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VimpelCom Ltd. (VIP)

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VimpelCom Ltd (VIP)

Q3 2011 Earnings Conference Call

November 14, 2011 8:00 AM EST

Executives

Alexandra Tramont – FTI Consulting

Jo Lunder – CEO

Henk van Dalen – CFO

Khaled Bichara – President and COO

Analysts

Cesar Tiron – Morgan Stanley

Alex Balakhnin – Goldman Sachs

Alex Kazbegi – Renaissance Capital

Dalibor Vavruska – Citi

Alex Wright – UBS

Nadezhda Golubeva – UniCredit

Sanford Lee – Canaccord Genuity

Tatiana Boroditskaya – UBS

Harald Øyen – First Securities

Sergey Goncharov – Troika Dialog

Tala Boulos – Deutsche Bank

Marco Gironi – Credit Suisse

Dennis Ankle [ph] – Brevan Howard

Michael Galkin – VTB Capital

Jonathan Moore – BlueMountain

Presentation

Operator

Good day, ladies and gentlemen, and welcome to VimpelCom Ltd third quarter 2011 analyst and investor 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 be given at that time. As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host, Miss Alex Tramont of FTI Consulting. Please go ahead.

Alexandra Tramont

Thank you. Good morning and welcome to VimpelCom's conference call to discuss the company's third 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 expected profit growth in Russia; two, our expected future debt position, dividends and capital expenditures; and three, the company's value agenda strategy.

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 third quarter 2011 financial and operating results and the related presentation; two, the company's annual report on Form-20F for the year ended December 31, 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 and on the SEC's website at www.sec.gov.

If you have not received a copy of the third quarter 2011 financial and operating results press release, please contact Invest Relations at +31207977234 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 Jo Lunder, Chief Executive Officer of VimpelCom. Please go ahead.

Jo Lunder

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

We are looking forward to discussing with you another solid quarterly performance across our business units. But, first, let me introduce the members of the team here in Amsterdam, who are with us today. We have Khaled Bichara, our President and Chief Operating Officer. Khaled will present the operational performance of the five business units. We have Henk van Dalen, our Chief Financial Officer, who will be covering the financials in detail. And, finally, Gerbrand Nijman, our Head of Investor Relations.

Moving on to the quarter, we are satisfied with the solid performance we have achieved across our business units, where we have achieved double-digits top-line growth and we have surpassed the 200-million subscriber mark in October.

Our cash flow from operations of $1.9 billion remains strong, increasing by almost 70%. However, our net results declined mainly due to non-cash items. Henk will explain this more in detail later in the call.

In Italy, we continued to outperform the market, and we maintained profitable growth across our operations in all other emerging markets.

In Russia, even though we achieved strong revenue and subscriber growth, this was offset by the increase in costs leading to a declining profitability. In line with our announced strategy, we will focus on cash flow growth in this market by tackling the key issues through an operational excellence program we have implemented and by leveraging the synergies of the enlarged VimpelCom.

The integration process with Wind Telecom is ahead of schedule and we will complete it by year-end. We have already secured synergies of $1.9 billion on a net present value basis out of the $2.5 billion committed on the time of the deal.

Looking ahead, we will maintain our focus on delivering on the value agenda by driving sustainable, profitable growth and improving our operational excellence and capital efficiency, leading to increased cash flows.

At this point, I would like to shed some light on the progress we’ve made during the third quarter as well as bring you up to speed on major developments within the group. First of all, I have by now, met all key employees in the Group. I'm very pleased with overall quality of our regional management, and I think increased empowerment to people would further unleash energy and motivations in the month and years to come.

In September, we introduced the key pillars of the value agenda, one, profitable growth; two, operational excellence; and three, capital efficiency. These three pillars are being implemented across all our business units and tailored to their operating environments with a clear objective to grow free cash flows.

We’ve also made significant progress in a number of key areas. The company was awarded spectrum in the 800 megahertz and the 2600 megahertz frequencies in Italy, enabling deployment and launch over the next wave of 4G broadband services in the coming years. In addition to this, we have renewed our license in Bangladesh, and we were recently granted a 3G license in Laos.

As part of the acquisition of Wind Telecom, VimpleCom entered into a value sharing agreement with Weather Investments II regarding Djezzy. The value sharing agreement gave VimpleCom the option to exercise a value sharing mechanism that would allocate the potential upside value and downside risk in value scenarios. Having considered all of the facts and the circumstances, VimpelCom Supervisory Board has taken a business decision not to exercise and to let expire the value of the sharing mechanism, and therefore, to retain both the potential downside risk and the upside value.

At Orascom Telecom, the company’s demerger into two separate entities is still ongoing. And, in October, the EGM renewed its vote in favor of this demerger.

Our integration process with Wind Telecom remains on track to be completed by year-end. As our first phase initiatives, we have over already secured synergies in the amount of $1.9 billion, again on a net present value basis around at least $2.5 billion expected in total.

A few updates from management changes. I'd ask Elena Smatova to join the headquarter management team so that she can apply her extensive knowledge and skills across the entire group. Elena will continue to manage Russia until her replacement is appointed.

Read the rest of this transcript for free on seekingalpha.com