VEON Ltd (VEON) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the VimpelCom third-quarter 2014 investor and analyst results call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Gerbrand Nijman. Sir, you may begin.

Good afternoon, ladies and gentlemen, and welcome to VimpelCom's analyst and investor conference call to discuss our third-quarter 2014 results. I'm joined here in Amsterdam by Jo Lunder, our Chief Executive Officer; and Andrew Davies, our Chief Financial Officer, will present our results, which will be followed by a Q&A.

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 the Company's expectation to close and derive benefits from the Algeria transaction, anticipated interest cost savings, 2014 annual targets, operational and network development plans, and anticipated 4Q improvements in performance in Russia.

Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risks detailed in the Company's annual report on Form 20-F and other recent public filings made by the Company with the SEC, including today's earnings release.

The earnings release and the earnings presentation, each of which includes reconciliations on 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 our CEO, Jo Lunder.

Thank you, Gerbrand, and welcome, everyone. I think there are two sides to the numbers that we're reporting today. It's the year-on-year development, and it's the quarter-on-quarter development.

The year-on-year result is showing a decline in revenue and EBITDA, impacted by unfavorable currency movements, macroeconomic headwinds, a continued weak market in Italy, but clearly also some operational performance issues on our side.

The other side are the quarter-on-quarter numbers which reflect continued sequential improvement as a result of our focus on customers, and clearly also focus on improved network quality.

Revenue improved organically by 3% quarter on quarter, while EBITDA grew 9%; and our EBITDA margin expanded 190 basis points to 42.9% in the quarter. We also added 3.5 million mobile subscribers in the third quarter, reaching 223 million at the end of September.

Our quarter-on-quarter improvements also include growth in mobile data revenue and improved customer satisfaction. Our cash flow generation continued to be resilient, and we delivered $1.2 billion in operating cash flow in the quarter.

Net income declined due to one-off costs related to the recent refinancing of WIND, which Andrew will return to during his speech, and clearly also unfavorable currency movements.

Moving on to some key recent developments.

Clearly, during the third quarter, we continued to experience macroeconomic headwinds and material currency devaluations in Russia and Ukraine due to the geopolitical unrest.

As we already disclosed, we achieved a major milestone in Algeria in April with the agreement with Algeria National Investment Fund. We remain on track to close the transaction by the end of this year. The partnership will also provide us with a strong and stable shareholder structure in Algeria which will support our operations going forward.

We have also successfully launched 3G services in two of the largest markets, Algeria and Pakistan, both growth markets for us. This will strengthen our value proposition to customers in both of these important markets and it will support continued mobile data growth.

As part of our ongoing effort to streamline our portfolio and focus on core markets, we have sold our operations in Burundi and in the Central African Republic for $65 million, as well as our interest in WIND Canada for approximately $110 million.

We're also announcing today a dividend of $0.035 per ADS; and, more important, we're confirming our 2014 targets, which Andrew will address in much more detail.

I'll discuss now the performance of our business units, starting with Russia.

The third-quarter operational results in Russia were impacted by macroeconomic slowdown, and by also the initiatives that we have been taking to strengthen our business long term.

So mobile service revenue declined 5% affected by the measures taken to reduce unrequested services from content providers to Beeline customers, and this initiative reduces revenue year on year, but clearly improves the customer experience and contributes to improved churn, and hopefully, a stronger long-term profile of the customer base and our image.

Demand for mobile data continued to grow rapidly, and as a result, our mobile data revenue increased 22% over last year.

EBITDA decreased 7% year on year due to of course lower revenue, but also higher network and IT costs driven by increased network investment, as well as the FX losses from the weakening of the ruble against the US dollar. As a result, EBITDA margin declined to 40.9%.

We increased our investments in 3G and 4G as planned to capture growth in the mobile data traffic, and we will continue now to invest in our high speed data networks for the rest of the year. And we expect full-year CapEx revenues to be at 22%. I think overall, the third-quarter numbers in Russia came in in line with our plans and expectations.

Moving to slide 7.

As you might recall, we started the transformation of our Russian operation almost [three] years ago, with increased investments in network and also in distribution, as well as trying to create a more customer-centric organization.

Our network investments and focus on network quality is clearly paying off. We are now number 1 or number 2 in mobile data speed in 75% of the country; and in the Greater Moscow, we are number 1 on voice quality, and number 2 in mobile data speed. More than 90% of our customers are now being offered a speed higher than 2 megabits per second.

And we are also focusing on stimulating mobile data with attractive and affordable smartphones, transparent bundles, and convenient and innovative data offerings.

And as you can see on slide 8, we believe our actions to improve customer experience in Russia were driving the solid sequential improvements that you see on this slide.

Improved transparency of tariffs and network quality have substantially improved our net promoter score, reducing the gap to competitors. This has contributed to an improvement of churn, and as a result, an increase of 1 million customers in the quarter. And the investment in high-speed networks and distribution also resulted in an improved market position in mobile data.

We are now successfully building high-quality networks and a customer-centric organization, and I'm confident that we are on the right track. And I'm pleased with the trends that you're seeing on this slide with revenue growth, EBITDA growth and mobile data growth, combined with the 1 million increase in the mobile subscriber base. And we expect now that the year-on-year trajectories in the fourth quarter of the year will show improvements over the first nine months of the year.

Now moving to Italy, WIND continues to be successful in the Italian market where the environment remains weak. However, we're seeing some improvements in the competitive landscape. WIND continues to offer the best customer satisfaction in the Italian mobile market, evidenced by the number 1 position in net promoter score.

Service revenue declined 9%, driven primarily by the competitive pricing pressure in 2013 and a further contraction of SMS revenue this quarter. However, mobile ARPU in the third quarter increased with 5% over the second quarter due to higher data revenue and an improving market. EBITDA margin increased to 42.7%, but this is reflecting the settlement made in the quarter.

And then, if you allow me, let me address a few more points on Italy if you move to slide 10.

We've launched innovative services [geared] to capture a strong share of the market by focusing on the future needs of customers in Italy; and MyWind app for smartphones and tablets, they have now reached 5.6 million downloads. And through WIND digital, we're targeting now the needs of the digital native segment, while at the same time, we're providing more efficient means of offering products and interacting with the customers.

We continue to deliver double-digit growth in mobile broadband in Italy. Year on year, mobile broadband revenue was up 14%, and the mobile broadband customer base grew 24% to 10 million.

And finally, as I mentioned earlier, we successfully refinanced EUR8 billion of WIND debt this year, resulting in a reduction of the average cost of debt to 5% from the previous 9%, an annual interest saving of approximately EUR300 million.

We are making solid operational and financial progress in Italy, despite the tough environment; and overall, we expect the Italian market to remain challenging, but with improving trend.

In Africa and Asia business units, our revenue in US dollars decreased 4% organically year on year. This was driven by a slowdown in Algeria and Pakistan mainly due to strong competition. This was partly offset by continued strong recovery in Bangladesh.

EBITDA declined organically 11% due to the lower revenue and increased costs related to our significant network investments in all the main markets. However, our EBITDA margin was still solid at 43.5%.

And I think an important point here is that the mobile customer base grew 4.4 million, supported by strong customer growth in all main operating units, particularly in Bangladesh. And we plan to continue now investing in the high-speed data networks and roll out 3G services in Algeria, in Bangladesh and in Pakistan, to capture the growth potential from mobile data in these three large markets that, if I may remind you, have a population of more than 400 million people.

A few comments on Algeria on slide 12.

Djezzy has successfully launched 3G, as I said, now in 14 main provinces, including Algiers and the other main cities. We expect to cover 19 provinces by the end of this year.

Despite the difficult environment in which we have operated for the last few years, we have remained competitive by offering a wide range of promotions and value-added services to our customers. By providing very good customer service and competitive products and services, we remain the preferred choice for most Algerians. We aim to continue being the leading choice in the market, and to strengthen our position now that we have launched 3G.

In Bangladesh, the turnaround of the business has been clearly successful, demonstrated by strong results this year. And you can probably see this on slide 13. Mobile services revenue increased 8% in the third quarter, mostly driven by the strong growth in customers, now over 30 million. EBITDA also increased 20% due to higher revenue and effective cost control in our business.

Following the launch of 3G services in October last year, we now cover all 64 regions, and we see high growth potential as smartphone penetration is currently only 4% in Bangladesh. We're also experiencing growth from mobile financial services, including mobile money transfers and payments. We expect this product to be an important growth driver in the future, and we remain focused on that.

Slide 14. Turning to Pakistan where the market remains challenging due to the political and the macroeconomic situation, but also strong competition.

In September, Jeffrey Hedberg started as our new CEO, and he will lead the network mobilization project as well as the rollout of the 3G. I'm very hopeful that Jeffrey is a good choice for us in Pakistan.

The network mobilization, which will provide us with sufficient capacity and also improve our capability to offer more attractive bundles, is expected to be completed already by the end of this year.

We realized the fastest growth actually of 3G services in the country, being the first to reach 1 million customers, and this was within 90 days after we commercially launched 3G. We're quite pleased with that.

Not only are we committed to improving the network but to also now enhancing the customer experience, and during the quarter, we have introduced a number of value-added services as well.

Moving to slide 15. Our transformation program in Ukraine is also showing operational improvements, however in a very difficult geopolitical environment. Year-on-year performance was impacted by lower voice value-added services, and guest revenue, guest roaming revenue compensated by growing international interconnect revenue. Mobile data revenue on the other hand demonstrated continued growth with a 5% increase, despite the lack of 3G in Ukraine.

EBITDA declined, primarily due to the doubling of the frequency fees in the country. We saw higher utility costs and, of course, also the lower revenue. While the EBITDA margin remains lower than earlier but still high at 45.5%, the quarter-on-quarter results demonstrated the impact of the transformation with service revenue, EBITDA and EBITDA margin all improving over the second quarter of the year.

Our focus on customer experience is starting to show good results, and we now have the number 1 position on net promoter score in the market. We also substantially improved churn, and we increased the number of customers, mainly in the eastern part of the country as a result of having the best network there.

All in all, Ukraine continues to deliver a resilient operating cash flow with a cash flow margin of 31%.

Now turning to the solid results of the CIS business unit on slide 16.

Mobile services revenue increased 5% year on year organically, while EBITDA grew 3%, resulting in a strong EBITDA margin of 51.2%. The mobile customer base grew 6% year on year, and we gained market share in most of our markets.

I'll discuss Kazakhstan on the next slide, a true success story, but first let me say a few words about Uzbekistan where the mobile service revenue increased 8%, driven by a 2% growth in the customer base.

As you know, Uzbekistan is currently a two-player market, but we expect that it will return to a three-player market in December of this year, which clearly will put pressure on results thereafter.

And then finally, on slide 17, Kazakhstan. We have now successfully completed our turnaround and improved our market position against main peers, despite this being a highly competitive market. I think you can see that on the slide as well. Service revenue increased 4% in the quarter, and EBITDA grew 16%, leading to an EBITDA margin of 48.2%.

The turnaround has been achieved through a new and very effective management team, introduction of bundled tariff plans, the [right way], the best value proposition I think in the market; clearly improving network quality, and also a very effective distribution strategy coupled with good cost control. So that's really something that we can learn from and try to copy in other markets.

Our enhanced 3G coverage, which now covers 60% of the population, improved customer satisfaction, highest net promoter score in the country, are some of the highlights on Kazakhstan.

With that, I'll wrap up my summary of the different business units and the performance, and I'll pass the floor to Andrew (inaudible) to discuss the financial performance in more detail.

Thank you, Jo, and a warm welcome from me as well.

Slide 19 shows that the financial results for the quarter have been negatively impacted by both one-off costs related to the WIND Italy refinancing, and foreign exchange.

Unfavorable movements of the ruble, hryvnia and euro against the dollar impacted our reported results, contributing more than half of the decline in both reported revenue and EBITDA.

In organic terms, revenue experienced a 3% year-on-year decline, mainly due to performance and market slowdown in Russia, Ukraine and Pakistan, and continued market weakness in Italy.

EBITDA decreased organically by 4% year on year to $2.2 billion, principally due to higher infrastructure costs in Russia, increased frequency and utility costs in Ukraine, and higher network costs related to 3G deployments in Algeria, Pakistan and Bangladesh. However, we maintained an industry-leading EBITDA margin of 42.9% due to our focus on cost control through our operational excellence programs.

Third-quarter EBIT decreased to $1.1 billion due to the revenue-led EBITDA decline, with partial litigation from the one-off gain arising from the sale of our interest in WIND Canada.

Profit before tax was impacted by one-off costs related to both the refinancing of WIND Italy in July, and ForEx losses, which taken together, aggregated to approximately $450 million.

High effective tax rate in the quarter was primarily the result of $100 million of non tax deductible items and non-cash tax charges as a direct result of the Algerian transaction which will become due on closing of the transaction. And the impact of that is roughly $100 million for the quarter.

If I move on to slide 20, you can see that we've got resilient cash flows for the quarter. And the EBITDA decline was partially mitigated by lower payments of both interest, which reflects the success of the WIND Italy refinancing, and of income tax which results from the lower taxable profits. As a result, net cash from operating activities declined only marginally on a year-on-year basis.

The increase in investments that we are making in our high-speed data networks to drive revenue growth was offset by inflows of $110 million from the sale of our interest in WIND Canada, and of $140 million from the return of deposits, resulting in a year-on-year decrease in the net cash used in investing activities.

Consequently, the net cash inflow before financing activities increased year on year by $113 million, and this basically represents the underlying reduction in net debt for the quarter once we exclude the impact of foreign exchange movements.

Finally, the decrease in net cash outflows from financing activities is the net result of the July 2014 WIND Italy refinancing, together with the draw down under RCFs, and the bond repayment.

On slide 21, we outline all of the financing activities that we have completed so far in 2014. While the refinancing of WIND Italy has obviously taken the headlines, we've also been very active across most of our debt portfolio and have refinanced almost $19 billion in debt, taking advantage of some extremely favorable market conditions to improve both pricing and maturity profile. We also have in place $2.3 billion of headroom under existing revolving credit facilities.

So if we move on to slide 22, we expect that the refinancing of WIND Italy's debt, which we completed in the second and third quarters, and the repayment of gross debt out of the net proceeds from the closing of the Algerian transaction, will result in significant annualized interest savings of approximately $0.7 billion, which will enhance our earnings profile by $0.5 billion per year and represents annual EPS accretion of approximately $0.30 per share.

Slide 23 articulates an extremely solid funding and liquidity position. We have substantially improved the maturity profile of our debt, primarily through the refinancing of WIND Italy's debt in April and July, and also through the other refinancing I just discussed. As a result, we have no major refinancing obligations until 2020, and no material hard currency maturities for the next few years.

The debt in Italy, which is fully self-financing, and is completely non-recourse to the rest of the Group, represents approximately 50% of our total gross debt, and over 60% of our net debt. 24% of the debt is held in Russia, and our Russian business is also fully self-financing.

Slide 24 shows the impact on some of the key financing metrics as a result of these refinancing activities.

At the end of the third quarter, total gross debt was $27.7 billion, while net debt improved quarter on quarter to $21.7 billion. Our gross and net leverage ratios have both marginally improved within the quarter, and the net debt to EBITDA ratio was 2.5 times at the end of Q3.

We continue to significantly decrease the underlying average cost of debt. Over the first three quarters of 2014, we've improved this from 8.2% in Q2, and again to 6.3% in this last quarter.

Again, I should emphasize that with a cash position of $6 billion at the end of the third quarter, significant unutilized facilities, no major refinancing obligations until 2020, and solid cash flow generation, VimpelCom remains well funded.

On slide 25, we show the sensitivity of the results to foreign exchange movements. As I mentioned previously, our reported financial performance for the third quarter was impacted by the movements in local currencies against the US dollar. As such, we want to share again with you information related to this sensitivity that we first presented at our analyst and investor event earlier this year in London.

Here, we show the sensitivity of the ruble, euro and hryvnia against the US dollar. So as an example, if the ruble weakens by 10% against the US dollar, for a given amount of ruble revenue, our reported revenue in US dollars would decrease by approximately 4%.

I'll now move on to our 2014 targets on slide 26.

We are confirming our guidance for the year. Implicit within this is that for revenue and EBITDA, we expect a more favorable year-on-year comparison in the fourth quarter than we have seen in the first three quarters of this year. In addition, as stated before, we do expect that the rate of decline of EBITDA to be slightly higher than the rate of decline for revenue. We expect that our net debt to EBITDA will be at approximately 2.4 times at the end of this year. But of course, this will depend on currency fluctuations between now and the year end.

As we continue to invest in high-speed data networks to be able to capture mobile data growth and provide the best services to our customers, the full-year CapEx to revenue ratio is still expected to be at a relatively elevated level of 21%.

Before handing over to Jo, I would also like to note that our 2015 financial reporting calendar is included in the appendix to these slides. You'll see that we will accelerate our external reporting next year, and that in addition, we plan to present our fourth-quarter 2014 and second-quarter 2015 results live in London. In addition, we will be hosting our annual Analyst and Investor Day in London in early October of next year.

Finally, within the next few weeks, in early December, we are hosting an analyst and investor site visit to our operations in Bangladesh, which we welcome you to attend.

With that, I now would like to hand back to Jo.

Thank you so much, Andrew. Let's turn to the summary slide before we open for questions. Slide 28.

As I said, I think there are two sides to these numbers. The year-on-year third-quarter results were clearly impacted by unfavorable currency movements, macroeconomic headwinds and operational performance issues in some markets. However, we continue to deliver on our strategy and we see quarter-on-quarter improvements in revenue, in EBITDA, and in growth in our customer base, mainly driven by investments in high-quality networks, and also increased focus on the customer experience.

In line with the portfolio strategy that we communicated earlier, we are also now focusing on our core markets, and we recently then completed the disposal of our interest in WIND Canada, as well as the sale of our operations in Burundi and in CAR.

The transaction in Algeria is on track for closing by the end of 2014, and with that transaction closing and the completion of the WIND refinancing, as said earlier on this call, we expect that to yield a total annual interest saving of $0.7 billion, also translating into a very nice earnings per share accretion.

And again, with the strong liquidity position Andrew explained, no major refinancing obligations until 2020, the solid cash flow we see in the quarter, we also consider VimpelCom being well funded.

And lastly, we're also confirming our annual targets that we published in March this year, and expect to be able to deliver upon our pledge to the market.

With that, I suggest we open the floor for questions. Back to you, operator.

(Operator Instructions). San Dhillon, Royal Bank of Canada.

Two questions on Italy, if I may. On the mobile side, it still seems that Hutch is being super aggressive and discounting at a 40% to 50% discount. Why wouldn't you accelerate your LTE rollout? It seemed that Hutch with their lack of 800 [megahertz], is it a structural disadvantage there?

And on the fixed side, all the other operators are trying to push their own fiber plans, whether that be Fastweb, TI or Vodafone. What specifically are your goals in fiber? And how can you start to roll out your own infrastructure or get a fair share to others' infrastructure?

Thank you.

Okay, San. I'll take that one. So your question on mobile is certainly pertinent. Yes, Hutch continues to be at a discount to us. I'm not sure it's as much as 40%. We are continuing to invest in the network there, and we are going to start to press home the advantage on both HSPA and 4G LTE.

On fiber, we are playing a waiting game for now. Clearly, the Italian market is OneNet. By comparison to most other mature markets, it's actually relatively immature from a fiber perspective and we are actually waiting to see what our competitors do and what our options are and we will be pragmatic for now. And candidly, we don't feel compelled to rush into making a decision there because there is actually very little inherent demand in the market for the kind of product and service that you alluded to.

Okay. Thank you very much, guys. Appreciate it.

JP Davids, Barclays.

I've got two questions, please. The first one is a follow-up on Italy. So the financial performance of the big three looks to have converged, which doesn't seem to quite tie into the comments you made on the net promoter score. To that end, is there a bit of softness in your enterprise/business segment? And maybe you can give us a little bit of color around there.

Separately, on Algeria, you reconfirmed that the transaction is on track for the fourth quarter. Can you provide us with any risk factors that could cause delay to that transaction being executed? If there are any material ones, that would be good to know.

Thank you.

Okay. Andrew again. I'll do the Italy question. I think Jo will do Algeria.

I'm not sure I'd agree with your initial hypothesis. I think there's a little bit of convergence. I think there's at least one of the big three that's still got a bigger year-on-year revenue and certainly margin decline than ourselves. And one of the -- the third of the big-three players, I'm not sure that we're seeing the convergence that you alluded to.

We remain in the lead in net promoter score. It's a pretty robust lead, but the lead is narrowing. And in particular, we do see that lead narrowing a little bit on the network component, which does reflect that at least one of the other big three does have a slightly better network.

And as you mentioned the other two players in the big three do have slightly stronger business segments than we do, but that's, if you like, a very conscious decision. You can't be all things to all people, and we have chosen to focus very much on the consumer side of the proposition.

Yes. The second question was on Algeria. Of course, as in any transaction, there is risk related to closing. There is a lot of different things that needs to happen and still will need to happen. When we say we're on track, it means that we have done everything according to the plan so far. The Algerian Government is helpful. They're constructive. We have our negotiation team and closing team in Algeria basically every week these days; very easy to get access to people and meetings and approvals. So we expect to be able to close that transaction in line with what we have indicated by the end of this year.

Okay. Thanks for the color.

Herve Drouet, HSBC.

Two questions as well on my side. Firstly on Ukraine, could you give us a bit of more color about the 3G license? It's been put in the press that it's expected to happen before the end of the year, and some figures around $220 million been plugged for the 2.1 gigahertz spectrum.

I just wanted to see on your side, is it reasonable to think it's going to happen before the end of the year and at that level of price, is my first question.

Second question is: I understand what you are presenting in terms of [forecast]. Net debt [is] decreasing. The interest cost is decreasing. But when I looked at the Q3 financial expenses, there is only a reduction of $10 million compared with last year.

I understand quite a large part of the refinancing was during the summer in July, but I would have expected more impact on the financials. And I was wondering. Is there anything that may expect this lag of the decrease of financial expenses decrease?

Thank you.

All right. Thank you for the questions. I'll kick off with 3G in Ukraine, and then Andrew will pick up the second question.

I think first of all, it's really good news that now the Ukrainian Cabinet has decided to approve the 3G license conditions in Ukraine. I think this is good news [for the people] This is the only country in Europe without 3G at the moment. So we warmly welcome that, of course. We see that there is a hunger in Ukraine for data services and we see that on our revenue growth on data without 3G at the moment. So we believe this is a good thing for our stakeholders.

We don't expect this auction to take place this year. We believe more this is a first-quarter 2015 event. We have had meetings with the highest government officials in the country regarding this topic, and as of today, there is also important information lacking in terms of the auction details and how the licenses will be issued. Timing remains still questionable.

So what we are doing here is basically, we're just following the normal process we've done in Pakistan, in Bangladesh, in Algeria. We're calculating maybe in a rational way the value of the spectrum and the value of the 3G license, and if we believe the price is accretive for shareholders we will go ahead and buy it. If we believe it's too expensive and not accretive, we might consider not to do so.

This remains clearly a commercial decision on our side, but I remain hopeful and expect that this will find its solution so that all stakeholders can tick that box and move on. And hopefully, we can start rolling out 3G in Ukraine next year.

Okay. And then I'll answer the second question, Herve. So it's complicated. The first thing is that there's a bit of timing in there, because as you know, it was only partially through Q3 where we actually completed all the refinancing activities. But then also running through the interest expense line in the P&L account is quite a few non-cash items, amortization of previously capitalized debt [and] issuance costs, various PPA adjustments, etc. So rather than take time up on the call now, I'll have Gerbrand from IR follow up with you and give you a more precise quantification. But that's the concept that you're going to see when you get that analysis.

Alex Kazbegi, Renaissance Capital.

Two questions also from me, one on the debt repayment. If you look at, let's say the next year, Russia it is about $2 billion. Is it going to be repaid or is it going to be refinanced? And if it's refinanced, what sort of interest rates you are looking there to -- in terms of refinancing of that -- in the local currency presumably it's going to be?

And the -- also on the debt side, after the repayment of the Algerian debt by Global Telecom, does that trigger the renegotiation of the remaining portion at Global Telecom which is going to be charged at -- which is charged now at 12.5%? Or it doesn't actually trigger the renegotiation of the rate, and this is going to remain for now at least at the same levels?

And the second question was just to continue on the 3G -- rather not even the 3G, but generally. What in terms of the new licenses, license renewals, any kind of frequency payments, do you generally envisage for 2014? I guess one could be Kazakhstan. Anything else which we should be aware of where you could see that there's potentially cash outflows coming through?

Thank you.

Okay, Alex. Let me -- I'll take those and I'll run through them in order.

So we've got roughly $2 billion equivalent of debt that's maturing in Russia next year. It's pretty much all ruble-denominated bonds. Candidly, we will make a decision closer to the maturity date of those bonds and what we want to do; whether we want to take them out completely, refinance them, etc. And given the volatility in the market, it's far too early for me to be speculating in public about what kind of interest rate I'm going to pay on that, on those bonds.

The other thing I should point out here is in our maturity profile, we've taken a conservative view in how we present those bonds, because technically, they don't actually fall due until 2020, but there's an option window that actually opens five years before that. So for the purposes of the maturity profile, we assumed that people would want to exercise the option which opens up five years before the technical maturity.

On Algeria, so you're right in pointing out that GTH will repay a fair proportion of the existing shareholder loan using all of the proceeds from the closing of the Algeria deal. When that's done, there will still be over $1 billion-worth left on that shareholder loan. When the loan was -- the extension to the loan was approved earlier this year, it was extended for 37 months, and there is no opportunity to renegotiate within that 37-month time period.

And then with regard to your third question on payments of licenses and spectrum, etc., there's nothing else that's due in 2014, which is what you mentioned. I don't know whether you actually meant 2015, but there's certainly nothing (multiple speakers).

Yes. I think -- yes. Definitely.

They're coming due in 2014 and then -- and there's nothing -- apart from Ukraine 3G, and potentially a 4G in Georgia auction, there's nothing else on our radar screen for 2015.

Not even Kazakhstan?

No. Not yet.

Okay. Thank you very much.

Ivan Kim, VTB Capital.

Firstly, on the investments in Russia next year, could you please elaborate on the -- roughly, of course -- the investment expectations; whether it would be lower or equal to the current year level? And obviously, the key driver would be LTE, but the ForEx has not gone the right way, so to say, so do you think there is a risk actually of even spending more than this year?

And then secondly on Algeria, there, despite the 3G launch and some customer intake this quarter, the revenue trend hasn't really improved from the second quarter. So do you see the material pressure on voice building up on voice pricing? And if you can elaborate a little on the competitive environment, it would be great.

Thanks.

Let me pick up the question on the outlook and then Andrew can connect the dots on the drivers in Algeria.

We [as you remember from giving part] with medium term to giving annual outlook this year, and I think we're going to continue to do that. So today, we're confirming that we believe we'll be able to reach the outlook we gave in March 2014 for the full year 2014.

And on the year-end results, presentation that we will now in person on February 25, we will also present an outlook for 2015 on that day, including, of course, relevant CapEx targets and how we see that for the Group and Russia.

I think generally, the investments we've done in the networks in Russia have been successful. We have catched up in 3G coverage. We have good momentum in 4G. I think the performance of the network is better now than year ago. So what we need to find -- do now is to find the right balance between not over investing in the interests of cash flow and shareholders, but at the same time, not losing momentum so that we can present a quality product.

So this will be partly be driven by the competitive landscape, and partly, clearly, with more effective processes that we're putting in place now with more attractive use of capital.

And for the Group, clearly, long term, we believe the CapEx, the revenue number should come down from the current level that we're seeing right now, given the fact that we've rolled out 3G in major markets and that we have also been catching up in some markets. So long term we should see that CapEx to revenue number coming down.

I think that's the best color I can give on outlook and investments for now.

Okay. And I'll address the question on Algerian revenues, Ivan.

So the main issue here is actually seasonality, and I'm using that genuinely not as some kind of catch-all excuse which people typically use. What you need to remember is that in all the Muslim countries, Q3 usage and demand is normally lower than Q2 because you have a four-week period of religious holiday for Ramadan.

And actually, if you look at our sequential trends for this year and compare them with the same period last year, you will see that we were far, far better this year than last year, by which I mean the quarter-on-quarter decline in revenue that we saw in Q3 this year was much, much lower than we saw from Q2 to Q3 last year. And in addition, you will notice that, or you should notice that our quarter-on-quarter revenue profile for this year was far superior to that of our main competitor in Algeria. So again, speaks to the success of the 3G launch.

We generated a significant amount of customer growth in the quarter, and daily usage in Q3 was more than 4 times what we saw in Q2. And now that we're out of the latest holiday period in Q4, we do expect to get back to a more normal growth trajectory within the Algerian business, and expect that, as we said at the end of Q2, that we will see at least a stabilization of revenue market share by the end of 2014.

So in summary, we are very pleased with launch of 3G in Algeria.

So basically, in other words, so following the 6% reduction in revenue in the second quarter, 5% reduction -- and I mean year on year and not sequential, 5% reduction in the third quarter -- so the fourth quarter would be a material improvement against that? Or because I understand this is an analogy explanation, of course, but I'm also comparing year on year here. So there will be a material pickup in the revenue?

Yes. Let me repeat. We expect that we will stabilize our revenue market shares by the end of 2014.

Okay. Thanks.

Alexander Balakhnin, Goldman Sachs & Co.

Two questions from me, if I may. First is on the FX implication for your CapEx. I was just wondering. Given what the ruble did versus USD, euro, Chinese currency, does that change your plans for the investments in Russia? Do you still plan to install the same amount of equipment, or do you plan to basically adjust your spending on CapEx?

My second question is on the cost base and margin evolution in Russia. With the revenue decline, I would probably expect a little bit more pressure on your profitability, suggesting that you had some cost efficiencies in your Russian business. Can you probably explain what were the cost-cutting measures you had with your Russian business?

That's it for me.

Okay. Thanks, Alex. I'll take these again. So I think on the CapEx side of things, across the Group generally, we actually spend a lot of our CapEx in dollars. Within Russia specifically, I would have said broadly half of our CapEx is dollar-denominated. We hedge pretty far into the future. So right now, we have no explicit plans or considerations to change our investment thesis based on what's happening with currency markets.

And then coming back to your second question, as I explained at the last quarterly results presentation, we've got a very, very broad-based cost and asset efficiency program running within Russia. It's something that I'm actually pretty involved in as the Group CFO and it's got a heavy emphasis from other people within our Management Board at the Group level as well.

And we're looking at everything, so there's a lot of focus on process efficiency and streamlining things, which goes hand in hand with a lot of what we're trying to do to improve the customer experience, because in my experience, if you streamline processes to help the customer experience then generally you're going to also to improve your own cost performance.

We're also looking at some structural costs and what we -- starting to renegotiate rental costs and leasing costs, and things of that nature. So we really are leaving no stone unturned when it comes to asset and cost efficiency in Russia.

And then in addition in Russia, as in many of our other operating units going forward, we're going to start looking to becoming much more of a digital business and look to reduce our reliance going forward on structural and physical infrastructure and become ultimately a much more, if you like, virtual operator. But you'll see much more of that in 2015 as we firm up our strategies and plans in that area.

Okay. Understood. Thanks so much.

Jean-Yves Guibert, BNP Paribas.

I've got three questions, if I may, on Italy. First one, if I may, coming back to your [October] statement about when you commented that you held discussion about the 50/50 joint venture in Italy with no conclusion having been reached.

The statement precisely referred to a 50/50 joint venture, so could you comment whether there was any other type of ventures or possible transaction that could have been discussed, and whether they are still potentially under discussion?

My second question is, although it is still in its infancy, whether there are any impact in term of revenue and EBITDA on the wholesale basis from the introduction of your MVNO agreements with [PosteMobile]; so whether there have been any impacts in Q3, or it's far too early to see any impact here.

And then if you can provide a bit more insight in terms of the commercial settlements which obviously benefited both -- in Q3 for those related to Q3, but also it looks like you've benefited from some commercial settlements in relation to Q4 but accounted for in Q3. And these accounted for something like between [$45 million] to [$50 million]. So could you give us any color on the nature of these settlements; whether there is any recurring possibility and what we should expect, therefore, going forward?

Thank you very much.

All right. Let me pick up the first one, and then Andrew will talk a bit about the second part of your question, both relating to Italy.

Yes. As you saw in the release, we confirmed that we had held discussions with a party to do a 50/50 joint venture in Italy. Unfortunately, there is no conclusions as of today to these discussions. Of course, we are continuing to explore value-adding transactions, and generally, we are very much in favor of in-market consolidations.

But it takes two to tango, and right now, we are looking at WIND in Italy on a standalone basis. We have successfully refinanced them this year. We have a strong team in place. We have the strongest brands. We have the highest net promoter score. And I think, frankly speaking, that we have a sustainable model there.

And that -- part of what we're doing now you also saw in the release today. We're trying now to sell off the [powers], hopefully in the first quarter of next year, to strengthen the balance sheet, to reduce the debt. So we are now taking an independent strong view on WIND in the Italian market, and unfortunately the 50/50 discussions we had didn't lead to a conclusion at this point in time.

And its -- I think it's wrong to go into the details of the different structures and the different issues that was discussed. I think probably the conclusion is the more important part of your question, and maybe, Andrew, you could give a little bit of color on the other things.

Yes, sure. So first of all, let me address the settlement question. so from a legal perspective, I'm unable to give any more color and detail on the nature of the settlement and who they're with. What I can say, getting to the last part of that particular question, is that they are genuinely one-off in nature and you should not expect them to recur in Q4 or any time going forward from 2015 onwards.

With regards to your question on the MVNO, we implemented the deal with Poste in September. We had a small number of new customers come onto the WIND Italy network in the months of September. But the existing customers that Poste had, which -- as part of their MVNO agreement with another network, there is no forced migration of those. Customers will have to go into a shop, take out their existing SIM card, put in a WIND Italy SIM card. And so there will be a very long tail to the migration of Poste's existing customer base.

Okay. Thank you, Andrew. If I may, just a quick follow-up on the existing [roam], I think it's 3 million existing Poste mobile subscribers. So there is no mechanism for them to shift from the -- their current network onto the WIND network. Is that correct?

Well, it depends what you mean by mechanism. It's voluntary. The mechanism is they have to go into -- they have to get a new SIM card. Right?

Okay. So they can --. Okay. But if they have a SIM card, they can automatically, or they can just the add up any minutes or renew any services on the existing SIM card? I mean that these type of subscribers (multiple speakers)

No. It's a SIM card for another operator, right? That SIM card is not going to work on our network. So customers can choose. They can come into a store. But it will be a natural migration over time. It will not be any kind of forced migration.

Okay. But some customers can decide to stay on the other network?

Clearly.

Okay. Thank you very much.

Thank you, Jean. We have time for one more question.

Dilya Ibragimova, Citigroup.

I just had two questions, please. One is on the potential use of proceeds, $4 billion. There had been questions before, earlier, on potential payment of the Russian debt, but my question in particular is: When you guided that the interest cost will be reduced by approximately $0.7 billion following the transaction, refinancing in Italy and the repayment -- and the gross debt reduction of by $4 billion, what debt exactly did you have in mind when you had -- when you released the number?

So that's the first question.

And the second question is on Pakistan. The margin was fairly weak in the third quarter, so I just wanted to ask whether there are any one-offs in the third quarter, and what normalized EBITDA margin would be going forward in Pakistan.

Thank you.

Okay. Thank you. I'll take both those questions.

So when we -- clearly, we have a lot of debt and a lot of different debt instruments that we can repay using the proceeds from Algeria. And, yes, again, I'm not going to make a decision on what that is, what that's going to be until we are closer to the point in time and look at where the market is at and where we're trading.

But if we look at the success that we had refinancing Italy earlier this year, and then you plot basic yield curves comparing those Italian bonds versus some other debt instruments, it's pretty clear that we've got a lot of relatively expensive debt by today's market standard. So I think we've got plenty of opportunity to yield the kind of interest savings that we discussed when we announced the Algeria deal.

And then the second part of your question, Pakistan. No, there aren't any real one-off costs in there. There's a little bit of timing I suppose in the sense that, as we discussed at the second-quarter results, we need to have a net -- we need to complete the network modernization program and we needed to recover on the network side of things.

And so we've actually got a lot of CapEx and OpEx in the quarter resulting from that fixing of the network, and that's yet to result in the revenue pickup which we expect to come later on once the network performance has improved and we see that customers perceive that that improvement is out there.

The other thing I would say is that everybody in Pakistan right now is suffering from slightly elevated network costs because there's so much power outage in the country. And I think some of our competitors talked about that. And so we're all very reliant upon diesel and things of that nature, which is much, much more expensive than being reliant on the electrical grid.

Thank you. All right. I think I'm getting some [out here] that we're wrapping up the call. Again, thank you for the continued interest in VimpelCom, and also thank you for participating on our results conference call today.

Clearly, if there are more questions that couldn't be answered today, please contact investor relations and the team here in Amsterdam. We're also hoping that some of you will participate in the site visit in Bangladesh on December 2. And clearly, I'm really looking forward to seeing you on February 25 in London where we will do the in-person presentation of the year-end numbers.

And if I don't see you before that, I wish you all a good day and a good period.

And with that, I close the call. Thank you very much.

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