VimpelCom Predicts Earnings Drop Amid Competition in Russia

VimpelCom Ltd. (VIP), a wireless operator controlled by Russian billionaire Mikhail Fridman, reduced its full-year sales and earnings targets as competition and the ruble’s decline weigh on revenue.

Sales and earnings before interest, taxes, depreciation and amortization will drop by “low to mid single digit” percentage this year, the Amsterdam-based company said today. It had previously predicted “stable” sales and Ebitda.

First-quarter Ebitda fell 11 percent as Russian and Ukrainian currencies weakened amid political tensions, resulting in lower revenue when translated into dollars. Sales in Russia, VimpelCom’s biggest market, fell 6 percent in ruble terms as the carrier lost customers and struggled to compete against larger OAO Mobile TeleSystems (MBT) and OAO MegaFon. (MFON)

“The question is whether VimpelCom will be able to run its business properly,” said Konstantin Chernyshev, an analyst at UralSib Capital in Moscow. The Russia sales drop “signals its failure to compete with Mobile TeleSystems and MegaFon in mobile data.”

VimpelCom, which operates in more than a dozen markets, is also facing competition and regulatory pressure in countries such as Italy, where revenue declined 3 percent.

First-quarter Ebitda was $2.09 billion, or 41.6 percent of revenue. Sales dropped 10 percent to $5.02 billion, and net income slumped to $39 million from $408 million.

Debt Reduction

VimpelCom, co-owned by Norway’s Telenor ASA (TEL), is also striving to reduce its debt pile of $27.4 billion which resulted from acquisitions of assets in Italy, Algeria and Asia from Egyptian billionaire Naguib Sawiris three years ago. The company agreed to sell 51 percent of its Algerian unit Djezzy last month, while retaining operating control, in a deal that releases $4 billion of cash for VimpelCom to reduce borrowings.

The company now targets net debt of 2.4 times Ebitda for this year, higher than the 2.3 it projected previously. The operator said in January it will curb dividends to a fraction of the earlier level until net debt declines to 2 times Ebitda. It may now take longer than previously estimated for the company to reach that goal, according to UralSib.

Shares of the company lost 0.6 percent to $8.26 yesterday in New York trading. They have declined 36 percent this year.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Ville Heiskanen, Robert Valpuesta

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