cost efficiency plan that will increase productivity of the network maintenance personnel and at the same time reduce our HR costs. Through this plan we aim to reduce maintenance OpEx by approximately EUR40m to EUR45m per year from January 1, 2013 onwards.

Looking ahead, the cut in MTRs is expected to continue to increase pressure on the top line for the next year and a half. For this reason we will remain focused on adjusting our cost base through structural OpEx measures in order to protect and focus on cash flows, margins and EBITDA levels in Italy.

Moving then to Asia and Africa, in Africa and Asia business units the revenues recorded an organic growth of 5% driven by strong subscriber growth and increase in data and value added services in our key markets.

Due to the devaluation of the local currencies of Algeria and Pakistan against the US dollar the reported revenues declined by 6%, EBITDA amounted to $424m with an organic growth of 6%. As a result again of operational excellence initiatives and despite the negative impact we had in the third quarter from Ramadan.

In Algeria, our subscriber base grew by 9% while revenues increased by 2%, negatively affected by, again Ramadan occurring in the peak summer of July. EBITDA in the third quarter increased by 1% in local currencies. Despite the challenging operating conditions, Djezzy remains the market leader with a 66% market share.

Our performance in Pakistan remained strong with Mobilink delivering revenue growth of 4% driven by a strong focus on subscriber growth as well as increased data and value added services penetration. This performance came despite two government-mandated network closures during the third quarter. EBITDA increased by 10% driven by growing revenues and ongoing cost control measures including lower customer acquisition and retention costs.

In Bangladesh, the third big market in Asia Africa business unit, our subscriber grew by an impressive 21% in the third quarter, reaching 26.8m subscribers. Revenues increased by 23% driven by subscriber growth, a higher level of value added services and data as well as targeted product and reactivation promotions. EBITDA increased by 9% impacted by higher subscriber acquisition costs.

Moving onto Ukraine, in the Ukraine we continued to invest in our market position in the mobile segment by migrating customers to bundled offerings. Revenues in the third quarter increased by 4% as a result of this migration and we were also supported by strong dynamics in our fixed line business, which saw revenue increasing by 11%.

EBITDA declined by 1% due to higher service costs and higher subscriber acquisitions costs reflecting increased sales and an increase in the network and IT costs.

The transition to bundles improved and accelerated in the third quarter and the migration is expected to be finalized by the end of this year. We are deploying initiatives focused on up-selling low and medium ARPU customers after they have transitioned to bundles now. And in addition, VimpelCom continues to focus on optimizing its cost base in order to maintain efficiency. With the aforementioned measures, the company expects to further solidify its market position in 2013.

Moving onto our last business unit, in CIS we continued to deliver strong revenue and subscriber growth in the third quarter despite an increasingly competitive environment, especially in Kazakhstan.

Revenues grew 17% year on year on an organic basis for the business unit. Adjusting our revenues in Uzbekistan for normalized growth in the first half of 2012, underlying revenue growth year on year in CIS would have been similar to the one you saw in the second quarter of 2012.

EBITDA increased 28% on an organic basis driven by one-off adjustments in Kazakhstan and the incidental strong mobile revenue growth in Uzbekistan. EBITDA margin in the quarter increased to 49% improving 3 percentage points over the previous year.

In Kazakhstan, the largest CIS market, we saw revenues decline marginally as a result of the competitive environment and a limitation on tariffs introduced by the regulator last year, which led to an average price per minute decline. Nevertheless, EBITDA grew by 6% supported by one-off positive effects of $12.5m in the third quarter.

In Uzbekistan, VimpelCom strengthened its market position in the quarter after the forced closure of a competitor's network. The revenue growth was 88% year on year and normalized to the growth level of the first half of 2012 it still would have been strong with a growth of around 35% year on year.

With this, I'll pass the floor now onto CFO, Henk van Dalen who will discuss the Group's financials more in detail. Henk?

Thank you, Jo. The third quarter results in US dollars were significantly impacted by the appreciation of the dollar against the local currencies in almost all of VimpelCom's operating businesses compared to the same period of last year.

Overall revenues on an organic basis increased 3% year on year. As said, excluding the reduction of MTR cuts in Italy, the organic growth would have been close to 5%. On an actual basis, revenues decreased 6% driven by significant depreciation of the local currencies against the US dollar.

EBIDTA on an organic basis in increased 8% year on year while reported EBITDA declined 2%. Excluding the MTR cut in Italy, EBITDA would have grown organically by around 9%. EBIT grew 17% driven by the declining amortization pattern applied to intangible assets as mentioned and discussed before.

Profit before tax increased 136% due to higher EBIT, a higher gain from the investment in Euroset, in addition to neutral movements in fair value derivatives in the third quarter '12 while these were showing very negative movements in the third quarter '11. In addition, we recorded a net foreign exchange gain of $36m this quarter compared to a loss of $137m last year.

Net income nearly tripled as a result of a higher profit before tax and a lower effective tax rate this year compared to the third quarter 2011 when certain net operating losses incurred that were not recognized for tax purposes.

Then onto the debt, cash and the various ratios, on a consolidated basis the actual net cash from operating activities in the third quarter was $2b, positively impacted by the receipt of $190m related to the monetization of an interest rate swap and a positive working capital movement, partially offset by higher interest and tax payments compared to the same period last year.

Gross debt was stable in the quarter at $26.6b mainly due to foreign exchange movements and repayments, and refinancing of ruble loans and euro loans, including the repayment of the final part of the bridge loan in Italy.

Net debt decreased to $22.7b leading to a net debt to the last 12 months EBITDA of 2.4 times at the end of the third quarter. We ended the quarter with a balance of cash, cash equivalents and deposits of $4b.

Turning to the debt maturity schedule, this remains reasonably well balanced over the coming years. There is a peak in the maturity profile in 2017 caused by the Wind Italy debt but we plan to refinance this before that date. However, this will not be completed before the end of 2014 and timing will of course depend on market circumstances.

Total gross debt was as said $26.6b at the end of third quarter with an average weighted interest rate of 8.6% in the quarter. Our balance of foreign exchange exposures in gross debt remains diversified across the euro, ruble, US dollar and other currencies.

In Russia we repaid the Sberbank loan of RUB7.2b partially refinanced that as well. And then in Italy we paid the final part of the bridge loan for an amount of EUR250m with cash available and parts of drawdown on the revolving credit facility.

Furthermore and as you can see also on this slide, we have substantial undrawn committed revolving credit facilities in place for a total of $1.3b as per September 30, 2012.

Then the final slide on the financial situation, a slide I've shown several times before on the structure, legal and financing structure of the group. The first block on the slide is the debt related to Wind Italy. That is the circle that you see on the right hand side $14b of debt. That block of debt is ring-fenced in the sense that it has no recourse on VimpelCom Ltd or any of the other companies in the group.

Second block of debt amounting to $1b sits in the local subsidiaries of OTH and has no recourse on VimpelCom as well.

The third block of debt has to do with OJSC VimpelCom and VimpelCom Ltd. This is the block you can see on the left-hand side totaling $11.6b with a portion of debt to services of VimpelCom Holdings and a portion to OJSC VimpelCom. From the VimpelCom Group level, as you know, also OTH is funded with intercompany loans.

Within this third block, the court injunction related to the first claim puts a temporary hold on up-streaming dividends or cash from OJSC VimpelCom to VimpelCom Group level. Therefore, at Group level and OTH, we focus on available cash sources within these operations and dividends upstreamed from the Ukraine. The available liquidity is above $1b at this level. And this is the sole position for our operating requirements and obligations going forward.

I will now turn the call back to Jo for his final remarks.

Thank you, Henk. I think on the last slide overall the performance of our operations in the third quarter to a large extent reflects the implementation of the strategy that we presented a year ago with the focus on operational result and cash flows.

We have year to date delivered solid profitable organic growth. We see in the table growth in revenues, growth in EBITDA, growth in margins and we have also seen a growth in cash flows. In fact, I am quite pleased with the way the new group operates and perform. And we are to a larger and larger extent becoming one company and one aligned management team.

There is still upside of course, strong continued disciplined implementation of programs on operational excellence, capital efficiency and profitable growth and I think this is the key to create shareholder value going forward. And for that reason this is the main focus for the company also in the quarters to come.

This is basically everything we had planned to present this morning or afternoon, and with this I'll open the floor for questions and so I'll hand back to the operator.

Thank you. (Operator Instructions). Our first question comes from JP Davids of Barclays. Your line is now open.

Yes, hi there. Good afternoon, guys. Two questions from my side please. The first one just on the operational excellence program, the line here in the presentation looks similar to last quarter, ahead of schedule. Could you just give an update of exactly what sort of run rate you're on at the moment in terms of cost savings in the third quarter and what we could expect into 2013?

Then the second question is just on your portfolio analysis. In 2011 you presented us three buckets of assets, I was just wondering if there has been any change in the way you're looking at assets, certainly there is some press at the moment suggesting that a couple of the CIS countries are falling within bucket three. Thank you very much.

Thank you. Let me start with the operational excellence programs. Of course these are now programs that we've put in place in all our business units and operating entities. And it's a holistic view basically on the business.

And so for example in Russia these are organized in six main work streams where you have marketing, you have support financing -- financial and support. You have business to business, you have business to consumer, you have the technical side you have the IT side and you have HR. These are basically 117 projects right now that is organized in a big program.

And the CEO in that business unit Anton Kudryashov is responsible for and the owner of this operational excellence program. And the first phase of this program in Russia was basically to save RUB5b this year and when we said we are ahead of schedule it basically means that we will save more than RUB5b this year on that program. And right now we are adding more and more activities to that program.

And for that reason we want also the operational excellence programs to be more an ordinary course of business rather than a program that we message quarter by quarter. So we need to make this an ordinary quarter of business to a large extent.

The next phase for example now in Russia will be on the effectiveness of the headquarter and the regional headquarters as an example. And we will keep analyzing the business. And not only Russia but all our business units with the mindset that it's possible to reduce costs and work more effectively.

Part of this could also be a lot of initiatives eventually on some network sharing and that kind of thing. So that's the general answer on the -- on operational excellence.

And we are not in a position to give a fixed target for the next quarter or even the next year in terms of savings. But if you look at the operational costs in Russia you clearly see that in absolute numbers it's quite good the achievement with a 1% deviation from the same quarter last year.

On disposals I think the answer there is basically that if we take one step back and ask -- or -- and focus on what we said a year ago that we would focus on increased cash flows. We have walked the talk in terms of operational performance on that promise I would say. But at the same time we also said that we will do a contribution analysis of the asset portfolio on assets that is not contributing to growing cash flow for shareholders, we would like to find a solution to.

And this is really an ongoing process where we review on a regular basis the different assets, and there is not predefined deadline for when we would like to reach a conclusion. This could be -- the position could be to do any market consolidation and take a smaller ownership somewhere. It could be to exit somewhere. It could also be to keep the asset.

And it's clearly not so that we want to exit for example one region, because we don't believe in the region. It's clearly focused on the quality of individual assets. And we believe both in the developed markets and in the emerging markets. And we believe there are good and less good assets in all these different regions.

For that reason I think you just have to be patient and allow us to announce the different decisions we will come up with on the different assets when we are ready to announce something. And there will be disposals, there will be market consolidations and there will also be assets where we decide to keep.

So it's not a project with a predefined date where we will list a lot of assets that is for sale. It's an ongoing process that supports the overall strategy to grow cash flows.

Got it, thank you very much.

Thank you. Our next question comes from Alex Balakhnin of Goldman Sachs. Your line is now open.

Yes, good afternoon. I have two questions if I may. The first is on your CapEx in the Russian market. It is slightly lower than that of competitors. And my question would be do you feel you have enough (inaudible) reserves to navigate a [debt-attractive] increase without quality deterioration and like at the current level of investment. And somewhat related to this is how many base stations do you have connected via fiber? So that would be the first question.

And my second question would be you mentioned that in Russia you plan this LTE rollout in a number of regions. Can you give us an update on how you will be doing this, whether it's going to be a partnership with [Hiota] or you plan to do it yourself and how the situation with frequencies availability is unfolding. Thank you.

Okay Alex, thanks. Let's take the CapEx question first; I think we have done some good work this year on the technical side in Russia actually. We have strengthened the team first of all. We have organized ourselves better. And we have taken a much more holistic view on how we apply CapEx and roll out new network elements, etc., so I am much more comfortable with the quality of the work now than what we have had in the past. So it starts really with quality on process and people.

And then I think we still have a little bit of catch up to do on 3G. And we are ready to do that. And that's part of our process that's being discussed now whether we need to put a little bit more resources and money into the CapEx program in Russia to do a final catch up.

But I think we see good results right now in terms of network quality and at least the indicators that we are measuring, so we think we are moving in the right direction. But we understand that we might have a little bit of catch up to do, and clearly we have less 3G base stations than MTS. Still I think we are around 18,000; MTS is at 24,000.

And to your question on fiber I think between 30% and 40% of the base stations are connected via fiber. And I think we have a good plan how to go about and do this going forward.

On the LTE side, I think we have managed to bring ourselves in a good position. Frankly speaking, I don't expect LTE to be a big commercial thing, at least not next year. I think after maybe '14, '15 less handsets etc. So right now '13 would be the year of rollout and early adoption.

For that reason we have taken Moscow and six other big cities, and we will start rolling out LTE network and open them for commercial use next year. And this will basically be just an extension of the 3G and 3G+ networks that we already have. So I am not concerned about the migration to LTE and feel good about that frequency-wise. I think also in the years to come no issues on our side.

And then of course, there might be effective ways of doing this, and for that reason we are also looking into possible models for cooperation with maybe joint rollout and maybe shared networks. And also if there are other concepts available for getting faster access or faster access to LTE resources so that we can provide them to our customers.

So a lot of these questions are still being debated and negotiated, but in general I feel much better about the way we've organized quality process, people and I think also as a result of that it will lead to allocate a bit more CapEx to make sure that we once and for all now catch up on the quality of the network in Moscow -- in Russia and in Moscow.

May I just ask a very quick follow up on this number of connect base stations? So you -- how available the fiber is like near your base stations, so do you need to like ramp up investments when you start connecting them? Or you feel that it will be only a small incremental spending and you will be able to increase the connectivity of base stations within the current CapEx plans, so without like any visible inflation of investments.

Alex, it's clearly inside the scope of what we communicated earlier with respect to planned CapEx programs. There is no sort of hidden known desire or need to invest here that we haven't already analyzed and been familiar with. So of course it's going to be important to have fiber to the base station to provide an effective mobile broadband network, but this is all within the scope of what we have communicated so far of overall CapEx plan for the Group. So that's the best answer I can give I think.

Okay, understood thank you.

Thank you.

Thank you. Our next question comes from Igor Semenov. Your line is now open, from Deutsche Bank.

Yes, hi thank you very much. Just wanted to ask about the dividend situation. In the positive scenario of the Moscow Court lifting its injunctions, would you pay the -- this year, would you pay the final 2011 dividend this year?

It's really a decision for the Supervisory Board. And my understanding is that when the FAS claim is lifted and we hope that will happen before 27th then the Supervisory Board will meet then and make its decision. It's very hard for me to preempt that discussion and decision. But it's clearly the Supervisory Board's sole discretion to make that decision and it's not a shareholder meeting decision in the case of VimpelCom.

And can I just also ask in terms of the recent press reports on the potential spin off of the fixed line business in Russia. Can you clarify this a little bit? Are we talking about a legal separation or this is just the way you want to manage the fixed line business in Russia?

There are no plans to sell off or dispose the fixed network in Russia. We have an integrated network and we've spent a lot of time and effort to integrate Golden and VimpelCom and we have -- we might organize the business in a way so that we take advantage of business and the business. But there is no current plan to dispose the fixed business in Russia.

Great, yes, thank you very much.

Thank you. Our next question comes from Ivan Kim of VTB Capital. Your line is now open.

Hi, two questions if I may please? First on the competitive environment in Russia, so basically whether you see Rostelecom doing much on the mobile side at the moment.

And secondly on the margin performance in Russia again, there was no quarter-on-quarter increase in the margins although the third quarter is seasonally strongest. So which could we -- can you elaborate a bit what was the reasons for that and probably is related to (inaudible) data growth and push there. Thank you.

On the competitive environment there's no real update on our side there. It's very hard, I think, to predict exactly what the future will bring. There are different speculations here on whether Rostelecom -- I see speculations on Tele2 and different possible combinations. I think what we can do at VimpelCom is to shape our own house and our own business and make sure that we're ready to meet some of the future challenges. And we have no -- we're not involved or we have no plans for engaging in or around any Rostelecom discussions.

On your question on margin in Russia, can you repeat that?

Sure. The EBITDA margin in Russia was flat, quarter on quarter, although, usually, in the seasonally strongest third quarter the margin increases, and I'm just wondering what the reason for this, specific reason for that and probably you were push mobile data which is where the growth accelerated; maybe something else, I don't know.

I don't know exactly your reference but I think the EBITDA margin, year on year, we have 40% in the third quarter '11 and we have 43.2% in the first quarter of '12. I think you see also a margin improvement in Russia.

Yes, I'm just comparing third quarter 2012 to second quarter 2012.

Okay, you're comparing -- I think it's because of seasonality and because of the different nature of the different quarters. I wouldn't pay too much attention to the quarter-to-quarter. I would focus year on year, actually. There is no -- I wouldn't be worried about that from an analytical point of view.

Okay. Thank you.

Thank you. Our next question comes from Alexander Vengranovich of Otkritie Capital. Your line is now open.

Hello. I've got a question also regarding your future plans in terms of CapEx and in terms of general economy of scale coming from increased purchasing power, because as you now are a big company, sixth mobile operator in the world, do you feel that you can right now start to exercise some economy of scale on CapEx? And do you think that one of your shareholders, Telenor, could use their connections to help in talks with their CapEx suppliers? And, just hypothetically, would the theoretical exit of Telenor from your shareholders make any risk for your CapEx program? Thank you.

So, let's recap what we've said on CapEx, so far we've said that we would like to reduce CapEx to revenues as businesses matures, and on the last Investor Day we had we said that we're going to target 15% CapEx to revenues by the end of 2014. So that's the latest update we have on CapEx to revenues, which shows clearly a declining trend from the target for this year for the Group, which is around 19%. And then in January we might want to give you an update and a revision of those targets but we clearly would like to see CapEx to revenues coming down for the Group in the next two years to three years.

I think that the scale is important in telecom and we are benefitting from that now. We have good terms and conditions when we negotiate with our vendors. The synergy target we had for the Wind transaction is clearly met, that was the $2.5b in net present values that's clearly met already. And part of what you see now of the performance is, of course, influenced by -- that we buy basically more equipment for maybe the same amount of money or we buy less equipment for -- the same equipment for less money, so it's already showing.

Telenor's plans as a shareholder of VimpelCom is, of course, impossible for me to comment on; it's a question for Telenor. But I don't think, hypothetically, if they should decide to sell down or exit VimpelCom it will have zero consequences for our own procurement muscle and ability to negotiate good terms with the providers.

Okay. And I also have a follow-up question on the competitive environment in Russia. We've seen in the third quarter that one of your competitors, MTS, increased the number of active subscribers so do you feel that the competitive environment in Russia starts to be more difficult for you as your competitors accelerate the acquisition of the new subscribers? Because, last year, I remember you were in the just opposite situation and we started to think and we started to talk about the easing competitive environment in Russia. Thank you.

I think what we've done this year in VimpelCom, as well, is to change the mindset and transition away from targeting high gross additions so that we've moved away from that and focused on margins improvement, cash flows and quality subscribers. And that's why we've also seen margin going up, revenue market share slightly decreasing and clearly subscriber market share going down as a result of this clean-up.

Going forward, I think you will see a more balanced development probably, where we take -- in terms of net additions, we take our fair share, because I think we've transitioned into the position we would like to be in now. And it's time to focus, of course, mostly on revenue market share but part of this will also be a growing part of the net additions.

And for the competitive environment my understanding is that our focus is shared by the market, that focus on cash flow margins and quality of the services to customers are more important than focus on subscriber market share and gross additions. So I am quite optimistic in terms of being able to implement the strategy we have for Russia and continue.

Okay. Thank you.

Thank you. Our next question comes from Herve Drouet of HSBC. Your line is now open.

Good afternoon. My question is regarding Italy. After Naguib Sawiris is suggesting to do a capital increase at Telecom Italia, what is your view on if that transaction goes through that will affect the Italian market and, specifically, the Italian mobile market?

And also do you see a potential risk at the Wind Italy management for potential exodus of management if Naguib Sawiris is willing to change or make some change of management at Telecom Italia side? And if that risk exists, do you have in place any mitigation that you can provide, maybe, with look at senior management level?

Okay, good. I think my knowledge to Naguib Sawiris is that he is a very professional business person and he's a rational business person. I don't expect his entry in telecom, if so happens, to change the market dynamic much for Wind so I would welcome Sawiris in Telecom. It's a very limited effect for Wind with respect to that transaction. I think we've done a little bit of changes in Wind management already and there is a lot of loyalty and bond now between the Group and the individual business units, including the management team in Italy. I see a very limited risk in a melt-over effect from Wind to Telecom as a result of such potential transaction and --. If so will happen which, as I said, I don't believe in the risk being high at all, of course, in a Group like ours we will always have ways of resolving and dealing with this. This is not on my radar, right now, for the transaction or the (inaudible).

Right. Thank you very much.

Thank you.

Our next question comes from [Maela Valcomido] of Deutsche Bank. Your line is now open.

-- hear me??

Yes, we can hear you.

Hi, good afternoon. Can you hear me?

Yes, we can.

Okay. Just a couple of questions, if I may. The first is just a point of clarification. I think you mentioned that from your debt maturity profile 2017 is the year with a big refinancing environment -- requirement and I think the bulk of that's really due to Wind. I think somebody mentioned -- you mentioned that you do not intend to refinance that. Is before the end of 2014 or before 2014, subject to market conditions? So, just that statement, if you would clarify that that would be great.

And a quick follow-up on Wind's accounts, there's about $150m of accounts receivable from Weather related to a transaction that happened many years ago. I just wanted to confirm that, from Wind's perspective, that $150m would be received in December '13.

This, indeed, I said before the end of 2014, which is effectively the same as we have said so far. But the window to really start to make steps to restructure the debt profile of the Group in a meaningful way is after, more or less, the middle of 2013. And then, of course, it will depend on market circumstances, which steps we are going to take, how are we going to take them, at what time are we going to take them, and that is why I indicated before the end of 2014. But it isn't so to say but nothing will happen before that time but there will be several steps to be taken as of a certain moment and, of course, we are not going to be very precise on these steps because that would immediately lead to pre-empting reactions in the market.

Understandable.

And then with regard to the (inaudible) point, it expires at the end of 2013 but it can be extended. It isn't something that we, at the moment, have very high on the radar screen, I have to say.

Okay. Thank you very much.

Yes.

Thank you. Our next question comes from Evgeny Golosnoy of Metropol. Your line is now open.

Hi. Good evening, everybody. I have a question on your charter. Basically, the reason I'm asking is because I couldn't find the answer to this question elsewhere, including your documents. But given that you, as a company, is registered in Bermuda, in case one of your shareholders increases its stake, for example, above 50%, is there anything like -- any provisions in Bermuda laws or in your charter that specified that once the shareholder passed a certain threshold he is obliged to make a tender offer to minority shareholders? For example, in Russia there was such thresholds regarding 30%, 51% and 75% stakes in the Company.

Yes. I think you can find the charter actually on our website but, just to be clear here, if a shareholder is passing the 50% threshold, there is a mandatory offer requirement for him.

Okay. And is that in your charter or in the country's legislation?

In the charter.

Okay, all right. Thank you.

Thank you. Our next question is from Stefan Gauffin of Nordea. Your line is now open.

Good afternoon. My question relates to technology neutrality and LTE on the 1800 frequency. There was a postponement of a decision relating to this where more trials should be done. are you participating in trials for this and is technology neutrality something that you would like, given your investment in rollout on the 800 megahertz frequency? If you could pros and cons around this, it would be very helpful. Thank you.

I think our position is that we're not a big supporter of technology neutrality in Russia by allowing 4G at the 800 megahertz bandwidth, and with the LTE licenses they were basically received in a beauty contest, they requires investment in the network, and they were awarded for the operators over a period of seven years so there will be a lot of money going into these networks. And we believe that allowing 4G in the 800 megahertz bandwidth without the same investment requirement for the operators is really not in line with the requirement from the beauty contest. So we are not big supporters of this tech neutrality ID; I think that's basically my position.

Okay. Thank you.

Thank you. And at this time, that is all the time we have for questions. I'd like to turn the call back to Jo for any further remarks.

Okay. Thank you very much, everybody. I hope you were able to clarify the dynamic in the business and some of the bigger tickets that is around us. I can assure you that management is working very hard and we're very passionate and dedicated to improve the performance of the business and hope to resolve the big topics. And, even though we didn't have any of them to be announced today, I hope, maybe in future calls, we will be able also to bring more clarity on the big strategic topics. But I think, in the end, the fact that operations are developing in the right direction and that we're able to grow earnings, in the end it's what's going to benefit this Company and we will continue to work in that direction. So, with that, thank you very much for your interest, the questions, and hope to see many of you soon. Goodbye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.