VimpelCom Says Sales, Margin May Drop Amid Ukraine Conflict

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VimpelCom Ltd. said sales and profitability may fall this year as the wireless carrier that operates in countries including Russia and Ukraine continues to face a “difficult” environment.

Service revenue may drop by as much as a low single-digit percentage, excluding the effect of items such as exchange-rate changes, the Amsterdam-based carrier said in a statement on Wednesday. On that basis, earnings before interest, taxes, depreciation and amortization, as a proportion of revenue, may decline as much as 1 percentage point, the company said.

Sales fell 13 percent last year to $19.6 billion, as the Russian and Ukrainian currencies plunged because of falling oil prices and the effects of continuing conflict in Ukraine. Revenue also dropped in Italy, VimpelCom’s second-biggest market after Russia, weighed down by price competition, regulatory pressures and the euro weakening against the dollar.

“The company’s 2015 outlook looks quite optimistic, given that it bears a substantial amount of costs in hard currencies,” said Sergey Libin, a Moscow-based analyst at ZAO Raiffeisenbank. “High debt load signals that VimpelCom won’t be able to pay high dividends for a year or a two.”

The company’s target for net debt this year is 3.2 times Ebitda. That compares with a ratio of 2.5 times at the end of

2014. The increase will be caused by currency fluctuations, Chief Executive Officer Jo Lunder said in a phone interview.

A year ago, VimpelCom cut its dividend payout to a fraction of previous levels until the net debt to Ebitda ratio falls to


Italy View

While VimpelCom isn’t considering an exit from Italy, it is ready to discuss market consolidation, Lunder said in the interview.

VimpelCom, co-owned by Russian billionaire Mikhail Fridman with partners and Norway’s Telenor ASA, is seeking to reduce its $20 billion net debt that resulted from buying assets in Italy, Asia and Africa from Egyptian billionaire Naguib Sawiris. The company sold a majority stake in its Algerian Djezzy unit to a local sovereign fund last month and disposed of a stake in a Canadian unit last year.

VimpelCom fell 2.8 percent to $4.81 per depository receipt on Tuesday in New York, taking the decline to 53 percent in a year and giving the company a market value of $8.45 billion.