Russia

Map of Russian operations

Business Unit overview

In Russia, VimpelCom operates under Beeline, one of the most recognized brands in Russia, and is one of the three leading mobile operators in the country, serving individuals as well as small, medium and large companies. The Company provides integrated mobile and fixed-line telephony, data transmission, Internet-based wired and wireless solutions, as well as innovative services such as mobile commerce. The Company has 57.2 million mobile customers and 2.3 million fixed-line broadband customers in Russia. VimpelCom has been investing in its high-speed data networks in Russia, resulting in a substantial improvement in customer experience and churn. The Company continues to focus on increasing both the quality of its networks and the availability of new services in a capital and cost efficient manner, and has entered into an innovative partnership with another leading Russian telecom company to plan, develop and operate 4G/LTE networks. All of these developments position VimpelCom very well to continue capturing mobile data growth in Russia.

Priorities

  • Ensure healthy financial indicators by focusing on Customer Excellence
  • Create lean and cost-efficient operations
  • Explore new revenue growth areas

Highlights of the year

  • Beeline achieved 0.7 million net customer additions in Russia in 2014. Mobile data revenue increased 20% to RUB 38 billion, driven by growing demand for mobile data services, a strong increase in mobile data traffic, and a 16% YoY increase in mobile broadband customers.
  • Beeline continued its transformation initiative in Russia by refocusing the Company on Customer Excellence and implementing a more customer-centric culture. As a result, VimpelCom realized significant improvement in churn and an increased NPS, which is the customer satisfaction measure used by the Company across the Group. Customer experience improved due to significant progress in filtering SMS spam, reducing spam per month per customer from 12 in 2013 to 0.1 in December 2014. In addition, the Company also took action against unwanted services from content providers to the Company’s customers, impacting the VAS revenue of Beeline, but improving its customer experience.
  • Beeline continued to invest in its high-speed data networks in Russia and is on track with the Company’s plans for the accelerated roll out of 4G/LTE. VimpelCom had launched 4G/LTE in 46 regions out of a total of 83 regions by the end of December 2014. Data speed is higher than 2 Mbps for 91% of Beeline customers and is already higher than 2.5 Mbps for 71% of Beeline customers. The Company improved voice quality by launching HD voice in 45 regions during 2014.
  • Beeline announced a large-scale partnership with MTS that will further accelerate the roll out of 4G/LTE. This agreement between two leading mobile operators in Russia is for joint planning, development and operation of 4G/LTE networks in Russia. Between 2014 and 2016, VimpelCom will build and operate 4G/LTE base stations in 17 regions and MTS will build and operate 4G/LTE base stations in 19 regions. The partnership accelerates the roll out of 4G/LTE services to Beeline customers in a cost and capital efficient way.
  • Beeline stimulates smartphone penetration. Beeline launched multiple mobile data devices in 2014, such as the attractive and affordable Beeline 3G smartphone, priced at RUB 490. In addition, the Company also started selling the iPhone 6 and introduced the Alcatel co-branded 4G/LTE smartphone. Finally, the Company introduced the Beeline Tab, which was the top-selling tablet in Russia in November 2014 according to GFK Agency.

Operational and financial performance in the year

In Russia, total revenue declined 3% YoY to RUB 282 billion, negatively impacted by the Company’s measures to eliminate unrequested services from content providers to Beeline customers, as well as lower sales from equipment. EBITDA decreased by 8% YoY to
RUB 112 billion, mainly due to the negative effect of the depreciation of the ruble against the US dollar, the decline in service revenue, the increased demand-driven network investments and the expansion of owned mono-brand stores. The Company expects the challenging environment will continue to put pressure on revenue and EBITDA margin in 2015.

Mikhail Slobodin image and title - Head of Russia

Russia key metrics and financial data

RUB million 2014 2013 YoY
Total Revenue 281,898 289,910 (3%)
Service Revenue 273,502 278,433 (2%)
EBITDA 111,935 121,422 (8%)
EBITDA margin 39.7% 41.9% (2.2pp)
Capex 61,310 58,792 4%
Capex / revenue 22% 20%
Operating cash flow (EBITDA-CAPEX) 50,627 62,628 (19%)
OCF margin (%) 18% 22%

Italy

Map of Italian operations

Business Unit overview

In Italy, one of Europe’s largest markets, VimpelCom operates under the WIND brand for its mobile services and the Infostrada brand for its fixed-line services. With 21.6 million mobile customers, 2.8 million fixed-line voice customers, and 2.2 million fixed-line internet customers, the business is positioned as the “smart value for money” choice, characterized by simple and transparent tariff plans, excellence in customer services, and high network quality that meets customers’ most important needs. WIND has an exceptional track record of outperforming the broader Italian telecom market.

Priorities

  • Create superior customer experience with clear offering positioning in order to deliver Customer Excellence
  • Continue to outperform market in mobile data
  • Drive cost efficiency in order to deliver Operational Excellence

Highlights of the year

  • WIND delivered solid performance in Italy despite the continuing weakness in the market. Even against continued difficult macroeconomic headwinds in Italy, WIND further increased its customer market share nevertheles there was a reduction in gross additions and in customer size in the overall market, albeit with a positive impact on churn. There were also some early signs of recovery in the mobile segment during 2014.
  • WIND expanded its 4G/LTE coverage reaching 37% of the population, and increased the capacity and coverage of its existing HSPA+ network. The Company invested EUR 757 million in 2014, in line with its strategy of being a smart and fast follower on new technologies.
  • WIND refinanced approximately EUR 8 billion of debt in 2014, delivering substantial interest savings and debt maturity improvement. An initial refinancing in April was followed by a further refinancing in July, which together achieved approximately USD 0.4 billion in annual interest savings. WIND’s improved capital structure and enhanced cash flow are expected to facilitate a deleveraging trajectory in the medium term.
  • WIND launched innovative digital services and digital touch-points investing in digital distribution and services anticipating increased demand. The focus is to grow its interaction with customers through digital channels and bolster competitiveness in the country. As an example, all-inclusive bundles were introduced specifically targeting young people (all-inclusive music) and digitally native customers (All-Digital) which accounts are manageable only via digital channels such as web, App and social networks.

Operational and financial performance in the year

In Italy, the Company continued to deliver solid performance in 2014 even as the business faced macroeconomic difficult conditions and a shrinking telecommunication market. Total revenue was down 7% YoY to EUR 4.6 billion. The decrease was due to the persistent effect of cannibalization coming from the 2013 price competition, the reduction in the mobile customer base and the substitution of SMS with OTT services. EBITDA decreased 7% YoY to
EUR 1.8 billion mainly as a result of the revenue decline. With the highest NPS in the market, WIND remains a leader in customer satisfaction. In 2014 WIND continued to invest in rolling out the 4G/LTE network.

Maximo Ibarra image and title - Head of Italy

Italy key metrics and financial data

EUR million 2014 2013 YoY
Total Revenue 4,633 4,983 (7%)
Service Revenue 4,167 4,577 (9%)
EBITDA 1,804 1,944 (7%)
EBITDA margin 39.0% 39.1% (0.1pp)
Capex 757 789 (4%)
Capex / revenue 16% 16%
Operating cash flow (EBITDA-CAPEX) 1,047 1,155 (9%)
OCF margin (%) 23% 23%

Africa & Asia

Vincenzo Nesci image and title - Head of Africa & Asia

Business Unit overview

In Africa & Asia, VimpelCom operates primarily in three countries under market-leading brands in each – Djezzy in Algeria, Mobilink in Pakistan, and Banglalink in Bangladesh – providing services to 90 million customers in total. Although ARPU in these countries is sometimes as low as USD 2 per month, the Company has consistently delivered EBITDA margins above 40%. VimpelCom has also achieved strong share gains in this region, one that has high potential for mobile data and 3G services. Coupled with the notable purchasing power of the price-sensitive, young populations and relatively low penetration rates – ranging from 60% in Bangladesh to 90% in Algeria – the region represents a strong growth engine for VimpelCom.

Priorities

  • Invest in high-speed data networks in all three main markets to capture mobile data growth
  • Defend market leadership positions in Algeria and Pakistan
  • Grow beyond the core, especially in MFS
  • Continue to focus on cost saving initiatives

Highlights of the year

  • 3G launched in Pakistan. Mobilink won the Pakistan Telecommunication Authority’s 3G spectrum auction on April 23, 2014, securing a 15-year license for 2x10 MHz spectrum at 2100 MHz band for approximately USD 300 million. Mobilink launched 3G services after receiving its license in May 2014, and was the first operator to acquire two million 3G customers in the country. In 2014, Mobilink also completed the improvement and modernization of its 2G network.
  • 3G launched in Algeria. Djezzy launched 3G services in Algeria on July 5, 2014 and has since expanded services to 21 provinces across the country, including Algiers, Oran and Constantine, the three major towns. Following the launch of various commercial bundles and handset promotions, the business saw data users growing 74% and mobile data revenue doubling year-over-year. Djezzy launched a number of commercial offers including its successful Millennium 3G (hybrid voice and data product), handset promotions with data packages, B2C and B2B, and 3G VAS products such as Facebook zero, Djezzy store, Djezzy App, and Be-Djezzy. At the end of the year, Djezzy launched attractive 3G offers: a new prepaid offer “Go”, which achieved encouraging uptake, and an unlimited postpaid offer “Infinity”.
  • In Bangladesh, Banglalink achieved a successful turnaround with 11% YoY increase in revenue, 7% YoY growth in customers, and a 17% YoY increase in EBITDA. In 2014, Banglalink completed the improvement and modernization of its 2G network, and achieved its aim of all 64 district capitals being within 3G coverage. At the end of 2014 Banglalink had the widest 3G network coverage in the country.
  • VimpelCom’s 51.9% owned subsidiary Global Telecom Holding S.A.E. ('GTH') sold its stake in U-COM in Burundi and Telecel CAR in Central African Republic for USD 65 million.
  • VimpelCom’s 51.9% owned subsidiary Global Telecom Holding S.A.E. ('GTH') sold its debt and equity interest in the Globalive group of companies in Canada, including Globalive Wireless Management Corp. ('WIND Canada'), for approximately
    CAD 135 million, with the proceeds going to VimpelCom in repayment of part of the debt owed to VimpelCom.

Operational and financial performance in the year

In 2014, the Africa & Asia Business Unit realized a 4% YoY organic decline in revenue to
USD 3.4 billion. In Algeria, total revenue declined 5% YoY to DZD 136 billion, due to the forced delay of the Company’s commercial launch of 3G. In Pakistan, total revenue declined 6% to PKR 102 billion as a result of competitive pressure and a challenging regulatory environment, with countrywide implementation of the biometric verification system leading to a YoY slowdown in customer base growth, which is expected to continue in 2015. Banglalink reported strong revenue growth of 11% YoY to BDT 44 billion in Bangladesh, which was driven by higher voice, interconnect and VAS revenue primarily due to strong YoY growth in the customer base, as well as strong mobile data revenue growth after the launch of 3G in 4Q13. The EBITDA of the Africa & Asia Business Unit declined organically by 11% YoY to
USD 1.5 billion.

Mobile Internet statistics. 24% CAGR from 2013 to 2016

Africa & Asia key metrics and financial data

USD million 2014 2013 YoY organic YoY
Total Revenue 3,360 3,506 (4%) (4%)
Service Revenue 3,297 3,435 (4%) (4%)
EBITDA 1,486 1,679 (12%) (11%)
EBITDA margin 44.2% 47.9% (3.7pp)
Capex 1,253 610 105%
Capex / revenue 28% 13%
Operating cash flow (EBITDA-CAPEX) 233 1,069 (78%)
OCF margin (%) 7% 30%

Ukraine

Map of operations in the Ukraine

Business Unit overview

In Ukraine, VimpelCom operates under Kyivstar, the leading brand in the country, serving 26.2 million mobile customers. The Company has also reached sizable scale in fixed-line residential broadband, providing its 800,000 fixed-line broadband customers with an integrated offering that differentiates Kyivstar from its peers. Kyivstar proactively transformed its business in 2014 to ensure the highest levels of Customer Excellence and operational performance. The Company expects to maintain the number one position in digital content services by focusing on value-based management and by facilitating a leading customer experience program.

Priorities

  • Maintain leadership in mobile
  • Deliver the best customer experience
  • Launch 3G and deliver growth in data
  • Maintain cost efficiencies

Highlights of the year

  • Kyivstar’s transformation program refocused its commercial strategy from volume-based to value-based management with a customer-centric approach and concentrated on Customer Excellence. As a result of these initiatives, NPS improved throughout 2014, particularly in network quality perception, but also due to attractive simplified tariff offerings focused on on-net, off-net, Internet and Fiber-to-the-Building ('FTTB').
    As a result, Kyivstar reported the leading position in NPS and annualized churn improved by 7 percentage points YoY to 27%.
  • Kyivstar continued to take further commercial measures to improve mobile service revenue trends as the Company has the highest quality network in Ukraine.
  • In February 2015, Kyivstar was awarded one of three licenses to provide nationwide 3G services in the 2,100 Mhz band for a price of UAH 2.7 billion (~USD 100 million). Kyivstar is the leading operator in the Ukrainian market, with the highest number of smartphone users ready for 3G on its network. The launch of 3G will allow the people of Ukraine to experience the faster speeds and innovative services enjoyed by people all over the world. It will benefit the economy and help many businesses connect with their customers in new and innovative ways.

Operational and financial performance in the year

The Ukraine Business Unit reported a 5% YoY decline in total revenue to UAH 12 billion, mainly due to lower mobile voice revenue, as a result of customers switching to cheaper bundled tariff plans, and to the difficult environment in Ukraine, leading to more conservative spending behavior by customers. EBITDA decreased by 11% YoY to UAH 5.5 billion, mainly driven by the revenue decline and cost pressures due to the doubled frequency fees and increased utility costs. The Company expects that the environment will remain challenging in 2015. Kyivstar is the largest operator with the strongest brand, and roll out of 3G in the country will further improve Kyivstar’s position in the market.

Peter Chernyshov image and title - Head of Ukraine

Ukraine key metrics and financial data

UAH million 2014 2013 YoY
Total Revenue 12,231 12,871 (5%)
Service Revenue 12,207 12,681 (4%)
EBITDA 5,526 6,239 (11%)
EBITDA margin 45.2% 48.5% (3.3pp)
Capex 1,657 1,690 (2%)
Capex / revenue 14% 13%
Operating cash flow (EBITDA-CAPEX) 3,869 4,550 (15%)
OCF margin (%) 32% 35%

CIS

Map of operations in CIS

Business Unit overview

In the Commonwealth of Independent States Business Unit, VimpelCom operates throughout six different markets with relatively low mobile data usage, providing opportunities for market share gain and growth as the telecommunications market in each develops. VimpelCom provides mobile services to 26.5 million customers in the CIS Business Unit and is the market leader in Uzbekistan, as well as the second largest operator in Kazakhstan. Tajikistan, Armenia, Georgia, and Kyrgyzstan are the other countries where VimpelCom operates within this Business Unit. The Company achieved solid performance in this Business Unit in 2014. VimpelCom aims to achieve sustainable growth in the CIS, while promoting efficient CAPEX and OPEX management to ensure sustainable cash flow generation.

Priorities

  • Improve or maintain our market position in highly competitive markets
  • Enhance customer experience by providing reliable service, following our value proposition and focusing on NPS
  • Develop additional revenue streams and exploring new growth capabilities
  • Focus on cost optimization through Operational Excellence and Capital Efficiency programs

Highlights of the year

  • The Company reported growth in its customer base in all markets in the CIS Business Unit, increasing its customer base by 4% YoY to 26.5 million in 2014. This was the result of increasing mobile penetration and improving YoY churn in five out of six markets.
  • Mobile service revenue grew organically by 4% YoY, mainly driven by strong growth of mobile data revenue of 26% YoY.
  • In Kazakhstan, VimpelCom completed its successful turnaround and improved its market position despite the highly competitive market. Customers continue to be attracted to Beeline’s value proposition as a result of the ongoing transition to bundled tariff plans, as well as its new data products. At the end of 2014, bundle penetration was at 50%. As a result of this attractive value proposition and the Company’s high quality network, Beeline remains the solid leader in NPS in Kazakhstan.

Operational and financial performance in the year

The CIS Business Unit continued to deliver solid performance with revenue increasing organically by 4% YoY to USD 1.9 billion, supported by strong results in Kazakhstan and Uzbekistan, despite the highly competitive markets.

In Kazakhstan, mobile service revenue increased organically by 4% YoY in FY14, while EBITDA grew organically by 5% YoY, leading to an EBITDA margin of 46.2%. The mobile customer base increased 7% YoY to 9.8 million. Fixed-line service revenue increased 24% YoY in FY14 as a result of increasing FTTB revenue, mainly driven by strong customer growth.

In Uzbekistan, Beeline reported mobile service revenue growth of 7% YoY. EBITDA grew 33%, mainly as a result of a negative one-off in 4Q13, and EBITDA margin in Uzbekistan was strong at 64.2%. The entrance of the third mobile operator in December 2014 is expected to impact results in 2015. In addition, a fourth operator is expected to enter the market in 2015, further increasing competition. Beeline aims to maintain its leading market position in Uzbekistan by focusing on customer retention and high value customers.

Overall, five out of six countries in the CIS business delivered market share gains in 2014. The underlying development in this unit remains strong with an attractive mobile data revenue growth outlook in all CIS markets. EBITDA margins and cash flows were robust as a result of efficiencies achieved through the Company’s Operational Excellence and Capital Efficiency programs.

Andrey Patoka image and title - Head of CIS

CIS key metrics and financial data

CIS (USD million) 2014 2013 YoY YoY
Total Revenue 1,873 1,946 (4%) 4%
Service Revenue 1,865 1,935 (4%) 5%
EBITDA 912 856 6% 15%
EBITDA margin 48.7% 44.0% 4.7pp
Capex 268 370 (30%)
Capex / revenue 14% 19%
Operating cash flow (EBITDA-CAPEX) 644 486 33%
OCF margin (%) 34% 25%