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Cesar Tiron - Morgan Stanley Herve Drouet - HSBC Alex Balakhnin - Goldman Sachs. Tibor Bokor - ING Alex Wright - UBS Alex Kazbegi - Renaissance Capital Dalibor Vavruska - Citi Victor Klimovich - VTB Capital Igor Semenov - Deutsche Bank Nadezhda Golubeva - UniCredit Sean Johnstone - Bank of America

Good morning and welcome to VimpelCom’s conference call to discuss the company’s second quarter 2011 financial and operating results. Before getting started, I would like to remind everyone that, except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties. These statements relate in part to one, the benefit of the Wind Telecom transaction, including expected synergies; two, expected future debt positions, dividends and capital expenditures; and three, the company’s value agenda strategy. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in one, the company's press release announcing second quarter 2011 financial and operating results and related presentations; two, the company's annual report on Form 20-F for the year ended December 31, 2010; and three, other public filings made by the company with the SEC, each of which are posted on the company's website at www.vimpelcom.com and the and on the SEC’s website at www.sec.gov. If you have not received a copy of the second quarter 2011 financial and operating results press release, please call investor relations at +31 (0) 20 79 77 234 and it will be forwarded to you. In addition, the press release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented on this conference call, can be downloaded from the VimpelCom website. At this time, I would like to turn the call over to Jo Lunder, chief executive officer of VimpelCom. Please go ahead.

Thank you and good morning everyone. Welcome to our second quarter earnings presentation. I’m looking forward to discussing with your our first set of earnings results following the closing of our transformational transaction with Wind Telecom on April 15, reflecting the combined companies. As many of you know, I have been involved with VimpelCom for over 10 years, previously serving as CEO, board member, and chairman of the board. I’m very excited to be rejoining the management team of the company and I’m optimistic about our outlook for the future. We are pleased with the positive trends in revenues and subscriber base that we saw across all our business segments. At the same time, we had stable EBITDA performance in the quarter as we continued to make investments that allowed us to improve our mobile service revenue market share position in Russia. In Italy, our second largest market, we saw relative outperformance of the market and our emerging markets growth engines continued to deliver profitable growth. The integration of Kievstar continues ahead of plan and our integration with Wind Telecom remains on track. We have started to develop the value agenda for 2012 to 2014 for our new enlarged group. I will provide you with some initial highlights today and we will follow up with an investor day in November in which we will walk you through further details of our strategy going forward. Let me start by introducing to you the members of the team here in Amsterdam who are with us today: Khaled Bichara, our president and chief operating officer. Khaled will present the operational performance of our five business units. Henk van Dalen, our chief financial officer. Henk will be covering the financials in detail. And finally, Gerbrand Nijman, our head of investor relations. We have the…

Thank you Jo. As a reminder, we are presenting our results today on a pro forma basis unless otherwise noted. We believe pro forma financials provide the most meaningful comparison of financial performance for the quarter. Accordingly, the financial information presented here reflects what the company’s results of operations would have looked like had the company’s transactions with Wind Telecom and Kievstar occurred on the first of January 2010. As a reference, the combination of OJSC, VimpelCom, and Kievstar, which resulted in the formation of VimpelCom Limited, occurred on April 21, 2010 and then on April 15, 2011 acquired 100% of Wind Telecom. An annualized rate of the Wind Telecom acquisition, the company owns indirectly 51.7% of Orascom Telecom and 100% of Wind Italy. The pro forma financial information also assumes that all spinoffs that are part of the transaction considerations for Wind Telecom would have happened on January 1, 2010 and that the sale of Orascom Telecom Tunisie also happened on that date. Furthermore, all financing related to the Wind Telecom transaction is assumed to have taken place as per the same date. Additionally, group financials are presented on a U.S. GAAP basis. However, our Europe and North America business units, as well as the Africa and Asia business units, excluding our operations in Southeast Asia are IFRS-based, and on the consolidated level, the required adjustments of IFRS to U.S. GAAP have been performed on the business unit level and group level. The results per business unit presented later by Khaled are expressed in the local currencies without such adjustments. Let me just brief you on the actual results for the group first. Actuals in the second quarter of 2011 are influenced by Kievstar, now for the full quarter, and Wind Telecom as of April 15, in the quarter.…

Thank you Henk. Let’s get to performance of our five business units. Let me start with Russia. As you can see on the slide, our revenues in Russia increased 6% year over year and amounted to 65 billion rubles, driven by the growth in both fixed and mobile revenues. On the mobile side, data revenues increased 38% year over year to 4.1 billion rubles and the total number of mobile broadband subscribers increased by 82%. Fixed broadband revenues were nearly 1.9 billion rubles, growing 45%, supported by strong growth in subscribers, which were up 39% and [unintelligible]. Quarterly, EBITDA margin in Russia was 41.5%, reflecting our intensified network development and increased sales and marketing as well as our plan to strengthen our market position. We are extremely pleased with the growth of subscribers in Russia. On the back of our positive momentum we are seeing in this market, we will continue to develop our network and marketing activities [unintelligible]. At the same time, to strengthen our [unintelligible], we are taking measures with our business excellence program. This program will focus on increased efficiency of the operations and [unintelligible] reduction in network maintenance, [unintelligible] costs, commissions, and other G&A expenses. Capex was 19% of revenue, in line with our plans. As I mentioned, we continued to execute on the plan that we adopted a year ago, which was aimed at enhancing our market position. We are pleased to report that we are seeing very positive results. For 2 quarters in a row, we have now achieved the highest net additions in the Russian market, and this quarter [unintelligible] will grow to more than 2 million net adds of mobile subscribers. We reached 55.2 million in the quarter, up 9% from last year. Including [630,000] subscribers acquired [unintelligible]. As we announced, [unintelligible]…

Thank you Henk. Let’s get to performance of our five business units. Let me start with Russia. As you can see on the slide, our revenues in Russia increased 6% year over year and amounted to 65 billion rubles, driven by the growth in both fixed and mobile revenues. On the mobile side, data revenues increased 38% year over year to 4.1 billion rubles and the total number of mobile broadband subscribers increased by 82%. Fixed broadband revenues were nearly 1.9 billion rubles, growing 45%, supported by strong growth in subscribers, which were up 39% and [unintelligible]. Quarterly, EBITDA margin in Russia was 41.5%, reflecting our intensified network development and increased sales and marketing as well as our plan to strengthen our market position. We are extremely pleased with the growth of subscribers in Russia. On the back of our positive momentum we are seeing in this market, we will continue to develop our network and marketing activities [unintelligible]. At the same time, to strengthen our [unintelligible], we are taking measures with our business excellence program. This program will focus on increased efficiency of the operations and [unintelligible] reduction in network maintenance, [unintelligible] costs, commissions, and other G&A expenses. Capex was 19% of revenue, in line with our plans. As I mentioned, we continued to execute on the plan that we adopted a year ago, which was aimed at enhancing our market position. We are pleased to report that we are seeing very positive results. For 2 quarters in a row, we have now achieved the highest net additions in the Russian market, and this quarter [unintelligible] will grow to more than 2 million net adds of mobile subscribers. We reached 55.2 million in the quarter, up 9% from last year. Including [630,000] subscribers acquired [unintelligible]. As we announced, [unintelligible]…

Thank you Khaled. I will now spend a few minutes providing you with an initial overview of our value agenda for 2012 to 2014. VimpelCom today is a truly global telecom company. We are designed to deliver sustainable, profitable growth going forward. We have a well-diversified revenue base with balanced exposure across attractive markets, including rapidly growing emerging markets. They are a more balanced and less volatile business than many regional and local peers. Our emerging market exposure covers three quarters of a billion people. This gives us an extensive opportunity for growth going forward. We also have strong positioning across both mobile and fixed broadband businesses, which provides another platform for growth as these continue to develop across our markets. Importantly, we are in a good starting position to capture the shift from voice to data, which today already exceeds 10% of our total revenues. Finally, we have an attractive financial profile, with revenues per share of $14 and a free cash flow per share at almost 25% thereof. Turning now to one key element of our integration, following the closing of the acquisition of Wind Telecom, we launched a comprehensive integration program to capture the strategic benefits of the combination and to achieve the expected synergies from the enlarged group. The first results from the program are very promising, with early savings in procurement already achieved through harmonizing of the [unintelligible] current price levels across the company. We continue to believe that we can achieve total synergies on the net present value of at least $2.5 billion as promised. In fact, current initiatives have already secured synergies in the amount of $1.6 billion on that present value basis. In the next phase, we will continue implementing best practices in terms of vendor rationalization and redistribution on the group…

Thank you. [Operator instructions.] Our first question comes from Cesar Tiron from Morgan Stanley.

You seem to be on track to achieve your targets [unintelligible] in Russia, but it seems like the burden on margin is quite significant. Can you please tell us what we should expect in the next quarters? Should we expect some acceleration in service growth in Russia or should we expect less pressure on margins?

I think as everyone has seen, the dynamic in the Russian market has been very competitive over the last years and I think going forward for VimpelCom, our priority number one in Russia will be profitable growth and we will set cash generation, as I tried to outline in my presentation, as well, as a priority number one. We are now doing a number of projects that are launched as part of our business excellence program in order to improve focus in that direction. But to be a little bit more specific, I think for the rest of 2011 we expect mobile margins to be in the mid-40s and the low 40s for the consolidated mobile and fixed margin for 2011 as a year.

Can I just also ask, on Italy, you obviously outperformed the market, but here it seems that the trend of revenue is accelerating significantly. Can you please say what was the main driver and what is going to happen in the next quarters as well?

I think as I said, we are outperforming the market there, comparing to the same quarter of last year there was some unusual items. But also there is the termination rate. Sometimes when they change it takes some time for us to catch up. We are confident that eventually we will get back to growth on that asset, so we’re not that worried about this quarter.

Could you possibly say how much would have been the growth if you were to exclude the exceptional items you mentioned and the MTRs?

The exceptional items is 1%.

Our next question comes from Herve Drouet from HSBC.

Two questions. The first one is on the margins again in Russia. Where do you believe you have the most room to improve margins? In which segments do you think you have more room? Is it more in the mobile voice? Is it more in the mobile broadband? Is it more in the fixed broadband? That’s my first question. The second question is if you can give us a bit of an update on what’s happening in Algeria. Where do you see the Algerian business going? Are you in some type of discussions in terms of what may happen to Djezzy? And do you still have some constraint in terms of importing equipment, SIM cards, there?

Let me try to expand a little bit on my first answer, on Russia. I think if you look at performance in Russia, we have improvement opportunities, basically throughout the whole P&L. We are now addressing the gross margins and implementing projects to improve gross margin level as well as we are addressing a number of operating expenses further down the P&L in order to improve EBITDA margin. Of course, this is a very big company, and things take time. So having the needed effect of our change program like that, naturally it takes time. But this is basically a holistic move, with 15-20 improvement projects addressing cash flow, improved margins, and higher profitability in the Russian market. And also data growth will help the overall picture here. Then moving to Algeria, we’re still working on a solution to keep this asset. We like the asset very much. We think it’s a good market, it’s a lot of growth to come there still on voice. Data will come, and for that reason our aim is the keep the asset. We would very much like to develop it in the best interest of the people in Algeria and to have a good working relationship with the government and with all stakeholders. Given the sensitivity of this topic, we don’t want to disclose specifics when it comes to progress and dialog that we’re having there, but as I said, still working on a solution and our main target is to keep the assets.

Okay, anything you can be maybe more specific on? Either on targets, on margins, segments, or in terms of how you see forward in Algeria. Can we hope for some [releasing] of some of the constraint that Djezzy has in terms of equipment, do you think in the short or medium term?

I would very much like to share information with you if I were in a position to share it, but right now we’re not in that position, and for that reason we need now to work on progress and not have this debate in the public domain.

Thank you our next question comes from Alex Balakhnin from Goldman Sachs.

Two questions if I may. First is on your Russia operations, and my question is basically if you see the subscriber number dynamics and profitability dynamics, is quite difficult not to link them together, so it looks like your margin [unintelligible] because you’re too aggressive with subscriber acquisition. Can you explain what is behind your subscriber acquisition? What plans are you proceeding? And another thing here is that in your presentation you mentioned that your strategy for Russia and Italy is to actively maintain market share, which sometimes may not be consistent with the profitability growth. Because if you look at your EBITDA in Russia, it’s minus 9% year on year in rubles. So maybe that gives you an idea then to grow in Russia is not really profitable. So what should change here for you to discontinue or scale back your [unintelligible] in the country? Because that may give you a higher profitability uptick than pretty much any of the cost [unintelligible] programs probably. Just your thinking on this question would be really helpful. And second question is you were saying, in the presentation, talking about [unintelligible]. You mentioned that you planned to distribute a significant part of your free cash flow and just a clarification here. Are you talking about cash flow from all the operations? Because previously you had mentioned only Russia and Ukraine. And second, what is significant for you? Is it 50%? Two thirds? Three fourths? Just for some visibility. Thanks.

In terms of margin [unintelligible], for Italy and for Russia, I think the question was the same. Clearly, as Jo mentioned, our strategy is profitable growth and creating value and the value agenda. But clearly for us there are guidelines to which we want to focus on keeping our market share. Having said that, it means we will not be fighting on a 0.1 or even a 1% market share if we think it does not affect our market position. Yet we have some guidelines where we believe specific market share and clearly these are numbers we cannot share for competitive reasons, if we lose them it could effect on the long term, the value of the company. Because we’re not only looking at generating cash flow now, we’re always looking at the long term value creation, because we have long term [unintelligible] in that business. In terms of Russia, I think it’s very clear, and I agree with you, that the [churn] level in the market is very high, and if you compare [unintelligible], you’re right, it’s minus in ruble terms. So it’s unfortunately [unintelligible], so the whole market has not been a very mature market on that front. We see some signs that the market is going to slow down. What we can say is we will not instigate any price war or any driving of the margins down. Yet, as we mentioned before, we’ll continue to defend what we think is our fair share that we need to keep.

On the dividend policy, I think when we were discussing the first quarter we also clearly identified what the new dividend guideline is, so actually that means we aim to pay $0.80 per share, assuming the 1.6 billion common shares outstanding. So when we talk about $0.45 as an interim dividend now, then let’s say the most logical thing is that the final dividend will be around $0.35, to be established in 2012, based on the full year 2011 results. The relation to free cash flow that you’ll find there is the definition of net cash from operating activities as it is published in the cash flow statement, minus the cash capex. If you would do going forward what is now factually done in the first quarter, that would mean that we have 100% payout of that delta, and that is certainly not our definition of significant. So it is important, I think, to take the $0.80 as a reference, and that is also the focus that we have.

Thank you. And maybe I can ask just a quick followup on the last answer. Basically, I see that you recognize the comparative situation in the market, but what is your plan in this circumstance? Do you plan to play by the market rules, [unintelligible] or not? Or do you plan to make any steps toward rationalization of the market?

I think we clearly cannot say what we’re going to do in this market, because we’re competing with four other players in that market. But we can again reiterate, we will not start any price war. We are very pro-rationalizing in that market. We’ve been doing that in most of our markets. Russia was a special situation. If you look at all the markets we’re in, Italy or even Ukraine and CIS, we’ve been working very aggressively not to push these markets down. Specific moves clearly we cannot announce because of competitive reasons.

[Operator instructions.] our next question comes from Tibor Bokor from ING.

I have a question on Euroset. Do you plan to increase your stake in Euroset and consolidate this asset? If so, what would be the impact on your EBITDA margin?

As you know, we have an option to increase our stake in Euroset. We’re studying this option, and we have not made a decision on that yet. As soon as we do, of course we’ll communicate to the market.

Can you tell us at least what was the net income of Euroset in the second quarter?

I don’t have that data off the top of my head. I will send you that.

And a quick follow up on the other negative EBITDA. When we look at the sector breakdown there is a negative number on a pro forma basis, $86 million. Is that headquarters? Is it a one-off? Should we expect this item to remain in the following quarters?

Yes, that is absolutely a one-off for this year. Of course, it has to do with the whole Wind Telecom transaction. It actually falls apart in two blocks. One block, which has to do with the payment of the various fees to the advisory banks, and the other block is costs related to the integration process, let’s say the explanation given by Jo on the synergies. Of course getting all these synergies in detail organized and structured, those things also cost money in order to come to the right focus internally. So there will be, most probably, in the next two, three quarters, some additional of these integration costs as well, but over time it will clearly fade out and we will get to the normal levels as we [unintelligible] that quarter.

Thank you our next question comes from Alex Wright from UBS.

My first question is a follow up on Algeria please. As you stated your preference is to maintain ownership. But could you just update us on what your thinking is regarding the value-sharing agreement? Because I think that expires in a few weeks’ time. And clearly if there is no change in ownership there, then it would appear that there's no immediate scope for exercising that agreement. So do you see scope to prolong or renew the agreement? Or would you expect that to lapse? And the second question is on Bangladesh. Do you have clarity there on how much you will be asked to pay for the 2G license renewal fee? And could you share your thoughts on that?

I’ll kick off with Algeria. I clearly understand the questions and the interest for Algeria. It’s an important question, and I can tell you for sure that I am personally involved and very focused on finding a way to deal with this in the best interests of shareholders and everybody. It’s correct what you said about the re-sharing. It expires in October. We have the right to trigger the re-sharing mechanism when it expires. So this is in the control of the board of directors of VimpelCom. We are now analyzing in detail what is in the best interest to do. We haven’t made the decision yet. We continue to work on it, and basically this is an option we have until mid-October, and for that reason it’s basically too early to confirm what we will decide to do. But as I said, I can for sure confirm that we spend a lot of energy, me personally involved with the board, to work for a solution, again in the best interest of our shareholders.

And for Bangladesh, the 2G renewal cost will be around $250 million. It will not be paid at once. It will be paid around three payments. The first one will be around 35% and then we will make the payments as we go. So in terms of payment terms and value, it’s well in line with our [unintelligible] expectations.

And the second and third payments are in 2012, is that correct?

’12 and ’13.

Our next question comes from Alex Kazbegi from Renaissance Capital.

Two questions also. One on data. First of all, I was wondering if you could allow us to compare more apples to apples in terms of let's say in Italy. Your RPU on data presumably includes the smartphones and the dongles as well as in Russia you just give us the USB modems. So I was wondering if you add the total data on Russia, how the picture would look. And a general question with regards to that as well. In Italy specifically it seems to be data RPU has been fairly stagnant over the past sort of four, five quarters. What is there you think either impedes the further growth or what do you expect this growth to become? And when and why, so to say? The second question would be just on M&A in general. Given, again, your focus on capital discipline and return of cash to either shareholders or the bondholders through deleveraging, would you say that you have nothing on the M&A agenda in the foreseeable future, neither in terms of buying nor selling? Would that be too strong to say? Or is it actually what is the next two, three year agenda, nothing really on M&A, just focus on operations?

Let me answer the second question and then Khaled will enlighten us on data in Italy and your question there. I think business is all about priorities, and we now believe that the right priority for our company going forward is to focus on results, on operations, on integration, and eventually increase cash flow. So that is the umbrella for everything that we’re doing. However, of course for a company our size to say that we are completely out of the M&A market for the next, let’s say, 18 months, I think is a little bit on the aggressive side. We clearly said that in this cluster number 3, we need to realign and refocus the businesses. We need to look at how they fit into the overall group. There might be in-market consolidations coming up. We all know there’s a lot of synergies in in-market consolidations, and for that reason we also said we want to strengthen our market position, so I wouldn’t exclude the opportunity of this maybe not being our preference on timing, but that we will be forced into something when it comes to in-market consolidations. But a larger transformational deal, with the speed we’ve seen now, on first the establishment of VimpelCom Ltd and then the Wind transaction, we will not do the next 18-24 months.

And in terms of comparing the Russian broadband to the Italian broadband, I agree, it’s not the same way the numbers are presented for now. And I’m sure as you know, as a group, we’re currently working on standardizing how we report data and broadband to the market. In Italy, data numbers include mobile broadband, SMS, and [unintelligible] services, so clearly looking at the numbers in total you have to look into the internal dynamics. The SMS pricing has gone down, while broadband revenue has gone up. And also at these growth rates both for fixed and mobile, you would see us either having a stable or increasing RPU growing at 2 digits in terms of customer base. So that’s our focus, with very high growth, clearly RPU sometimes goes down. Also, you would look at multiple SIM cards per user. As we said, general RPU in Italy went down because now we see customers with multiple SIM cards, one for their iPads or PCs, and one for their handsets and so on. So basically the revenue per SIM card goes down, but the revenue per customer goes up.

And in Russia, would you say that if you add also your non-dongle subscribers, do you see a fairly dynamic increases in terms of smartphone penetration usage, RPU levels? What's the general, so to say, at least qualitatively?

The dongles usually have higher RPU than data on the handset, but it’s also very different. You’re actually looking at 3 types of data customers. So we have small screen, medium screen, and large screen. And we have [unintelligible] for each. I don’t want to give you a number that might be wrong, but if we add the lower end data services to the USB, it would probably take the RPU down, but we’ve seen growth on the three different types of screens, and we have plans to stimulate that usage. Our goal is to try to continue to grow both customer base NR. We still think there is space to go up.

Our next question comes from Dalibor Vavruska from Citi.

Hello, just a quick technical question. If I look at your P&L pro forma consolidated below the EBIT line, I was just wondering if you can shed some light about the items like taxes, the other operating, or your cost of debt and FX. I'm just wondering obviously with all these strategy questions, investors are also trying to forecast the net profits. Just as a sort of ballpark idea, is it going to $1 billion? $2 billion? And then could it be this year or next year? So I'm just wondering if you can shed any light on any one-offs or any development that you can expect on that side to help to basically estimate your P/E with some kind of degree of precision?

I think you will get a reasonable picture on how the second quarter and the year to date association on the pro forma was on attachment C in the press release, which describes that in more detail. I’d say historically the results of VimpelCom have always been significantly influenced by movements in the FX, particularly in [unintelligible] gain and losses that are related to our funding and most particularly to the net debt position that we have in rubles in Russia, and of course that from time to time can move significantly versus the dollar. Looking at all of the other lines that you mentioned, there might from time to time be one of those on the tax side, particularly because some of our expenses are not tax deductible. There are smaller elements related to hedges, and this of course an effect that has to do with net income or net loss attributable to the noncontrolling interest, which particularly in the first half was quite significant due to a strong contribution from Eurosat in the first quarter of 2011. But if you take, let’s say, the year to date picture which has pluses and minuses in it, leading to a net income of $875 million for the first half year, then I think it’s fair to assume that, under comparable circumstances, you will be looking at a net income somewhere between 1.6 and 2.2.

Our next question comes from Victor Klimovich from VTB Capital.

I have two questions. First of all, I would like to say about the merger of Orascom Telecom Holding's assets. Can you please shed light on the current situation with that?

The de-merger you mean?

De-merger.

Exactly. We’re still finalizing the process there with the financial and supervisory authorities. The authorities have requested a committee that’s going to review some underlying accounting documents that will serve as the basis for the merger. This has created delays in the implementation of the de-merger, and right now, given the situation in Egypt, we don’t have a clear visibility on the timeline. We are, of course, doing our utmost to finalize with the authorities as soon as possible, but it’s very hard right now to give an estimate on the timeline.

But do you still consider this as a Plan A, I would say, so that you don't have to pay the former shareholder, controlling shareholder of OTH, the certain amount of cash which is mentioned in your contract?

This is still Plan A for the company, to get the approval and implement the de-merger, and then we have a Plan B if that is not possible. But as of now, Plan A is still in place, and we work to implement it.

And may I follow up with several questions regarding Russian performance? Yesterday we had a conference call with MTS, which is actually a laggard in terms of net additions. And they said that probably they will have to be more aggressive if they will not see signs from other market participants, presumably VimpelCom and MegaFon, if they will not decrease volumes of sales. So it's not a secret that MTS they have negative net additions for several months and MegaFon and VimpelCom are more aggressive in terms of sales. So don't you expect that there will be even increase of competition in Russia if your sales and MegaFon sales will not go down?

I think the way we look at this now is basically that priority number one in Russia for VimpelCom is cash generation, which means that we will not measure subscriber market share and revenue market share on a monthly basis. As long as we are able to operate within a band that we are comfortable with not destroying long term cash flow ability of VimpelCom in Russia, we will not necessarily jump on a monthly basis and destroy the long term plan, being higher cash generation. So I agree, it’s a very difficult market. There’s a lot of competition there, and we see clearly that historically over the last years there has been a lot of what I call kick and run. We now would like to put together a long term plan for Russia focused on cash flows and as I said, establish a band for subscriber market share and revenue market share where we believe is necessary to support long term cash flows.

But do you have a goal, for example, to return to number two position in terms of revenues, in the short term or in the longer term?

No, we don’t. I think this is important maybe for the media and it’s been sort of a lot of focus on who’s number one, two, and three. We’re in that market to generate value for shareholders and to me, and to our board, it’s not important if we are number one, two, or three, as long as we are able to grow our ability to generate more cash. So it’s not a goal for VimpelCom to be number one, two, or three, measured in subscribers or revenue market share.

Our next question comes from Igor Semenov from Deutsche Bank.

I just wanted to follow up on one of the financial questions. So can you explain in a little bit in more detail what are the other expenses of about $107 million for the quarter? And also, on Euroset, to follow up, do I understand correctly that the decision is not entirely in your hands? You are essentially in a position to take the valuation agreed by the majority shareholders of Euroset? And when should we expect any announcement regarding Euroset?

I will take the first and I assume Khaled will take the second one. The $106 million, that is another cost. It effectively has two components in it. The first component has to do with the consolidation of our activities in Vietnam, which were not consolidated last year, and when you consolidate it you have to kind of readdress the effective accounting of how it was part of the books. So you look at the translation adjustments that now need to go through the P&L. And then there was an element of roughly $50 million related to an ineffective hedge in Italy. Of course that is not a factor of relevance when you do pro forma to pro forma. But when you do actual to actual you will probably see in the coming quarters from time to time a few of those adjustments going through the [unintelligible].

For the Eurosat, to be clear we have a call option. It’s unconditional, so if we want to call we can call. There is a process of [unintelligible] valuation and it should be done based on the agreement with the majority shareholder. As we mentioned, it’s not only the value that we’re looking at. Strategically we have not decided if we want to exercise or not exercise this option yet. As soon as we have a decision, we will communicate that to the market.

Is it not correct that if Mamut agrees to the valuation, then you have exercise the 20%?

No, the call is our option. There is a put with a totally different valuation that the major shareholder has. If he wants to exercise the put at the valuation it is, we would not be able to disclose, we would be happy to receive it on that.

Our next question comes from Nadezhda Golubeva from UniCredit.

I have two questions. First of all, on the Italian margin, when you mention the MTR cut as a factor behind the margin drop, do you mean the exact cut which took place last year? And do I understand correctly that there is another cut coming from July 12 this year? So effectively it took place already? And does this mean that we should expect further pressure on margin in Italy in the second half? Or do you see some potential to offset this reduction in the profitability? This is my first question and I'll ask my second question after.

For the MTR, the changes happen every [unintelligible], so when you compare year over year, quarter two this year had different MTR than quarter two of last year, clearly. There was another change this July. The changes are, because we’re going on a [unintelligible] sometimes smaller or less [unintelligible]. We believe that it will not have the same effect on the [unintelligible] moving forward because we’re looking at increasing the RPU by stimulating more usage.

And my second question is about your debt. So you said that you do not exclude that you might see some very nice opportunity for participating in consolidation in some of your markets. And so if [unintelligible] an opportunity for example and you believe that you see a deal which would be complementary and value accretive for you, and if simultaneously you will have to pay cash in connection with this de-merger, which let's assume does not take place, my question is do you see any possibility that you might further increase your debt load? And also, do I understand it correctly that your bidding, which is quite aggressive in Italy for the [unintelligible], it would require external funding?

I think there was actually a couple questions in there. Let me try to answer and then Henk can step in here. First of all, we do have some more leveraging capacity within the group. We are not fully leveraged, so it’s possible to increase. I think we’re close to the comfort level and where we should be now. So when we have declared that we have an intention to deleverage and we stick to that direction. So as you said, if the de-merger doesn’t take place, that might require an activity from the company that will limit other activities, and that’s why I also tried to explain that we have a third cluster in our strategic framework that we also might want to look at refocusing and aligning what is in the best interest of the company. So we clearly have much less financial flexibility when it comes to using that instrument for an M&A agenda going forward, and that’s why I also said focus now is cash flows and operations. When it comes to Italy, we are actively participating in the auction in Italy. And I think for the right reasons. It would be tempting not to do that, because these are frequencies that we probably will need in maybe 2014, ’15, ’16 even. So of course short term focus of management would be to not participate there and not take that burden right now. But I think it’s in the long term interest of shareholders to secure those frequencies in Italy. We have a fantastic opportunity for data growth going forward and these frequencies will fit very good into the [unintelligible] and the strategies going forward. So we will actively participate in the auctions and we will secure the necessary [unintelligible] frequencies for building Wind at its next level. And the way it looks now, we will keep also our policies in place when it comes to keeping Wind ring-fenced and that the financing of the auction is likely to be done within the framework of that policy of having Wind ring-fenced.

And may I ask you, when you say full leverage, what debt to EBITDA do you assume under full leverage assumption?

We are not going to go into a lot of details on leverage because it is certainly not our intention to go to full leverage. What you might expect is that as a result, and of course depending also on the outcome of the current 4G auction in Italy, that gross debt of the group toward the end of the year will be somewhat higher than the gross debt level that we have now. We will retain and maintain the current funding principles that we have in place, so we feel that the financing flexibility that our Italian business has is strong enough to participate in the auction in an effective way. And for the rest it’s fundamentally, I think, focusing at the balance of what you generate as cash, what you spend in capex, and what from time to time you also need to spend in end market consolidations. But that often has also a character of [unintelligible] buying or building. And overall, of course, we have our group targets as Jo said, and we will continue to focus on those in this direction of deleverage going forward.

Our last question comes from Sean Johnstone from Bank of America.

Just if we could go back to the Italian mobile business, when you look at the revenue base, it's declined quite sharply on the prior quarter. And I know you were saying part of that is MTR, but if we're looking at the past couple of quarters, you were growing this business - or on the previously Wind reported numbers - somewhere between 3% and 5%, just looking at your top line mobile numbers. And now we're at minus 1.6%. Could you give some clarity on why that's slowed so sharply? Because if you look on the prior quarter, you've actually got improvements in the RPU on Q1 and even improvements on the minutes of use. So I'm just trying to understand is there some change in the accounting?

No, there is no change in accounting. We usually try to compare year over year more than sequential quarters because of seasonality. Because in sequential quarters there’s a lot of different usage, where there’s special indications, summer roaming and so on and so forth. So if you compare year over year it’s mostly [unintelligible], then there is a decline. So there is no special dynamic there. And as I said, it was between the MTRs was probably the biggest pressure, and moving forward the lower the MTRs are the less surprises you’ll see in the MTR coming in the future.

Okay, so going forward, if I've looked at this, you've been growing at a significant premium to the other two competitors. If we ignore TI, because of their issues, you've been growing at a premium to Vodafone. Now you're growing at the same sort of level as that. Is that the sort of levels we should expect going forward? That you're not going to grow that much faster than your main competitor?

I’m not sure we’re looking at the same set of numbers, because Vodafone was declining and we were stable.

Your reported mobile numbers are down 1.6%.

One was at minus 3. Telecom was minus 9.

But what I’m saying is the differential has come back quite significantly since we saw last Wind reported numbers, so I’m trying to establish is that the trend we should see going forward?

I can’t speak for them. What we are saying is we would not continue to see a decline. We are looking forward to hopefully go back to small single-digit growth. Basically, as we always said, we don’t want to be very far off the path, because otherwise we can instigate price wards and aggressive reactions from the competition. I think what we’ve seen in the last couple of years was very aggressive reactions from telecom and the problem was not that they did not react. The problem was they cannibalized themselves more than they cannibalized the market. But we cannot depend on that forever. So basically keep moving forward with our value agenda. We do not instigate price wars, we only instigate price wars by reducing our price. But if we gain too much market share that’s kind of [unintelligible] price war.

I think we’ll close up the session now and if you have more questions please contact investor relations in VimpelCom. We have a team sitting here ready to interact and discuss with you during the course of the day and of course in the next days to come. We understand there are a lot of questions. This is a new company, and for that reason we also, as I said planning an investor day mid-November. We hope to give more details and more clarity on the direction we outlined today during that day, digging more into the different business units and putting some more numbers and activities on the direction going forward. I hope to see you all there so we can have an opportunity to explain our plans. And with that, I wish you all a very good day, and again thank you for joining us this morning. Goodbye.