Good day, and welcome to the VimpelCom Second Quarter 2016 Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Bart Morselt, Head of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen. Welcome to VimpelCom's second quarter 2016 results conference call. Today, I'm pleased to be joined on this call by Jean-Yves Charlier, our Chief Executive Officer, who will present the strategic and financial highlights of the quarter; and Andrew Davies, our Chief Financial Officer, who will focus on the countries, the overall financial performance, and the guidance. Then, after, we will do a Q&A session, which will be handled by the operator, directly. Moving on to page 2, and before really getting started, I would like to draw your attention to the disclaimer. Forward-looking statements made during today's presentations involve certain risks and uncertainties. These statements relate, in part, to the Company's anticipated performance and stated performance targets for future periods, future market developments and trends, expected synergies and timing of pending transactions, and the Company's strategic initiatives. Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risks detailed in the Company's annual report on Form 20-F, and other recent public filings made by the Company with the SEC. The earnings release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented today, can be downloaded from our website. I will now hand over to Jean-Yves, who will run you through the Group highlights, and the financial highlights of the second quarter. Jean-Yves.

Thank you, Bart. And good afternoon. Let me start by focusing on the highlights of the quarter and the half year. We are pleased to report that the first half 2016 results are in line with expectations. Although we delivered a weaker than expected service revenue trend in the second quarter, we drove, at the same time, strong underlying EBITDA and operating cash flow margins. Second quarter 2016 operational performance was particularly strong in Pakistan and Ukraine, offset by continuing challenging conditions in Algeria. Mobile data revenue continued to grow at a strong pace, by 26% year on year in the quarter. As a result, our 2016 guidance is broadly confirmed, albeit at the lower end of the range, for service revenue and underlying EBITDA margin; whilst CapEx-to-revenue ratio is positively trending towards 17%, and we expect to deliver strong operating cash flow margins. VimpelCom also made significant progress during the quarter on its strategic priorities, as we focused on two major in-market consolidation transactions. First, on the merger between WIND and 3 Italia, we officially filed commitments to the European Commission on the 6th of July and in parallel signed definitive formal agreements with Iliad as a potential remedy taker of the transaction. We remain confident on securing the approval, and expect a decision by the European Commission by the 8th of September. Second, on the 1st of July, we completed the transaction in Pakistan to strengthen our leadership position in one of the fastest growing telecom markets in the world. During the quarter, we also delivered on our strategic initiative to transform VimpelCom in to a digital operator as we announced a seven year agreement with Ericsson to provide a new business support system stack, representing an investment over $1 million with both operational and financial benefits for…

Thank you, Jean-Yves. And a good afternoon, or good morning from me as well. I would, first, like to touch base on the Group's financial highlights for the quarter. In particular, total revenue was organically stable year on year, while the service revenue was slightly down by 0.7% year on year. Implicitly, we had higher equipment sales during the quarter compared to the same period of one year ago. Notable from this slide is the robust growth, by 1.8 percentage points, in operating cash flow margin, now at 23.3% on a last 12-month basis, as shown in the bottom right-hand side of the slide, benefiting from both the underlying EBITDA margin improvement; and also, our continued CapEx efficiencies. On Slide 9, and looking at the macro environment, and, in particular, our foreign currency portfolio, as we did in May with our first-quarter results, we've plotted the VimpelCom currency basket, weighted by the respective revenue contribution of the various countries. We have indexed this VimpelCom coin with the first quarter of 2014 at 100. The index was at 56 for the second quarter of this year, compared to 76 in the second quarter of last year, which clearly articulates the year-on-year headwinds that we're facing. But there does seem to have been a bit of an inflection point towards the end of Q1 2016. And, as time moves on, if currencies remain stable, we should see a gradual moderation in the impact of these currency headwinds on our result. On the next slide, we provide a breakdown of the evolution of our service revenue, both in reported and organic terms. On a reported basis, our second-quarter 2016 service revenue was still impacted by the adverse foreign exchange movement, resulting in nearly a 17% year-on-year decrease, with a translation effect of foreign…

Thank you. [Operator Instructions] We will now take our first question from Herve Drouet from HSBC. Please go ahead. Your line is open.

I just wanted two questions. Firstly, on Algeria, I was wondering, in terms of the pricing, especially on net tariff, how do you compare with competition after the adjustment you have done with the new tariff? And also on Algeria, how long time do you think it will take to stabilize and reduce churn, especially of those high-value subscribers, which may have left because of either issues with distribution, or they have been forced to migrate to those new tariffs? I just wanted to get a bit of an idea on how quickly you think Algeria might stabilize, and if it's something we may assume that may happen when 4G LTE is launched, or it will take more time. And the second question is, is there any news about the Russian towers? Do you think something might happen this year on those plans of selling the Russian towers, or is something which may take more time? Thank you very much.

I'm going to take the questions in reverse order. I'll do one and two, or three and two; and then, I'll let Andrew talk about the tariff structure in Algeria. I think, on towers, we've been very clear on wanting to move to an asset-light or more asset-light network model as part of our strategy. And we've earmarked to dispose the totality of our tower portfolios across the world. We are progressing on that. But there are two things that are very important, and timing is not one of those. The first two things that are important for us is obviously, doing deals that just don't provide not only liquidity but doing deals that really maximize value. And so that's a major driver. We're not focused at all on just the liquidity driver, or are forced in to any rapid fire of sale of any of our assets. The second dimension is in each of the countries is really finding the right partner to do these transactions with. These are long-term partnerships. These are not just simple M&A deals. So that's very important. So it's going to take the time that it needs to take to find the right partner, right value for us in each of the markets. And I don't want to give any specific calendar, whether it's on Russia, or any one of the other markets that we're working on. We're just doing the work that we need to be doing. And if the values and the right partners are there, we'll do deals. If those two dimensions are not there then we'll just push back. So this is a medium-to-long-term initiative, it's not a next quarter, short-term initiative that we kicked off end of last year. On Algeria, I think I've been always very conservative about…

Yes, absolutely. Thank you for this, Jean-Yves. Test of my operational knowledge. Broadly speaking, actually, in Algeria we are now competitive, on par with the competition. And we've each got tariffs in the marketplace whereby for on-net traffic the pricing is between DZD4 or DZD5 for every 30 seconds. The issue that we had in Q1, which we corrected in Q2, was twofold. First of all, billing, typically, in Algeria had been on a 30 second increment basis. We actually moved so that the initial increment was a 60-second increment, which obviously has a big impact on the effective price of the -- of a call for certain individuals. And also, coupled with that, we didn't have small enough sachet sizes, as they would be termed in the market. In most emerging markets it's typical to have a daily, a weekly, and then a monthly kind of prepaid product, and we didn't have enough of the smaller product sizes in the marketplace. But we've now -- we've certainly corrected the former issue, and we're in the process of correcting the latter issue, as well.

Thank you. [Operator Instructions] And we'll take our next question from Ivan Kim of VTB Capital. Please go ahead. Your line is open.

I have a couple of questions. First, on Italy, I was just wondering how do you view the prospects of Italian markets with the arrival of a fourth player, Iliad, as a result of the remedy? And the Italian market pricing is obviously much lower than that of France, where you had successfully answered. But Iliad also gets plenty of frequencies, access to basis tower infrastructure, and national roaming on your network, so it can be quite active from day one, pretty much. So any thoughts around those would be very welcome. And then secondly, on Russia, the EBITDA was quite [reviewing], despite the revenue loss. And especially if you look sequentially, the EBITDA improved in the second quarter of 2016 versus the first quarter of 2016 much more than the service revenue, about RUB1.5 billion more, actually. Can you please elaborate on the savings, maybe, that you are doing this transformation program that you are doing in Russia, and what, maybe, you expect going forward, as well? And maybe just one last small question on whether there is any update on the class action suits relating -- related to Uzbekistan? Thank you.

All right, I'll let Andrew take the question on Russia and class action. You want to start off with both of those? And then, I'll do Italy.

Yes, okay. The class action, first of all, do it in reverse order then, there is no traction, no momentum on that lawsuit. We're going to vigorously defend ourselves if it actually comes to an action. But, at the moment, it remains undetermined who, if anybody, under US law is going to be even designated to file a complaint; or whether even the court is actually going to certify it as a class action lawsuit. So, as I said, as we said continually, no real traction or momentum on that right now. On Russia EBITDA, I think you have to bear in mind that we did point out when -- with the first-quarter results, that we actually had some negative one-offs in Q1. We had bad debt issues, and we were overly subsidizing devices, particularly data devices, which, broadly, cost us about RUB1 billion to RUB1.1 billion in that quarter. The major reason for the sequential EBITDA improvement is actually the lack of any negative one-offs in Q2. Now, coupled with that, we are continuing to make progress on performance transformation. We are closing, or in the process of closing, some buildings. We are, in particular, reducing middle-management layers, particularly with regard to the legacy regional structure that we had in Russia. But, as with many parts of the Group, it's a broad-based program. The other thing that I would point to in Russia, where they are slightly ahead of the rest of the Group right now, but it's part of it a Group-wide project, is the move of back-office operations towards shared service center concepts. Russia's been developing a shared service center in Yaroslavl for quite some time, and they've now actually got really good momentum behind that program. So, Jean-Yves, Italy?

Yes, on Italy, I think, as you pointed out, obviously, the market conditions between France and Italy are vastly different. But, needless to say, I think we view Iliad as a formidable competitor, and we need to take that in to account, as I said in my remarks, on the potential impact this will have on our synergies. Net-net, we continue to believe that our merger with 3 Italia will be materially accretive to our investors, and to VimpelCom. This makes us the number one mobile player in the marketplace. As you know, this restructures completely the VimpelCom balance sheet from a debt perspective. And, thirdly, the €5 billion of NPV synergies that we announced in August last year really never accounted for any market repair. These are all cost-driven synergies and CapEx-driven synergies, and, as such, whilst if the market is competitive with Iliad, we expect to be able to deploy these synergies. Some of the market competitive pressures might eat in to them. But, on the flip side, we believe that we've obtained also material value for our assets that we will dispose of to Iliad on the basis of, obviously, the Commission letting us proceed with this transaction, and the ongoing revenues and profits that we will generate from the contracts, whether it's on the roaming contract, or the savings on the network sharing arrangements that we've negotiated. So, I come back to, net-net, this is still a very material accretive transaction for the Group.

Yes, and just to point out as well, as I habitually do so, the synergies in Italy exclude also any corporate finance-type benefits. So there's nothing in there for potential benefits from future refinancing, utilization of tax losses, etc.

Thank you. We'll take our next question from Dalibor Vavruska from Citi. Please go ahead. Your line is open.

Two questions. Just to follow up on what Andrew was talking about Russia, we also saw the results of MegaFon, and we saw that they went quite aggressively in this handset market in the second quarter, and, clearly, they probably lost some market share to you as well. I'm just wondering if you can talk about -- maybe add a few comments on this competitive dynamic in light of this new activity by MegaFon, the packages in the handset market; and also, whether you see them as the main driver of the competition now, or whether it's Tele2 in Moscow. Just, maybe if you can be more specific, what do you think is happening on the competitive front? And the second question is on free cash flow. I think you had some good overall result in terms of EBITDA, but, as you know, the free cash flow -- the pure free cash flow generation has been challenging. I think still, in this quarter the numbers are not huge. So I'm just wondering, in terms of your expectations, when do you think that we can start seeing some real turnaround in the free cash flow at the Group level, and at the current structure? Maybe you phased down the transformation costs, I don't know what, but whether there is some kind of visibility on that. Thank you.

Thanks, Dalibor. I guess, I'll take both of these questions then. In Russia, yes, I think it has become increasingly competitive. And I think we see that from both the two principal competitors in that country, who are, from our perspective, both equally aggressive when it comes to the service offering and started a move towards unlimited data packages at certain price points, and are also subsidizing some devices. Candidly, we don't see, right now, the need to subsidize devices. Our focus has been on, first of all, improving the customer proposition just by the ease of interaction with us as a business, and then moving much more towards integrated bundles, where we're offering voice, text, and data at a given price point, the ability to share data with friends and family, etc.; and, as part of that, bringing some devices in to the bundle without actually overly subsidizing them. So it's difficult, because there is a huge gravitational force pulling in the other direction right now. But we are trying to resist that force as best we can for right now, and doing, what we think, reasonably well with that: mobile service revenue basically flat year-over-year for the quarter and the improved EBITDA performance. On free cash flow, yes, you're right, it's been an intense area of focus for us. We remain confident that we're going to see a more meaningful generation of free cash flow before financing activities from the second half of this year, onwards. I think, clearly, in the first half of this year that number's been skewed significantly by the fact that we've paid out in excess of $800 million related to the Uzbekistan case, both in terms of the settlement itself, but also the legal costs. But, yes, we think that from the second half of this year onwards the free cash flow generation before financing activities becomes more meaningful.

Thank you. [Operator Instructions] Now we'll take our next question from Stan Kondratyev from Goldman Sachs. Please go ahead, your line is open.

I have two questions on Russia, if I may. First is on Russian CapEx. It's down more than 30% year-on-year in ruble terms. I fully take the argument that part of that reduction is driven by some procurement system optimization. But can you probably share how much you invested in the first half versus the same period last year in real terms, not only money terms, and how much you plan to invest in the full year in real terms? My second question is also on Russia, but with regards to distribution market. Can you probably share your strategy on the Russian distribution market, and, in particular, your thoughts on the optimal split of distribution channels among on monobranded stores, independent multi-branded stores, and your estate? I think that would be very helpful.

Okay, let me maybe just take the first part of the question on CapEx, as it pertains, I think, to the overall strategy that we're driving for the Group; and then, I'll let Andrew specifically address the question vis-à-vis Russia, and then distribution. I think, overall for the Group, we've made it very clear that we want to not only move to a more network asset-light model by disposing the tower portfolio, by undertaking strategic network sharing deals. And we think that that's important for the future of our business model. At the same time, in zero-growth markets the model that we had two years ago of continuing to invest 20%-plus CapEx to revenue is just simply unsustainable. We're moving to a model where we're much more focused in terms of where we spend, and where we invest. We're much more focused on a model that drives NPS improvement; and we've seen in Russia, as well as most of our other major markets, significant NPS improvement over the quarters and last 12 months. And we're also driving the globalization of our procurement. Very little procurement was done of the basis global contracts in 2014 and 2015. This year, over one-half of how we procure for network investments will be done on a global basis. Clearly, driving the CapEx intensity down is a part of our strategic focus. As I said in my comments, we are now going to be tending towards the lower end of the range for CapEx in terms of our guidance. We're trending much more down towards 17% for 2016, and we think that's where it needs to be. It will continue trending downwards beyond that, and probably an optimal model of around 15% of our revenues as a medium-term goal. Now, I think the first half was particularly weak, because as we were putting in place this global procurement and global contract that has led to delays specifically in investments in Russia. But in Q2, we saw, if I recall, one of the highest NPS scores that we've had in a long time in the Russian marketplace; and we're now within immaterial distance from the other two competitors in terms of our NPS scores. So it is not affecting the way that customers certainly are rating our overall service in the Russian marketplace. Andrew, do you want to be more specific on that?

Yes, so just to think about this, I would say roughly half of the year-on-year reduction in the CapEx that we have spent in the first half of this year is due to the procurement delays. From my perspective, the other half is due to CapEx efficiency-related initiatives, either network sharing, or just better discipline and better control of the warehousing and the inventory that we've got. We've depleted our network inventory, not just in Russia, but across the Group, quite considerably, in the first half of this year. So there -- obviously, in doing so, what we're effectively doing is deploying in the field equipment which we bought and capitalized in prior periods. So, yes, that's how I think about CapEx in Russia. Moving on to the second part of your question on distribution, so we've increased our monobrand store footprint by roughly 20% year on year, we've gone from, broadly, 1,250 to closer to 1,500 stores. That, we still think we've got some way to go, both in terms of the total number of stores that we need, which probably needs to be somewhere closer to 2,000 in Russia; but also, refurbishing, and maybe even relocating, some of the monobrand stores, because some of them are maybe in areas and locations where that are not ideal for a monobrand store. But I think long-term clearly, monobrand's important to us but also the relationships with the high quality indirect distribution, such as Euroset and Svyaznoy are also important. What we'd like to do less of is the business with the really small mom-and-pop type indirect distribution, which does tend to be a bit of a washing-machine effect and attracts lower quality customers.

Thank you. And we'll now take our next question from Roman Arbuzov from UBS. Please go ahead, your line is open.

I have two. The first one is on Russia. Just wanted to get in to the Russian market a little bit deeper, and specifically Moscow. MegaFon, on their conference call, they've described the increase in competition in Moscow as dramatic over the last six to 12 months. At the same time, we saw some price increases early this year. So just wanted to get your opinion, in terms of Moscow, do you think we're passed the low point and things should be getting a little bit better, helped, perhaps, by somewhat less aggression coming from Tele2 because they've raised their prices? Or do you think things are actually getting worse, as of right now? And just generally in terms of Moscow competition, how much of that do you attribute to Tele2? And how much do you attribute to the competition between the bigger players? And then, my second question is on Pakistan and Bangladesh CapEx. Telinor has been, I think, particularly aggressive in the first half of the year in terms of investments in these markets, so just wanted to get your view whether you think what you're doing currently is sustainable. Or do you think you need to step up your game in terms of investments, just to follow Telinor?

Okay, I'll take the Moscow question, in Russia.

I wouldn't qualify the Moscow market as being dramatic, right?

No, I wouldn't. I'm not going…

[indiscernible]

No, we didn't see dramatic competition. Clearly, Tele2 came in at a pretty material discount in terms of pricing, but, candidly, we didn't see much of an impact in terms of our customer base. And we watch the flows and MNP movements, etc., amongst all operators, very acutely, on a daily basis. And I'm not surprised at the comments that MegaFon made, because we saw them being the big loser in the Moscow market compared to -- in terms of the impact when Tele2 entered the market, and the MNP flows. Actually, despite being the leading operator in Moscow, we actually had the lowest outflows, through MNP and any other process, towards Tele2. So, Jean-Yves' right, we've not seen a dramatic impact in Moscow at all, anyway. Now, obviously, what happens going forward, really does depend on what Tele2 does. But, so far, the level of price competition that we are seeing from them is not affecting our customer growth that much.

Can I just follow up with that, quickly? I think it's fair to say that they haven't taken that many primary customers from you, and I think the impact has been more incremental, so people are just taking Tele2 as a second server. But in terms of pricing, general pricing in the market, isn't it true that Moscow pricing has come down much further, and ARPUs in Moscow have come down much further than the rest of Russia? Would you say that's true?

Not for us. No, we don't see that.

Okay. Thank you.

Right, just on the question of Bangladesh and Pakistan, I think, on Pakistan, we clearly both countries, in fact, have, as we know, had very strong performance in the first half. Pakistan, with the Warid transaction, obviously, is going to see an increase in CapEx-to-revenue ratios as we combine the networks. And our objective is very simple: to have the best footprint around Pakistan, around 3G and 4G, as well as 2G, in fact. So I think that our leading position will be now further reinforced, from that point of view. And Bangladesh, we haven't seen the need to underpin the strong performance with more CapEx at this stage. Andrew, you want to bring some color into that?

There's not much more to say, actually. I think, in Pakistan, we're just in the process of concluding a very large network swap, which is working really well. Clearly, we're going to invest with the Warid acquisition, as you have already mentioned. But I think you've covered it.

Thank you. And now, I would like to turn the call back to Mr. Bart Morselt. Thank you.

All right. Well, ladies and gentlemen, thank you very much for joining this call. Please feel free to call us at IR, if you have any follow-up questions. We wish all of you a very pleasant day. Goodbye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.