52 slides from VEON Ltd. ORD's earnings presentation, Aug 6, 2015
Slide 1: Transformative transaction in Italy: Strategy update and 2Q15 earnings
Transformative transaction in Italy © VimpelCom Ltd 2015 Strategy update 2Q15 earnings London – August 6, 2015 Jean-Yves Charlier – CEO Andrew Davies – CFO 1
Slide 2: Disclaimer
Disclaimer This document contains “forward-looking statements”, as the phrase is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to, among other things, the Company’s anticipated performance
Slide 3: Program of today
Program of today Transformative transaction for Italy and VimpelCom © VimpelCom Ltd 2015 Strategy update 2Q15 earnings Q&A 3
Slide 4: Creating a leading operator in Italian telecoms
Creating a leading operator in Italian telecoms © VimpelCom Ltd 2015 A transformative transaction for VimpelCom and the Italian market 4
Slide 5: WIND and Italia to merge, creating a leading operator in Italy
WIND and 3 Italia to merge, creating a leading operator in Italy New era for Italian telecoms Investment and innovation • A leading convergent operator in Europe’s fourth largest telecom • Enlarged and improved network with over 21k sites market • Provide best in class quality to customers with high
Slide 6: Transaction rationale
Transaction rationale 1 2 3 4 5 © VimpelCom Ltd 2015 A leading Enhanced Transformative converged Superior Significant profitability transaction operator customer cost and cash for Italy & in Italian experience synergies generation VimpelCom telecoms Clear corporate governance to ensure successful JV
Slide 7: Creating a leading converged operator in Italian telecoms
Creating a leading converged operator in Italian telecoms 1 A leading mobile operator A leading alternative fixed broadband operator (Mobile customer market share1) (Fixed BB customer market share1) 33% 34% 33% 36% 35% 50% Market share 29% position 16% 15% © VimpelCom Ltd 2015 13% 6% WIND + 3 Italia
Slide 8: Superior customer experience
Superior customer experience 2 • An enlarged and improved network to provide best in class quality to customers Best quality • Over 21,000 sites delivering high density and superior indoor coverage network • A leading alternative fixed-line broadband operator • Leverage best in class network to secu
Slide 9: Identified cost synergies - total run-rate of EUR 700 million
Identified cost synergies - total run-rate of EUR 700 million 3 NPV1 Synergies run rate2 (EUR billion) (EUR million) Market facing • Operating model alignment to best practices 700 & customer • New integrated customer service 1.3+ operations • More efficient channel and distribution model Capex c. 3
Slide 10: Enhanced profitability and cash generation
Enhanced profitability and cash generation 4 An operator with EUR 6.4bn revenues and… …EBITDA margin of 40%… (EUR bn, 2014) (EUR bn, 2014 and % margin) 40% 1.73 6,36 8pp 32% 4,63 2,5 Revenue 2,1 and EBITDA © VimpelCom Ltd 2015 WIND 3 Italia pro forma WIND + 3 Italia pro forma 1 WIND 3 Italia Run-rat
Slide 11: Transformative transaction for Italy and VimpelCom
Transformative transaction for Italy and VimpelCom 5 Joint ownership of a leading convergent operator in Europe’s fourth largest market Significant value creation through projected annual run-rate cost synergies of c. EUR 700 million, 90% expected within the third year post-closing and strong deleve
Slide 12: Enhanced earnings and cash flow metrics
Enhanced earnings and cash flow metrics 5 pro forma VimpelCom VimpelCom incl. Italy excl. Italy Total operating revenue organic change YoY (1.6%) (0.9%) © VimpelCom Ltd 2015 EBITDA organic change YoY (4.3%) (3.2%) EBITDA margin 40.0% 41.1% Capex/revenue 14.9% 13.9% OpFCF1/revenue 25.1% 27.2% Net deb
Slide 13: Improved leverage profile
Improved leverage profile 5 Net leverage ratio of 1.6x1 Weighted average cost of debt: 7.7% Group debt maturity schedule pro forma for Italy held for sale1 © VimpelCom Ltd 2015 Russia GTH HQ 3.1 1,6 2,2 1,0 1,2 1.2 2015 2016 2017 2018 2019 >2020 Deleveraging completed post-closing 13 1 Target 2015 N
Slide 14: Transaction summary and structure
Transaction summary and structure • 50-50 JV of VimpelCom (VIP) and CK Hutchison Holdings (CKHH) • VIP to contribute WIND with existing net debt (EUR 10.1 billion as 2Q15) • CKHH to contribute 3 Italia debt free plus EUR 200m cash Key terms • No further cash contributions expected from VIP or CKHH a
Slide 15: Strategy update
© VimpelCom Ltd 2015 15 Strategy update
Slide 16: The telecom industry is at a crossroads
The telecom industry is at a crossroads • Slowing penetration growth even in emerging markets Traditional mobile • Commoditizing voice model growth model is under pressure • Pricing pressure linked to mature market structure • Difficulty to identify new addressable markets and profit pools © VimpelC
Slide 17: VimpelCom's opportunities and challenges
VimpelCom’s opportunities and challenges Solid portfolio of Macro & business Opportunities with businesses model challenges current portfolio • Diversified emerging market • Adverse macro-economic trends • Transformation of the cost base focused portfolio (following in a number of markets • More ass
Slide 18: We have defined six strategic priorities
We have defined six strategic priorities 6 1 Structural New revenue improvements streams © VimpelCom Ltd 2015 World class operations Reinventing 5 2 VimpelCom Digital leadership Portfolio rationalization Performance and consolidation transformation 4 3 18
Slide 19: New revenue streams and digital leadership
1. New revenue streams 2. Digital leadership Data growth and monetization Opportunities & initiatives • Data revenue of ~USD 2 billion in 2014 with >20% • Reinventing complex traditional Telco model to YoY growth at constant currency simplified digital customer experience • 99 million data customers
Slide 20: Performance transformation and portfolio rationalization
3. Performance 4. Portfolio rationalization transformation and consolidation Opportunities Markets • Best-in-class operating costs for each OpCo through • Many markets still fragmented and likely to undergo significant transformation of cost base a wave of consolidation • Increased Capex efficiency
Slide 21: World class operations and structural improvements
5. World class operations 6. Structural improvements • Accelerating building world class operations in all • Further optimize capital and tax structure OpCo’s • Deleveraging completed post closing • Market leading customer experience, building on • Acceleration of Algeria turnaround with © VimpelCom
Slide 22: Reinventing VimpelCom: focus on cash flow growth
Reinventing VimpelCom: focus on cash flow growth 6 1 Structural New revenue improvements streams Clear strategic © VimpelCom Ltd 2015 Expected framework sustainable to reinvent World class increase in VimpelCom operations cash flow of 2 5 Digital USD 750 million1 per annum leadership Additional by y
Slide 23: 2Q15 financial and operational results
2Q15 financial and operational results © VimpelCom Ltd 2015 23
Slide 24: 2Q15 highlights
2Q15 highlights • Transformative transaction in Italy ► Material value creation within Italy ► Significantly enhances VimpelCom’s earnings and cash flow profile Completes deleveraging © VimpelCom Ltd 2015 ► • Strategy update to deliver sustainable increase in cash flow of USD 750 million p.a. • Good
Slide 25: 2Q15 financial highlights
2Q15 financial highlights Service revenue Net debt/LTM EBITDA (USD billion) • Improving organic YoY trend 3.6 2.6 1.3 • Results in line with management expectations • Organic decline of 2% YoY in service © VimpelCom Ltd 2015 - 2% organic2 YoY Inc. Italy Excl. Italy revenue: - 26% reported YoY ► Dela
Slide 26: Russia: continued operational improvements
Russia: continued operational improvements RUB BILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers (million) -2% YoY +2% YoY • Continued improvements in NPS, 67.3 66.2 56,3 57,2 surpassing main competitor 64.3 • Churn improved to best level in five years © VimpelCom Ltd 2015 • Third co
Slide 27: Italy: sequential improvement in mobile performance
Italy: sequential improvement in mobile performance EUR MILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers • 2Q15 mobile service revenue trend (million) -4% YoY -2% YoY shows further sequential improvement: -2% YoY 1,040 983 998 21,9 21,4 • Mobile ARPU increased to EUR 11.2 with data
Slide 28: Algeria: transformation underway
Algeria: transformation underway DZD BILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers1 • Transformation program started with (million) -7% YoY 0% YoY organizational restructuring, new CEO on board 34.3 29,8 32,0 17,1 17,1 • Clear leader in NPS • EBITDA margin still strong at 53% © V
Slide 29: Pakistan: strong operational improvements
Pakistan: strong operational improvements PKR BILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers • Successfully completed SIM (million) –1% YoY -14% YoY re-verification resulted in market share +1% YoY underlying1 gains: 38,8 ► 87% customers verified 25.2 24,0 24.9 5.6 ► 99% of revenu
Slide 30: Bangladesh: continued robust growth
Bangladesh: continued robust growth BDT BILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers • Continued revenue market share gains (million) +7% YoY +8% YoY • Strong YoY revenue growth despite 11.3 11.6 32,0 aggressive competitive environment 10.8 29,8 • Solid EBITDA margin of 41.9% du
Slide 31: Ukraine: successful 3G launch
Ukraine: successful 3G launch UAH BILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers • Successful 3G launch ahead of (million) +9% YoY +3% YoY competition, offering widest coverage • 26% YoY mobile data revenue growth 3.0 3.1 3.3 25,4 26,1 • Improvement in annualized churn of 5 p.p. Y
Slide 32: Kazakhstan: heightened competitive pressure
Kazakhstan: heightened competitive pressure KZT BILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers • Mobile service revenue decreased 3% (million) -7% YoY +1% YoY YoY, excluding MTR reductions 33.9 30.2 31.3 • 34% YoY mobile data revenue growth 9,6 9,7 • Fixed-line service revenue gre
Slide 33: Eurasia: strong cash flow
Eurasia1: strong cash flow USD MILLION, UNLESS STATED OTHERWISE Service revenue Mobile customers • Mobile service revenue increased (million) Reported -11% YoY organically 1% YoY due to solid results in +1% YoY Organic +1% YoY Kyrgyzstan 277 16,2 16,3 21 242 18 248 19 • Mobile data revenue growth of
Slide 34: 2Q15 income statement
2Q15 income statement USD million 2Q15 2Q14 YoY Revenue 3,759 5,067 (26%) • Organic decline of 2% due to the delayed 3G launch in Algeria, continued market weakness in Italy, partly offset by growth in Ukraine and Bangladesh of which service revenue 3,610 4,861 (26%) EBITDA 1,511 2,076 (27%) • Organ
Slide 35: 2Q15 cash flow statement
2Q15 cash flow statement USD million 2Q15 2Q14 YoY EBITDA 1,511 2,076 (565) Changes in working capital and other (245) (160) (85) © VimpelCom Ltd 2015 • Significant YoY reduction from refinancing of Wind Italy and debt Net interest paid (356) (549) 193 repayment and weakening of RUB and EUR Income t
Slide 36: Annual targets 2015
Annual targets 2015 Original targets Actual Updated3 targets 20151 1H15 20151 Flat to low single unchanged Service revenue -2% YoY digit decline YoY Flat to minus one © VimpelCom Ltd 2015 EBITDA margin -1.1 p.p. YoY unchanged p.p. YoY EPS2 USD 0.35 – 0.40 USD 0.17 unchanged 15% Improved to Capex/rev
Slide 37: Conclusion
Conclusion • Transformative transaction in Italy ► Improves VimpelCom’s earnings, cash flow and leverage profile ► Annualized Opex & Capex net synergies of EUR 700 million © VimpelCom Ltd 2015 ► In excess of EUR 5 billion NPV in cost synergies, net of integration costs • New strategic framework to i
Slide 38: VimpelCom's analyst & investor conference
VimpelCom’s analyst & investor conference October 8 & 9, 2015 London, United Kingdom © VimpelCom Ltd 2015 Presentations by Group Management 38
Slide 39: Q&A
© VimpelCom Ltd 2015 39 Q&A
Slide 40: Further information
Further information Investor Relations Claude Debussylaan 88 1082 MD Amsterdam The Netherlands T: +31 20 79 77 234 E: ir@vimpelcom.com © VimpelCom Ltd 2015 Visit our award winning website Install VimpelCom’s App www.vimpelcom.com iPadApp No.1 CORPORATE WEBSITE 2014 -2015 in the Netherlands 40
Slide 41: Appendix
© VimpelCom Ltd 2015 41 Appendix
Slide 42: Accounting implications of JV in Italy
Accounting implications of JV in Italy Upon signing Upon closing • The Italian operations will be classified • The investment will be accounted for as ‘held for sale’ and reported as a by using the equity method ‘discontinued operation’: © VimpelCom Ltd 2015 • The 50% shareholding in JV will initial
Slide 43: Interim consolidated statements of income pro forma
VimpelCom Ltd interim consolidated statements of income pro forma for announcement of Italy transaction P resent at io n P resent at io n 1H15 1H14 USD mln 1H15 o f It aly as 1H14 o f It aly as held f o r sale Proforma held f o r sale Proforma Total operating revenue 7,274 (2,392) 4,882 10,091 (3,11
Slide 44: Interim consolidated statement of financial position pro forma
VimpelCom Ltd interim consolidated statement of financial position pro forma for announcement of Italy transaction Presentation of 30 June 2015 USD mln 30 June 2015 Italy as held Proforma for sale Assets Non-current assets 29,401 (13,635) 15,766 C urrent assets 7,283 (1,397) 5,886 © VimpelCom Ltd 20
Slide 45: Interim consolidated statements of cash flows pro forma
VimpelCom Ltd interim consolidated statements of cash flows pro forma for announcement of Italy transaction P resentatio n P resentatio n 1H15 1H14 USD mln 1H15 o f Italy as 1H14 o f Italy as held fo r sale Proforma held fo r sale Proforma Net cash from operating activities on continued operations 3
Slide 46: 1H15 performance pro forma Italy held for sale
VimpelCom’s 1H15 performance pro forma Italy held for sale VimpelCom incl. Italy pro forma (VimpelCom excl. Italy) USD m, 1H15 Total operating revenue 7,274 4,882 % organic YoY (1.6%) (0.9%) EBITDA 2,907 2,006 © VimpelCom Ltd 2015 % organic YoY (4.3%) (3.2%) % of revenue 40.0% 41.1% Capex (excl. lic
Slide 47: Credit facilities
Credit facilities USD 0.05 bn credit facilities arranged in 2Q15: Available RCF headroom at the end 2Q15: Financing VimpelCom USD 1.8 billion Algeria USD 0.05 billion (DZD 5 billion) PJSC VimpelCom USD 0.3 billion (RUB 15 billion) © VimpelCom Ltd 2015 Available VF/CF headroom at the end 2Q15: Vimpel
Slide 48: Debt by entity
Debt by entity As at June 30, 2015 Outstanding debt (USD millions) Type of debt/lender Vendor Entity Bonds Loans RCF Other Total Financing VimpelCom Holdings B.V. 3,399 - - - - 3,399 © VimpelCom Ltd 2015 VimpelCom Amsterdam B.V. - 1,000 - 695 - 1,695 PJSC VimpelCom 2,044 1,396 - 169 45 3,654 Pakista
Slide 49: FOREX rates used in annual targets for 2015
FOREX rates used in annual targets for 2015 Currency FX rates versus USD Algeria DZD 92.0 Armenia AMD 415.0 © VimpelCom Ltd 2015 Bangladesh BDT 79.0 Egypt EGP 7.5 Georgia GEL 1.8 Italy EUR 0.91 Kazakhstan KZT 190.0 Kyrgyzstan KGS 55.0 Pakistan PKR 105.0 Russia RUB 70.0 Ukraine UAH 25.0 49
Slide 50: Service revenue and EBITDA development in 2Q15 and 1H15
Service revenue and EBITDA development in 2Q15 and 1H15 Reported Organic Reported Organic USD mln 2Q15 2Q14 1H15 1H14 YoY YoY YoY YoY Service revenues 3,610 4,861 (26%) (2%) 6,968 9,671 (28%) (2%) Russia 1,257 1,924 (35%) (2%) 2,292 3,772 (39%) (1%) Italy 1,104 1,425 (23%) (4%) 2,212 2,844 (22%) (5%
Slide 51: Reconciliation of EBITDA
Reconciliation of EBITDA USD mln 2Q15 2Q14 Unaudited EBITDA 1,511 2,076 Depreciation (559) (742) Amortization (290) (379) Impairment loss (13) (2) Loss on disposals of non-current assets (3) (15) © VimpelCom Ltd 2015 EBIT 646 938 Financial Income and Expenses (363) (533) - including finance income 1
Slide 52: Reconciliation of consolidated net debt
Reconciliation of consolidated net debt Reconciliation of consolidated net debt USD mln 2Q15 1Q15 4Q14 Net debt 17,904 17,608 19,992 C ash and cash equivalents 4,220 6,499 6,342 © VimpelCom Ltd 2015 Long-term and short-term deposits 225 118 109 Gross debt 22,348 24,225 26,443 Interest accrued relate