VimpelCom Quarterly Sales Fall as Russia Loses to Italy

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VimpelCom Ltd.’s first-quarter sales plunged 30 percent as its Russian operations were hampered by a weakening ruble and were overtaken by Italy as the carrier’s biggest market by revenue.

Sales declined to $3.52 billion, missing analyst estimates of $3.55 billion in a survey by Interfax. Earnings before interest, taxes, depreciation and amortization fell 33 percent to $1.4 billion, lagging behind the estimate of $1.43 billion.

Co-owned by Russian billionaire Mikhail Fridman with partners and Norway’s Telenor ASA, Amsterdam-based VimpelCom is seeking to reduce its $17.6 billion in net debt stemming mostly from the acquisition of assets in Italy, Asia and Africa from Egyptian billionaire Naguib Sawiris. The company’s high loan burden relative to earnings prevents it from paying high dividends.

“For us to resume a dividend policy there are a number of factors that need to be considered,” Chief Executive Officer Jean-Yves Charlier said in an interview at the company’s Amsterdam headquarters. Those include geopolitical stability, solid operational results and a balance sheet leveraged at the right level, he said.

Debt Reduction

VimpelCom cut its net debt by $2.4 billion during the first quarter as it sold a majority stake in its Algerian Djezzy unit and disposed of Italian wireless towers. The company bought back $1.8 billion of bonds.

“Now we’ve got a more more extended maturity profile than we had 12 months ago,” Chief Financial Officer Andrew Davies said. “It has now moved into the business-as-usual realm.”

One of the ways debt could be further reduced is by consolidation, which is on the company’s agenda in every country where it’s active, Charlier said in the interview.

The carrier has reached an agreement with Hutchison Whampoa Ltd. on senior management jobs as part of efforts to merge the two companies’ mobile-phone businesses in Italy to create the country’s largest mobile-phone operator by customers, people familiar with the matter have said.

VimpelCom appointed Charlier, ex-head of French phone company SFR, in March and said today it will present a strategic update under the new leadership in August. “That’s really where my attention is right now,” Charlier said.

Targets Reiterated

Service revenue in Russia fell 44 percent in the quarter to $1.04 billion, while sales in Italy declined 22 percent to $1.11 billion.

“While results came slightly below expectations, VimpelCom showed notable operational improvements in Russia and Ukraine,” said Alexander Vengranovich, an analyst at Otkritie Capital. “Should the company combine its Italian unit with Hutchison, it would help it to further reduce the debt burden.”

VimpelCom reiterated its target that service revenue will show a “low single-digit” decline in 2015 with currency movements stripped out. The company forecast flat development to a 1 percentage point decline in its Ebitda margin.

VimpelCom’s stock has fallen 33 percent in New York over the past 12 months.