VimpelCom Reports Stable Q3 2016 Results, In Line With Expectations; FY16 Guidance Confirmed

AMSTERDAM, Nov. 3, 2016 /PRNewswire/ --

KEY RESULTS AND DEVELOPMENTS

•  Reported service revenue declined 3% YoY, organically¹ growing by 0.6%, with strong results in Pakistan and Ukraine, offset by continued weakness in Algeria; strong organic performance in mobile data revenue of +28% YoY
•  Reported EBITDA of USD 896 million; underlying EBITDA² organically¹ increased 0.6% with a margin of 40.6%
•  Profit for the period attributable to VimpelCom shareholders of USD 445 million
•  All regulatory approvals for the Italy joint venture received; closing expected shortly; strong performance
  in Italy ahead of transaction closing
•  VimpelCom free float nearly doubled to 20.1% after Telenor's sale of VimpelCom ADSs in September 2016
•  FY 2016 guidance³ confirmed at lower end of range for service revenue, underlying EBITDA margin and capex/revenue
•  Interim dividend of US 3.5 cents per ADS announced today

VimpelCom Ltd. (NASDAQ: VIP), a leading global provider of telecommunications and digital services headquartered in Amsterdam and serving over 200 million customers, today announces financial and operating results for the quarter ended 30 September 2016. These results and the prior year numbers reflect the reclassification of Wind Italy as an asset held for sale pursuant to the announcement of signing of an agreement to form the joint venture with 3 Italia in August 2015.

JEAN-YVES CHARLIER, CHIEF EXECUTIVE OFFICER, COMMENTS:
"VimpelCom reported stable performance in the third quarter of this year, in line with expectations. Service revenue and underlying EBITDA rose by 0.6% in the quarter on an organic basis, with particularly strong performances in Pakistan and Ukraine. Our business in Italy also reported solid results, with EBITDA growth of 11%, prior to the closing of the joint venture, which is expected shortly. We also continue to grow mobile data revenue across our footprint, by 28% year on year. As a result, we remain on track to achieve our financial targets for the full year, although at the lower range for service revenue and underlying EBITDA margin, while the capex to revenue ratio is trending towards 17%.

Our strategic plan to transform VimpelCom remains well underway with this quarter's closing of our merger in Pakistan and the approval from the EU and Italian authorities of our joint venture in Italy. Furthermore, Telenor's sale of a part of its stake in VimpelCom is an important milestone in our transformational journey, nearly doubling the size of our free float. Finally, We are also pleased to announce today, as expected, an interim dividend of USD 3.5 cents per American Depositary Share."

  

 

  

PRESENTATION OF FINANCIAL RESULTS

VimpelCom's results presented in this earnings release are based on IFRS and have not been audited. For more information on interim financial schedules please refer to Management Discussion & Analysis ("MD&A") and financial statements section. "EBITDA" or "reported EBITDA" presented in this document is called "Adjusted EBITDA" in the MD&A and financial statements section.

Certain amounts and percentages that appear in this earnings release have been subject to rounding adjustments.
As a result, certain numerical figures shown as totals, including those in tables, may not be an exact arithmetic aggregation of the figures that precede or follow them.

All non GAAP measures disclosed further in the document, i.e. EBITDA, EBITDA margin, underlying EBITDA, underlying EBITDA margin, EBIT, net debt, operating cash flow, organic growth, capital expenditures excluding licenses, last twelve months (LTM) Capex excluding licenses/Revenue, are reconciled to comparable GAAP measures in Attachment D.

All comparisons are on a year-on-year basis unless otherwise stated.

MAIN EVENTS Q3 2016

•  Italy JV cleared by the European Commission on 1 September 2016 and by Italian Ministry of Economic Development (MISE) on 24 October 2016; closing expected shortly
•  VimpelCom free float nearly doubled to 20.1% after Telenor's sale of VimpelCom ADSs in September 2016
•  VimpelCom shareholders elected the Supervisory Board and strengthened the digital leadership
•  Senior international management appointed in Russia
•  Interim dividend of US 3.5 cents per ADS announced today

  

 

ITALY JV CLEARED BY THE EUROPEAN COMMISSION ON 1 SEPTEMBER 2016 AND BY ITALIAN MINISTRY OF ECONOMIC DEVELOPMENT (MISE) ON 24 OCTOBER 2016
On 1 September 2016, CK Hutchison Holdings Ltd. ("CK Hutchison"), parent company of 3 Italia, and VimpelCom, parent company of Wind, welcomed the European Commission's decision to approve the 50/50 joint venture that will create the leading mobile operator in Italy.

On 24 October 2016, CK Hutchison and VimpelCom have also received final approval from the Italian Ministry of Economic Development (Ministero dello Sviluppo Economico or MISE) for their 50/50 joint venture to combine their respective mobile businesses.

Wind Italy reported strong results ahead of the transaction completion, which is expected shortly. The merger integration plan is ready to be implemented from 'day one' post completion.

VIMPELCOM FREE FLOAT NEARLY DOUBLED TO 20.1% AFTER TELENOR'S SALE OF VIMPELCOM ADSs IN SEPTEMBER 2016
VimpelCom's free float nearly doubled to 20.1% after Telenor East Holding II AS ("Telenor") sold 163,875,000 American Depositary Shares ("ADSs")at a public offering price of USD 3.50 per ADS, each representing one common share of the company pursuant to an underwritten offering. VimpelCom has not received any proceeds from the sale of the ADSs by Telenor, and Telenor's sale of the ADSs has not resulted in dilution of the company's issued and outstanding shares. In addition, Telenor also launched a USD 1,000,000,000 0.25 per cent bond due 2019 that will be exchangeable under certain conditions for up to a total of 204,081,633 ADSs (subject to adjustment) at an exchange price representing a premium of 40% to the public offering price of the ADSs sold by Telenor.

VIMPELCOM SHAREHOLDERS ELECTED THE SUPERVISORY BOARD AND STRENGTHENED THE DIGITAL LEADERSHIP
VimpelCom announced the election of its Supervisory Board members during its Annual General Meeting of Shareholders (AGM), which was held in Amsterdam in August 2016. The company's shareholders re-elected Mikhail Fridman, Gennady Gazin, Andrei Gusev, Gunnar Holt, Sir Julian Horn-Smith, Nils Katla, and Alexey Reznikovich, together with newly elected Supervisory Board members, Stan Chudnovsky and Jørn P. Jensen. The new appointments bring added expertise in technology, digital entrepreneurship, and international corporate leadership to the Supervisory Board, and support VimpelCom's ambition to be a leader in digital innovation across the markets it serves.

SENIOR INTERNATIONAL MANAGEMENT APPOINTED IN RUSSIA
During the quarter, VimpelCom accepted the resignation of Mikhail Slobodin as CEO of its Russian operations and appointed Kjell Johnsen, who leads VimpelCom's Major Markets, as interim CEO of that business. Kjell has extensive experience in the country and will continue to drive the company's transformation forward. Kjell Johnsen joined VimpelCom in August 2016 as Head of Major Markets and has international expertise in senior roles across a variety of industries, with responsibility for markets such as Russia, Scandinavia, and Central and Eastern Europe. VimpelCom also appointed Fabrizio Mambrini to the role of Chief Financial Officer of VimpelCom Russia. Fabrizio succeeds Nikolay Ivanov, who has decided to pursue opportunities outside of the company.

DIVIDEND ANNOUNCEMENT
The company announces today that the Supervisory Board has approved and authorized the payment of an interim dividend of US 3.5 cents per ADS. The record date for the company's shareholders entitled to receive the dividend payment has been set for 18 November 2016. It is expected that the dividend will be paid by 7 December 2016. The company will make appropriate tax withholdings of up to 15% when the dividend is paid to the company's ADS depositary, The Bank of New York Mellon.

  

GROUP PERFORMANCE Q3 2016

•  Reported service revenue declined 3% YoY, organic growth of 0.6% YoY
•  Reported EBITDA of USD 896 million includes exceptional costs of USD 66 million, mainly related to performance transformation; underlying EBITDA organically increased 0.6% YoY
•  Profit for the period attributable to VimpelCom shareholders of USD 445 million

  

Group service revenue for Q3 2016 decreased 3% year-on-year to USD 2.3 billion due to adverse currency movements, while it increased organically by 0.6%, driven by positive performances in Pakistan and Ukraine, partially offset by continued weakness in Algeria. In Q3 2016 the decrease in voice revenue was offset by strong organic growth in mobile data revenue of 28%. Total mobile customers increased by approximately 10.1 million to 205.5 million at the end of Q3 2016, mainly driven by the consolidation of Warid's customers in Pakistan from July 2016. 

 

Group EBITDA reported in Q3 2016 was USD 896 million, compared to USD 58 million in Q3 2015. Underlying EBITDA was USD 962 million, reflecting an organic increase of 0.6%. The exceptional items in this period primarily relate to the cost of the Group-wide performance transformation program. In Q3 2015, VimpelCom recognized exceptional items totaling USD 960 million, related to provisions of USD 916 million for investigations by the SEC/DOJ/OM and other legal costs as well as USD 44 million of performance transformation costs. The reconciliation table for EBITDA and underlying EBITDA is set forth in Attachment D.

 

In Russia, service revenue organically decreased 1% in Q3 2016. Fixed-line service revenue decreased organically by 3% mainly as a result of corporate customers changing their contracts from U.S. dollar to ruble together with lower business to consumer revenue. Mobile service revenue decreased organically by 0.7%, driven by lower voice and roaming revenue due to an average price per minute reduction, almost fully offset by strong organic growth in mobile data revenue of 21%. Beeline's mobile customer base decreased by 1.5% to 58.1 million.

In Q3 2016, EBITDA decreased 6% in Russia, while underlying EBITDA decreased organically 5%, adjusted for exceptional costs of RUB 379 million related to the performance transformation program. The effect of the decrease in revenue and increased interconnect costs and traffic termination costs was partly offset by cost savings as a result of the performance transformation initiatives.

Pakistan's reported results are positively impacted by the consolidation of Warid from 1 July 2016. Reported service revenue increased by 47%, while organically, excluding Warid, it increased by 16%, driven by growth in all revenue streams. Data revenue, excluding Warid, organically increased by 71%, mainly due to successful data monetization initiatives, including attractive bundle offers and the unification of the tariff portfolio, together with continued 3G network expansion.

Underlying EBITDA margin, excluding integration costs related to the Warid transaction, was 42% in Q3 2016, supported by Warid's improved margin resulting from the progress of integration activities.

In Algeria, service revenue organically decreased 13%, primarily due to the combined impact of historic 3G coverage shortfalls, sub-optimal changes in early 2016 to billing increments and the commission structure for indirect distribution, which were partially corrected in Q2 2016, and forced migrations from legacy tariffs from late 2015 onwards. Data revenue continued to grow strongly by 57%, mainly due to the higher usage and substantial increase in data customers as a result of the 3G network roll-out.

In Q3 2016, EBITDA decreased 19% to DZD 14.9 billion due to the decrease in revenue, while underlying EBITDA decreased 11%, adjusted for exceptional costs related to the performance transformation program.

 

In Bangladesh, Banglalink's service revenue increased 2% in Q3 2016, mainly driven by continued increase in data revenue of 45%, offset by lower voice revenue. The relative deceleration of the year-on-year revenue growth rate was primarily caused by the imposition of an incremental 2% supplementary duty on recharges from June 2016 on top of the additional 1% surcharge from March 2016, and the gap in 3G network coverage versus the market leader.

Underlying EBITDA grew 4%, driven by both the revenue growth and performance transformation initiatives, particularly in human resources and commercial costs.

In Ukraine, service revenue grew organically 9% YoY, primarily as a result of successful commercial activities and the strong growth of mobile data revenue of 62%.

Underlying EBITDA organically increased 18% in Q3 2016 and the EBITDA margin grew just in excess of 55%, driven by higher revenue and lower interconnect costs, partly offset by an increase in frequency fee, inflation on rent and utilities and a negative currency devaluation effect on opex denominated in foreign currency.

In Uzbekistan, service revenue increased organically by 5%, mainly as a result of the impact of Beeline´s price plans being denominated in U.S. dollars, increased interconnect revenue and 7% growth of mobile data revenue.

Underlying EBITDA decreased organically by 4% and underlying EBITDA margin decreased 5 percentage points to 57%, mainly driven by the increased customer tax. The increase in customer tax to UZS 1,500 per customer from UZS 750 negatively impacted EBITDA margin by 4.3 percentage points.

In Other, we have included the results of Kazakhstan, Kyrgyzstan, Armenia, Georgia, Tajikistan, intercompany eliminations and HQ costs.

EBIT  increased year-on-year in Q3 2016 to USD 406 million due to the higher reported EBITDA, as in Q3 2015 the company recognized exceptional items totaling USD 960 million, described above. Q3 2015 depreciation and amortization expenses were affected by accelerated depreciation in Pakistan due to an equipment swap.

Profit before tax  increased to USD 186 million as a result of higher EBIT. Financial expenses slightly increased due to bonds issued by GTH Finance B.V. in April 2016 and the consolidation of interest expenses from Warid's debt. Lower foreign exchange expenses in Q3 2016 are primarily a result of ruble appreciation during the quarter.

Income tax expense increased in Q3 2016 to USD 113 million due to the change in the tax regime in Uzbekistan, which caused the effective tax rate in that country to increase to 50% from 2016 onwards, coupled with the reversals of USD 70 million deferred tax provisions in respect of withholding taxes in Q3 2015.

 

Profit from discontinued operations was USD 421 million in Q3 2016, positively impacted by USD 185 million of fair value adjustment on derivatives. In Q3 2015 the company recorded a loss from discontinued operations of USD 123 million, mainly impacted by USD 236 million charge arising from the treatment of the Italian towers transaction as a sale of business.

Profit for the period attributable to VimpelCom shareholders was USD 445 million, which was positively impacted by the profit from discontinued operations.

Capex decreased 8% to USD 425 million in Q3 2016, primarily as a result of the performance transformation program, leading to a LTM capex excluding licenses to revenue ratio of 16.7%. The company will maintain its strategy of investing in high-speed data networks to capture mobile data growth, including the continued roll-out of 4G/LTE networks in Russia and Algeria and 3G networks in Algeria, Bangladesh, Pakistan and Ukraine.

Gross debt increased 2% quarter-on-quarter by USD 244 million mainly due to the consolidation of USD 360 million of debt after the closure of the transaction to merge Mobilink with Warid on 1 July 2016. 

Net debt increased 3% quarter-on-quarter, mainly due to the consolidation of Warid´s debt as mentioned above.

Net cash from operating activities decreased in Q3 2016 by USD 101 million mainly due to the year-on-year decline in EBITDA, which was negatively affected by currency movements.

Net cash flow used in investing activities decreased by USD 435 million mainly due to lower cash capital
expenditures and inflow from loan granted by Mobilink to Warid of USD 81 million to repay a credit facility as part of the closing of the transaction in Pakistan in Q2 2016.

Net cash used in financing activities was negative in Q3 2016 due to dividend payments to non-controlling interests in Algeria, repayment of certain credit facilities and borrowings with expired maturity. In 3Q15 the outflow is mainly explained by dividend payments to non-controlling interests in Kazakhstan and Kyrgyzstan.

  

  

COUNTRY PERFORMANCE – Q3 2016

•  Russia
•  Pakistan
•  Algeria
•  Bangladesh
•  Ukraine
•  Uzbekistan
•  Italy

  

   

The macro-economic slowdown and weakened ruble continued to negatively impact revenue growth and profitability in Russia. In addition, competition has increased during 2016 and the company expects the environment to remain challenging for the remainder of the year.

Beeline's mobile customer base decreased by 2% year-on-year to 58.1 million in Q3 2016. Annualized churn increased 1.3 percentage points to 55%, reflecting the increased competition in the market and price sensitivity of customers due to an unstable macro-economic environment. Net Promoter Score ("NPS") was stable, while relative NPS continued to improve, reaching the number one position among the three main operators.

Total service revenue in Q3 2016 declined 1% to RUB 68.9 billion, as a result of a decline in fixed-line and mobile service revenue. Mobile service revenue decreased 1% to RUB 57.9 billion, driven by lower voice and roaming revenue, resulting from an average price per minute reduction as existing customers continued to migrate to the company's new price plans. Beeline successfully launched a fixed mobile convergence ("FMC") offer during the first quarter of this year, introducing a bundle combining mobile and fixed-broadband services. The take up for this service has been strong with more than 355,000 customers and FMC revenue already amounted to more than one percent of mobile service revenue in Q3 2016.

Mobile data revenue continued to grow strongly, increasing 21% to RUB 13.7 billion, attributable to the active bundle promotion, increased smartphone penetration, growth in mobile data customers and customer traffic growth.

Fixed-line service revenue decreased by 3% to RUB 11.0 billion mainly as a result of corporate customers changing their contracts from U.S. dollar to ruble and lower B2C revenue.

In Russia, reported EBITDA decreased 6% to RUB 26.7 billion. Underlying EBITDA decreased 5%, adjusted for exceptional costs of RUB 379 million related to the performance transformation program in Q3 2016. The effects of the decrease in revenue, increased traffic termination costs and increased interconnect costs, which were due to growth of mobile outbound off-net traffic resulting from increasing penetration of bundles with large allowances, was partly offset by cost savings as a result of the performance transformation initiatives.

Capex excluding licenses decreased 24% to RUB 9.4 billion, largely due to phasing, together with capital efficiency improvements, resulting from savings from centralizing procurement on a global basis. The LTM capex to revenue ratio for Q3 2016 was 15.6%.LTM operating cash flow margin, defined as EBITDA less capex, was at a level of 22.4% in Q3 2016.

  

  

Year-on year organic change in the table above calculated based on Mobilink stand-alone numbers

 

In July 2016, VimpelCom closed the transaction to merge Mobilink with Warid, strengthening its leading position in Pakistan. Warid's financial results have been consolidated in VimpelCom´s accounts from 1 July 2016.

Despite aggressive price competition in the market, the newly merged entity gained market share in Q3 2016, as Mobilink continued to show double digit growth of its mobile customer base and revenue. Underlying EBITDA margin, excluding integration costs related to the Warid transaction, was 42% in Q3 2016, supported by Warid's improved margins, resulting from the progress of integration activities. Capex increased to PKR 7.6 billion in Q3 2016 with a LTM capex to revenue ratio of 15.9%, driven by integration expenses. LTM operating cash flow margin was 27.2% in Q3 2016.

The company is fully focused on the post transaction integration. A merger petition was filed with the Islamabad High Court in early October 2016. The company expects to finalize the legal merger of Mobilink and Warid by Q1 2017. The two companies have already introduced unified on-net offers to their customers since late October 2016. Site sharing activities and marketing cost optimization resulted in the first synergies, totaling PKR 0.5 billion in Q3 2016. 

MOBILINK STAND-ALONE PERFORMANCE IN Q3 2016

Mobilink's market position continued to improve in Q3 2016, demonstrating strong performance with double-digit YoY revenue and EBITDA growth.

In Q3 2016, Mobilink's service revenue increased by 16%, supported by all revenue streams. Mobilink continues to show voice and SMS revenue growth, which is a result of customer growth. Data revenue grew by 71% due to successful data monetization initiatives, including attractive bundle offers and the unification of the tariff portfolio, together with continued 3G network expansion.

Mobilink's customer base increased 15% YoY in Q3 2016 supported by the continued focus on price simplicity, distribution and offer transparency. The company sees data and voice monetization among its key priorities, underpinned by striving to be the best network in terms of both quality of service and coverage.

In order to stimulate the increase in smartphone penetration, in Q3 2016 Mobilink continued to promote co-branded devices, ranging from low-end feature phones to high-end smartphones and tablets under the 'Jazz X' brand. Mobilink also invested in its distribution capabilities through launching mono-brand stores and establishing strategic partnerships with leading handset suppliers.

Mobile Financial Services ("MFS") revenue continued to show robust growth at 42%, driven by the success of over-the-counter ("OTC") transactions and higher agent activity.

  

  

 

Although Djezzy's operations delivered strong margins during Q3 2016, the company continued to experience significant pressure on results. While the decrease in revenue was slightly mitigated by the shift in Ramadan calendar resulting in a positive contribution in Q3 2016 of 2% year-on-year in revenue, Djezzy continued to face customer churn and ARPU erosion. The company expects this pressure to continue for the remainder of the year, as it will take time to stabilize its commercial proposition and its customer base.

The regulatory environment is improving in Algeria as Djezzy's Significant Market Player status was lifted in September 2016, which removes the Algeria Regulatory Authority for Post and Telecommunications approval procedure and on-net/off-net asymmetry test on new commercial offers. The mobile termination rate ("MTR") asymmetry for Djezzy is under discussion with the regulator, which is the final step in lifting the regulatory hurdles.

VimpelCom's customer base in Algeria decreased 6% year-on-year to 15.9 million and ARPU declined by 8% due to the combined impact of historic 3G coverage shortfalls, sub-optimal changes in early 2016 to billing increments and the commission structure for indirect distribution, which were partially corrected in Q2 2016, and forced migrations from legacy tariffs from late 2015 onwards. 

As a result, Djezzy's Q3 2016 service revenue was DZD 28.9 billion, down 13% year-on-year, while data revenue continued to grow strongly by 57%, due to the higher usage and substantial increase in data customers as a result of the 3G network roll-out.

The company is taking further measures to improve performance and stabilize its customer base, including distribution transformation and monobrand roll-out, promoting micro campaigns with tailored services to increase satisfaction, data monetization activities and smartphone promotions coupled with bundle offers. In late October, Djezzy launched a simplified data centric pricing architecture, with new simple bundle offers "Djezzy carte", "Liberty" and "Millenium" available to all customers.

In Q3 2016, EBITDA decreased 19% to DZD 14.9 billion due to the decrease in revenue. EBITDA margin remained strong at 51.3% due to commercial and network costs optimization as well as a decline in personnel costs, driven by headcount reduction. Underlying EBITDA decreased 11%, adjusted for exceptional costs of DZD 1.4 billion related to the performance transformation program in Q3 2016, while underlying EBITDA margin improved to 56.2%

In Q3 2016, Djezzy continued to roll-out 3G in new regions and, as a result, Djezzy's 3G network covers 41 wilayas (provinces) while full 3G deployment across all 48 of Algeria's wilayas is expected to be complete by the end of 2016. In Q3 2016, capex was DZD 4.3 billion, a 28% increase, while the LTM capex to revenue ratio was 16.3%. LTM operating cash flow margin was 39.4% in Q3 2016.

Djezzy launched high-speed 4G/LTE services in early October 2016 in three wilayas. The company expects to launch 4G/LTE services in 20 wilayas by the end of 2016, subject to regulatory approval, aiming to operate the leading network and win back high value customers.

Banglalink continued to demonstrate year-on-year growth in Q3 2016 in both revenue and EBITDA despite intense market competition.

The main operational focus during Q3 2016 was the SIM re-verification completion. This government-mandated initiative started in December 2015 and required each mobile phone operator to verify all customers using fingerprints in order to ensure authentic registration, proper accountability and enhanced security. The company believes that this initiative will also provide a solid and secure customer base to develop new revenue from MFS as part of our digital strategy. This program contributed to a slowdown of acquisition activity across the market in the first half of 2016. In Q3 2016 the SIM re-verification process was completed, resulting in 3.8 million SIM cards being blocked by Banglalink; excluding the results of the re-verification process, the customer base in Q3 2016 would have increased by 1% YoY.

In Q3 2016, Banglalink's service revenue increased 2% to BDT 12.0 billion. This increase in revenue was mainly driven by continued increase in data revenue of 45%, partially offset by lower voice revenue. This data revenue growth was driven by data usage growth of 143% and growth in active data users, while on a reported basis data users decreased as a result of SIM re-verification blocking.

Despite aggressive price competition, Banglalink's ARPU increased 9% mainly on the back of growing data traffic and also due to inactive and unverified SIMs blocked by Banglalink in Q3 2016.  The relative deceleration of the year-on-year revenue growth rate was primarily caused by the imposition of an incremental 2% supplementary duty on recharges from June 2016 on top of the additional 1% surcharge from March 2016, together with the gap in 3G network coverage versus the market leader.

In Q3 2016, the company's underlying EBITDA grew 4% to BDT 5.7 billion driven by both the revenue growth and the impact of performance transformation initiatives, particularly with respect to human resources and commercial costs. As a result, in Q3 2016, the underlying EBITDA margin was 46.7%, which represents a 0.7 percentage point YoY increase.

Capex decreased 54% to BDT 1.7 billion in Q3 2016, while the LTM capex to revenue ratio was 18.3% and the LTM operating cash flow margin was 29.3% in Q3 2016. Banglalink continues to invest in efficient data networks and expanding network coverage. Banglalink's 3G network covered 54% of the population at the end of Q3 2016.

 

Kyivstar continued to deliver strong results in Q3 2016, despite a challenging macro-economic environment, with the company maintaining its clear leadership in the market.

Total service revenue increased 9% year-on-year to UAH 3.9 billion in Q3 2016. Mobile service revenue also grew 9% to UAH 3.7 billion as a result of strong growth of mobile data revenue and driven by successful commercial activities. Mobile data revenue experienced strong growth of 61% driven by the continued 3G roll-out, active promotions of smartphones and data-oriented tariff plans.

Kyivstar´s mobile customer base increased 2% to 26.3 million in Q3 2016, reporting year-on-year growth following a negative growth trend since Q2 2015 driven by a customer decline in eastern Ukraine. On an annual basis, churn improved by 16 percentage points to 10%, driven by reactivations, an effect that is expected to reverse in the fourth quarter of this year.

Fixed-line service revenue increased 10% to UAH 261 million, supported by fixed residential broadband (''FTTB'') revenue, which continued to outgrow the market, increasing 13%, driven primarily by the improved quality of the customer base and FTTB re-pricing.

EBITDA increased 18% to UAH 2.2 billion in Q3 2016 and EBITDA margin grew 4.3 percentage points to 55.3%, driven by higher revenue and lower interconnect cost, due to lower mobile termination rates and lower traffic to international destinations, partly offset by an increase in frequency fee, inflation on rent and utilities and a negative currency devaluation effect on opex denominated in foreign currency.

Kyivstar continued to roll-out its 3G network in Q3 2016, reaching 52% population coverage, up from 35% at the end of 2015. Q3 2016 capex was UAH 860 million with an LTM capex to revenue ratio of 18.6%, and LTM operating cash flow margin, defined as EBITDA less capex, was a strong 34.3% in Q3 2016. 

 

The Uzbek market continues to experience intense competition, however Beeline remains the leader and was able to improve its market position, as it became the clear leader in NPS during the quarter.

Mobile service revenue increased 5% year-on-year to UZS 499 billion mainly as a result of the impact of Beeline´s price plans being denominated in U.S. dollars, together with increased interconnect revenue and mobile data revenue growth, which increased 7% driven by increased smartphone penetration and promotions, notwithstanding a 6% year-on-year decrease in mobile data customers. The overall customer base decreased 6% to 9.6 million, due to the launch of two new mobile operators in 2015.

EBITDA increased by 12%, as Q3 2015 was negatively impacted by a provision of UZS 42.4 billion related to a supplier contract dispute. Underlying EBITDA decreased 4% and underlying EBITDA margin decreased by 5.0 percentage points to 57.1%, primarily driven by increased customer-based taxes. The increase in customer tax to UZS 1,500 from UZS 750 per customer per month negatively impacted EBITDA margin by 4.3 percentage points.

Capex was UZS 112 billion and the LTM capex to revenue ratio was 15.3%, resulting from a 17% growth in 3G sites. LTM operating cash flow margin was a strong 44.8% in Q3 2016. The cash and deposits balances of USD 804 million are considered to be restricted from repatriation due to local government and central bank regulations and the company has implemented a structural approach to start cash upstreaming.

The increased customer tax will continue to impact EBITDA in the remainder of 2016. The company aims to maintain its leading market position in Uzbekistan by focusing on customer retention and high value customers.

  

Wind delivered strong results prior to the closing of the Italy joint venture. Service revenue in Q3 2016 grew 1% year-on-year to EUR 1.0 billion, driven by a strong performance in mobile service revenue, returning to positive growth and a 28.9% increase in mobile handset sales resulting from the success of Wind's "Telefono Incluso" bundles, coupled with a recovery in other revenue.

In Q3 2016, mobile service revenue increased 2%, returning to positive growth after 20 quarters of year-on-year declines. Mobile data revenue showed double digit growth of 18% to EUR 204 million, with mobile data customers growing 4% YoY to 11.7 million.

Mobile ARPU in Q3 2016 grew by 4% to EUR 12.1, positively impacted by the 13% growth of data ARPU, now representing 46% of total ARPU and more than offsetting the slight decline of the voice segment.

In Q3 2016, fixed-line service revenue slightly decreased by 1% to EUR 269 million, confirming signs of recovery QoQ.

The direct fixed-line customer base continued to improve, growing 4%, almost compensating for the 32% decline in the indirect segment.

In Q3 2016, the trend of customers shifting towards lower monthly fee bundles, including unlimited DSL and pay per use voice, was confirmed. The broadband customer base increased by 3% and was the key driver of the solid result of fixed LLU broadband. Revenue for this segment increased 8% to EUR 131 million, almost offsetting the voice segment decline.

The Group is launching its digital strategy in Italy, introducing the new customer engagement platform that will fundamentally change the way we interact with our customers.

Wind's EBITDA in Q3 2016 increased by 11% to EUR 473 million, as a result of the positive performance in mobile service revenue, coupled with the strong focus on cost efficiency. EBITDA margin in Q3 2016 increased to 40.8%, which represents the highest EBITDA margin since the acquisition of Wind by VimpelCom.

In Q3 2016, Wind invested EUR 151 million in the expansion of the 4G/LTE network, as well as in the increase of capacity and coverage of the HSPA+ network.
The 4G/LTE network covered 68% of the population at the end of Q3 2016.

On 1 September 2016 the EU commission approved the Italy JV transaction and on 24 October 2016 the MISE gave its authorization. The closing of the transaction is expected shortly, after which the results of the JV will be consolidated via the equity accounting method.

CONFERENCE CALL INFORMATION

On 3 November 2016, VimpelCom will host an analyst & investor conference call on its Q3 2016 results at 2:00 pm CET (1:00 pm BST). The call and slide presentation may be accessed at  http://www.vimpelcom.com.

  

2:00 pm CET investor and analyst conference call
US call-in number: +1 (877) 280 2296
Confirmation Code: 6037973

International call-in number: +1 (212) 444 0412
Confirmation Code: 6037973

The conference call replay and the slide presentation webcast will be available until 17 November 2016.
The slide presentation will also be available for download on VimpelCom's website.

Investor and analyst call replay
US Replay Number: +1 (866) 932 5017
Confirmation Code: 6037973

UK Replay Number: 0 800 358 7735
Confirmation Code: 6037973

  

 

  

DISCLAIMER

This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "project," "could," "should," "would," "continue," "seek," "target," "guidance," "outlook," "if current trends continue," "optimistic," "forecast" and other similar words. Forward-looking statements are not historical facts, and include statements relating to, among other things, the company's anticipated performance and guidance for 2016; future market developments and trends; expected synergies and timing of completion of the Italy joint venture, including expectations regarding capex and opex benefits; realization of the synergies of the Warid transaction; operational and network development and network investment, including expectations regarding the roll out and benefits of 4G/LTE networks in Russia and Algeria, anticipated timing of roll-out and benefits from 3G services in Algeria, Bangladesh, Pakistan and Ukraine and the company's ability to realize its targets and strategic initiatives in the various countries of operation. The forward-looking statements included in this release are based on management's best assessment of the company's strategic and financial position and of future market conditions, trends and other potential developments. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of continued volatility in the economies in our markets; unforeseen developments from competition; governmental regulation of the telecommunications industries; general political uncertainties in our markets; government investigations or other regulatory actions and/or litigation with third parties; failure to complete the Italy joint venture; failure of the expected benefits of the Italy joint venture and the Warid transaction to materialize as expected or at all due to, among other things, the parties' inability to successfully implement integration strategies or otherwise realize the anticipated synergies, and other risks beyond the parties' control and failure to meet expectations regarding various strategic initiatives, including, but not limited to, the performance transformation program, the effect of foreign currency fluctuations, increased competition in the markets in which VimpelCom operates and the effect of consumer taxes on the purchasing activities of consumers of VimpelCom´s services. Certain other factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risk factors described in the company's Annual Report on Form 20-F for the year ended December 31, 2015 filed with the SEC and other public filings made by the company with the SEC. The forward-looking statements speak only as of the date hereof, and the company disclaims any obligation to update them or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.

ABOUT VIMPELCOM

VimpelCom (NASDAQ: VIP) is an international communications and technology company, headquartered in Amsterdam, and driven by a vision to unlock new opportunities for customers as they navigate the digital world. Present in some of the world's most dynamic markets, VimpelCom provides more than 200 million customers with voice, fixed broadband, data and digital services. VimpelCom's heritage as a pioneer in technology is the driving force behind a major transformation focused on bringing the digital world to each and every customer. VimpelCom offers services to customers in 14 markets including Russia, Italy, Algeria, Pakistan, Uzbekistan, Kazakhstan, Ukraine, Bangladesh, Kyrgyzstan, Tajikistan, Armenia, Georgia, Laos, and Zimbabwe. VimpelCom operates under the "Beeline", "WIND", "Djezzy", "Mobilink", "Kyivstar", "banglalink" and "Telecel" brands.

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ATTACHMENT C: DEFINITIONS

ARPU (Average Revenue per User)  measures the monthly average revenue per mobile user. We generally calculate mobile ARPU by dividing our mobile service revenue during the relevant period, including data revenue, roaming revenue and interconnect revenue, but excluding revenue from connection fees, sales of handsets and accessories and other non-service revenue, by the average number of our mobile customers during the period and dividing by the number of months in that period. For Italy, we define mobile ARPU as the measure of the sum of our mobile revenue in the period divided by the average number of mobile customers in the period (the average of each month's average number of mobile customers (calculated as the average of the total number of mobile customers at the beginning of the month and the total number of mobile customers at the end of the month)) divided by the number of months in that period.

Data customers  are mobile customers who have engaged in revenue generating activity during the three months prior to the measurement date as a result of activities including USB modem Internet access using 2.5G/3G/4G/HSPA+ technologies. The Italy Business Unit measures mobile data customers based on the number of active contracts signed and includes customers who have performed at least one mobile Internet event during the previous month. For Algeria, mobile data customers are 3G customers who have performed at least one mobile data event on the 3G network during the previous four months.

Capital expenditures (capex)  are purchases of new equipment, new construction, upgrades, software, other long lived assets and related reasonable costs incurred prior to intended use of the non-current asset, accounted at the earliest event of advance payment or delivery. Long-lived assets acquired in business combinations are not included in capital expenditures.

EBIT  is a non-GAAP measure and is calculated as EBITDA plus depreciation, amortization and impairment loss. Our management uses EBIT as a supplemental performance measure and believes that it provides useful information of earnings of the Company before making accruals for financial income and expenses and net foreign exchange (loss)/gain and others. Reconciliation of EBIT to net income attributable to VimpelCom Ltd., the most directly comparable GAAP financial measure, is presented in the reconciliation tables section in Attachment F.

Adjusted EBITDA (called "EBITDA" in this document) is a non-GAAP financial measure. EBITDA is defined as earnings before interest, tax, depreciation and amortization. VimpelCom calculates EBITDA as operating income before depreciation, amortization, loss from disposal of non-current assets and impairment loss and includes certain non-operating losses and gains mainly represented by litigation provisions for all of its Business Units except for its Russia Business Unit. The Russia Business Unit's EBITDA is calculated as operating income before depreciation, amortization, loss from disposal of non-current assets and impairment loss. EBITDA should not be considered in isolation or as a substitute for analyses of the results as reported under IFRS. Our management uses EBITDA and EBITDA margin as supplemental performance measures and believes that EBITDA and EBITDA margin provide useful information to investors because they are indicators of the strength and performance of the Company's business operations, including its ability to fund discretionary spending, such as capital expenditures, acquisitions and other investments, as well as indicating its ability to incur and service debt. In addition, the components of EBITDA include the key revenue and expense items for which the Company's operating managers are responsible and upon which their performance is evaluated. EBITDA also assists management and investors by increasing the comparability of the Company's performance against the performance of other telecommunications companies that provide EBITDA information. This increased comparability is achieved by excluding the potentially inconsistent effects between periods or companies of depreciation, amortization and impairment losses, which items may significantly affect operating income between periods. However, our EBITDA results may not be directly comparable to other companies' reported EBITDA results due to variances and adjustments in the components of EBITDA (including our calculation of EBITDA) or calculation measures.

Additionally, a limitation of EBITDA's use as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue or the need to replace capital equipment over time. Reconciliation of EBITDA to net income attributable to VimpelCom Ltd., the most directly comparable GAAP financial measure, is presented in the reconciliation tables section in Attachment F.

EBITDA margin  is calculated as EBITDA divided by total revenue, expressed as a percentage.

Gross Debt is calculated as the sum of long term debt and short term debt.

Households passed  are households located within buildings, in which indoor installation of all the FTTB equipment necessary to install terminal residential equipment has been completed.

MBOU (Megabyte of use)  is calculated by dividing the total data traffic by the average mobile data customers during the period.

MFS (Mobile financial services)  is a variety of innovative services, such as mobile commerce or m-commerce, that use a mobile phone as the primary payment user interface and allow mobile customers to conduct money transfers to pay for items such as goods at an online store, utility payments, fines and state fees, loan repayments, domestic and international remittances, mobile insurance and tickets for air and rail travel, all via their mobile phone.

MNP (Mobile number portability)  is a facility provided by telecommunications operators, which enables customers to keep their telephone numbers when they change operators.

Mobile customers  are generally customers in the registered customer base as of a given measurement date who engaged in a revenue generating activity at any time during the three months prior to such measurement date. Such activity includes any outgoing calls, customer fee accruals, debits related to service, outgoing SMS and MMS, data transmission and receipt sessions, but does not include incoming calls, SMS and MMS or abandoned calls. Our total number of mobile customers also includes customers using mobile internet service via USB modems. For our business in Italy, prepaid mobile customers are counted in our customer base if they have activated our SIM card in the last 13 months (with respect to new customers) or if they have recharged their mobile telephone credit in the last 13 months and have not requested that their SIM card be deactivated and have not switched to another telecommunications operator via mobile number portability during this period (with respect to our existing customers), unless a fraud event has occurred. Postpaid customers in Italy are counted in our customer base if they have an active contract unless a fraud event has occurred or the subscription is deactivated due to payment default or because they have requested and obtained through mobile number portability a switch to another telecommunications operator.

MOU (Monthly Average Minutes of Use per User) measures the monthly average minutes of voice service use per mobile customer. We generally calculate mobile MOU by dividing the total number of minutes of usage for incoming and outgoing calls during the relevant period (excluding guest roamers) by the average number of mobile customers during the period and dividing by the number of months in that period. For our business in Italy, we calculate mobile MOU as the sum of the total traffic (in minutes) in a certain period divided by the average number of customers for the period (the average of each month's average number of customers (calculated as the average of the total number of customers at the beginning of the month and the total number of customers at the end of the month)) divided by the number of months in that period.

Net debt is a non-GAAP financial measure and is calculated as the sum of interest bearing long-term debt and short-term debt minus cash and cash equivalents, long-term and short-term deposits and fair value hedges. The Company believes that net debt provides useful information to investors because it shows the amount of debt outstanding to be paid after using available cash and cash equivalents and long-term and short-term deposits. Net debt should not be considered in isolation as an alternative to long-term debt and short-term debt, or any other measure of the Company financial position. Reconciliation of net debt to long-term debt and short-term debt, the most directly comparable GAAP financial measures, is presented in the reconciliation tables section in Attachment D.

Net foreign exchange (loss)/gain  and others  represents the sum of Net foreign exchange (loss)/gain, Equity in net (loss)/gain of associates and Other (expense)/income (primarily (losses)/gains from derivative instruments), and is adjusted for certain non-operating losses and gains mainly represented by litigation provisions. Our management uses Net foreign exchange (loss)/gain and others as a supplemental performance measure and believes that it provides useful information about the impact of our debt denominated in foreign currencies on our results of operations due to fluctuations in exchange rates, the performance of our equity investees and other losses and gains the Company needs to manage the business.

NPS (Net Promoter Score)  is the methodology VimpelCom uses to measure customer satisfaction.

Operational expenses (opex) represents service costs and selling, general and administrative expenses.

Organic growth in revenue and EBITDA  are non-GAAP financial measures that reflect changes in Revenue and EBITDA, excluding foreign currency movements and other factors, such as businesses under liquidation, disposals, mergers and acquisitions.

Reportable segments: the Company identified Russia, Italy, Algeria, Pakistan, Bangladesh, Ukraine and Uzbekistan based on the business activities in different geographical areas. Intersegment revenue is eliminated in consolidation.

 

 

 

 

 

 

 

SOURCE VimpelCom Ltd.

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