Form 6-K VimpelCom Ltd. For: Nov 08
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of November 2016
Commission File Number 1-34694
VimpelCom Ltd.
(Translation of registrants name into English)
The Rock Building, Claude Debussylaan 88, 1082 MD, Amsterdam, the Netherlands
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VIMPELCOM LTD. | ||||||
(Registrant) | ||||||
Date: November 8, 2016 | ||||||
By: | /s/ Scott Dresser | |||||
Name: | Scott Dresser | |||||
Title: | Group General Counsel |
|
Wind and 3 Italia merger: transformative transaction completion
Amsterdam 8 November 2016
Jean-Yves Charlier Chief Executive Officer Andrew Davies Chief Financial Officer
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Disclaimer
This presentation contains forward-looking statements, as the phrase is defined in Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Forward-looking statements are not historical facts, and include statements relating to, among other things, the transaction described herein, the anticipated benefits from the Italy Joint Venture transaction, including network improvements and synergies, and future market developments and trends. Any statement in this announcement that expresses or implies VimpelComs intentions, beliefs, expectations or predictions (and the assumptions underlying them) is a forward-looking statement. Forward-looking statements involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of: volatility in the Italian telecommunication market; unforeseen developments from competition; governmental regulation of the telecommunications industries in Italy; the expected benefits of the transaction may not materialize as expected or at all, due to, among other things, the parties inability to successfully implement integration strategies or otherwise realize the synergies anticipated; the businesses of either or both of 3 Italia or Wind may not perform as expected due to uncertainty or other market factors; the successful deleveraging of the JV; the ability of the JV to distribute to its parents; the JVs impact on VimpelComs financial profile and consideration of a meaningful dividend policy within the timeframe indicated; and other risks and uncertainties beyond the parties control may materialize. Certain other factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risk factors described in VimpelComs Annual Report on Form 20-F for the year ended December 31, 2015 filed with the U.S. Securities and Exchange Commission (the SEC) and other public filings made by VimpelCom with the SEC. The forward-looking statements speak only as of the date hereof, and VimpelCom disclaims any obligation to update them or to announce publicly any revision to any of the forward-looking statements contained in this presentation, or to make corrections to reflect future events or developments.
© VimpelCom Ltd 2016
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Wind and 3 Italia merger completion agenda
Jean-Yves Charlier Chief Executive Officer
1. Strong momentum in the Italian market for the launch of the joint venture (JV)
2. Italian market structure & competition
3. Rationale and ambitions for the JV
4. Integration plan now launched
5. JV will generate significant synergies across all areas
6. Iliad impact to be mitigated by the strong JV position and proceeds from the remedy taker agreements
7. Solid corporate governance with senior Board members and empowered management team
8. Strong management team in place from the start
Andrew Davies Chief Financial Officer
1. Transaction structure
2. Enhanced profitability and cash flow generation
3. JV expected to significantly deleverage and distribute to parents
4. JV has no imminent debt maturities
5. JV significantly improves VimpelComs financial profile
6. P&L accounting treatment for VimpelCom
7. Final remarks
Q&A session
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1. Strong momentum in the Italian market for the launch of the JV
Mobile telecommunication revenues
EUR billion
7.7 -8.6% p.a.
+1.3%
Other 0.1 2015-16
6.6 6.6
6.5
2.7 0.1 0.1
0.1
+1.5%
2.2 2.1 2.1
2.6
2.2 +0.6%
2.2 2.2
2.3 2.1 2.1 2.2 +1.6%
H1 2013 H1 2014 H1 2015 H1 2016
The joint venture will be able to take advantage of the 2016 mobile market tailwinds
4 Source: Company reports
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1. Strong momentum in the Italian market for the launch of the JV
(contd)
Fixed telecommunication internet/data revenue
EUR billion
2013-15 2015-16
6.3 +2.7% +3.7% 6.1 5.9 5.7
2013 2014 2015 2016E
Accelerating growth of data revenue with further growth potential driven by the current under-penetration of high speed access1 lines in Italian households (22% vs. 64% other WEU countries)
5 1 Connections above 30Mbps
Source: IDC, Infratel report 2015, Company reports, press release
Favorable structural changes in the fixed Italian context
New infrastructural operator Enel Open Fiber, targeting the creation of country-wide, independent fiber network
Target to connect 250 medium-to-large cities in the next 3/4 years (> 60% of total population, EUR ~3.7 billion capex budget)
Recent acquisition of Metroweb (fiber provider in Milan, Genova, Bologna, Torino)
Strong support from Italian Government
Commercial agreement signed with the JV
JV will be able to leverage a strengthened fixed-line value proposition, building on third party fiber infrastructure
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2. Italian market structure: ARPU ~50% below average
Mobile ARPU Italy vs. Western European countries French case price comparison prior to Free launch
2016 EUR/month/customer Price of unlimited plans (unlimited voice + SMS), EUR/month, at Free launch (10 January, 2012)
Data (GB)
22.9 90.0 3.0 22.7 90.0 3.0 19.3 70.0 3.0 18.3 40.0 1.0
15.7 Low-cost 1.0
38.0
offers
1 0.5
13.2 29.0
12.5 18.7 19.99 4.5x 3.0
~ -50%
Italian market already very competitive, with limited headroom for price undercutting
6 1 Non unlimited voice, 8h only
Source: Merrill Lynch Bank of America Global Wireless Matrix, company information
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2. Italian market structure: leading position for the JV
On spectrum On customer base, distribution, network
Mhz
Mobile 31.2 25.2
800Mhz 900Mhz 1400Mhz (Dlink) 24.4 customer base3
1800Mhz 2100Mhz 2100Mhz (TDD) million 7.1
2600Mhz 2600Mhz (TDD)
200
33.2% 30.5% 29.0% 7.3%
165 165 ~10,0003
Distribution
# PoS ~5,800-6,000
~5,400-5,600
n.a. 70
Network ~27,0003
# physical sites ~18,000 ~19,000
-
MVNOs
1 Wind 3 Italia customer base at launch
2 Including M2M SIMs
7
3 Wind 3 Italia sum of parts, not including integration/rationalization activities; market share in % including M2M SIM
Source: AGCOM June 2016, Companies websites, Market intervews
© VimpelCom Ltd 2016
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3. Rationale and ambitions for the JV
Rationale for the JV:
Creating a leading convergent player, serving both consumers and businesses, in Europes fourth largest economy and telecom market Supporting the Digital Italy Plan and unlocking investment in Italys digital infrastructure, to close the gap with Western Europe Unlocking value for its parents through the combination of #3 (Wind) and #4 (3 Italia)
Net present value of future synergies of at least EUR 5 billion
A financially stronger asset, able to deleverage and becoming a prospective dividend payer to parents
Ambitions for the JV:
Market leadership in Italy: becoming the true market leader in Italy, not only in terms of number of customers but also in terms of the quality of service Digital going all in: wholeheartedly embracing the digital world, re-inventing the entire operating model to leapfrog the market and cement the customer relationship Beyond Mobile B2C: strengthening the JV presence in Fixed/ FMC and in B2B
Lean and asset light: completing an accelerated integration, leveraging the operational discontinuity to deploy a very lean and asset-light setup
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4. Integration plan now launched
Overall
All integration planning activities kicked off
Core strategic decisions for 2017 already taken e.g.
co-existence of Wind and Tre brands in short to mid-term
simplification of offer portfolio
Network & IT
Integration of 2 networks already started
RFQ1 process ongoing to finalize vendor(s) selection for network modernization
New IT Stack vendors solutions being evaluated
Commercial
Commercial team starting to operate jointly
Harmonization of upcoming Christmas campaign
First launch of digital strategy with beta-test version of engagement platform implemented on 3 November, 2016
SG&A
Renegotiation of top 70 contracts (>80% of total value)
Administrative buildings rationalization and Milan HQ selected
Harmonization of compensations & benefits
Full integration underway, with first Board meeting held on 7 November, 2016
9 1 Request for quotation
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5. JV will generate significant synergies across all areas
Network & IT
Full network consolidation and footprint optimization: operate a 21k site network with >20% reduction vs sum of parts
Network modernization: efficiency through decommissioning of duplicative infrastructure
Fiber deployment to support data traffic growth and reduce opex (60% sites targeted by 2020-21)
Lean in-house model and external contract optimization
3 Italia roaming agreement to be insourced by the JV (~3% of 3 Italia traffic is currently roaming on TIM)
Implementation of new future proof IT stack by mid-2018: shift from 2 to 1 IT stack, more than halving IT costs by 2020
Commercial
Offer customer experience optimization (e.g., simplification of offer portfolio from hundreds of tariffs down to a handful)
Strong reduction of overall cost-to-serve (>30% opex reduction) through:
With objective to become the most relevant channel by 2019-20 both on acquisition and customer care
POS rationalization (mono and multi), eliminating overlaps and streamlining overall presence (in alignment with digital strategy), focusing on mono-brand channel as key priority (e.g. higher quality of acquisition and service)
Commissioning harmonization and optimization of overall commercial spend (i.e., advertising)
SG&A
Elimination of duplicative activities
Organizational optimization
Facilities consolidation (~30% of total floor space)
Procurement optimization through contract re-negotiation
Policy and process alignment
JV opex and capex synergies lead to total NPV of at least ~EUR 5 billion1 before any refinancing and tax benefits by generating EUR 700 million run-rate annual synergies2 (90% captured by year-end 2019)
10 1 Post taxes, net of integration costs, which over a 2 year period are expected to amount at least EUR 600 million 2 Opex and capex
NPV1
(EUR billion)
3.1+
1.3+
0.6+
Total: 5.0+
© VimpelCom Ltd 2016
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6. Iliad impact to be mitigated by the strong JV position and proceeds from the remedy taker agreements
JV in a strong position to overcome effect from new entrant
Introducing digital strategy now with a first launch of the beta-test version of a compelling engagement platform (VEON1) on 3 November 2016
Existing strong broadband position with agreement for fiber access through Enel Open Fiber being rolled out already
Operating in a relatively low ARPU environment for many years with only limited downside potential
Iliad-JV remedy contract binding and irrevocable2
Spectrum Sales of 2x35MHz 3G & 4G/LTE frequencies for EUR 450 million (EUR 50 million in 2017, EUR 190 million in 2018, EUR 210 million in 2019)
Sites/network Sale or co-location of over 8,000 tower sites, part of which were planned to be decommissioned during JV network consolidation (thus yielding savings on site dismantling costs)
Roaming 2G-3G-4G/LTE national roaming agreement for 5 years, renewable and not subsidized
An optional network (RAN) sharing agreement on last 25% of population coverage
Remedy taker contract is a mitigating factor and expected to yield a cumulative OpFCF3 impact >EUR 800 million over the next 5 year, a cushion that competitors dont have
Iliad entrance expected to have a financial impact on OpFCF3 of ~EUR 20 million p.a. per percentage point lost in revenue market share4, assuming pricing at low end of the current tariff plans
1 Customer engagement platform, powered by VimpelCom
2 The only condition precedent to the agreements with Iliad was the completion of the JV
3 Defined as EBITDA capex (excl. licenses), including proceeds from spectrum and sites transfer
4 Assumes Iliad to gain approximately the same mobile customer market share from each of the three major operators
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© VimpelCom Ltd 2016
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7. Solid corporate governance with senior board members
Canning Fok
Group Co-Managing Director, CK Hutchison Holdings
Frank Sixt
Jean-Yves Charlier
Group Finance Director and
Chief Executive Officer, Deputy Managing Director, VimpelCom CK Hutchison Holdings
Christian Salbaing Andrew Davies
Deputy Chairman, Chief Financial Officer, Hutchison Whampoa (Europe) Ltd VimpelCom
Neil McGee
Kjell Morten Johnsen
Managing Director,
Chief Executive Officer, Hutchison Whampoa Europe Major Markets, VimpelCom Investments Sarl (Luxembourg)
Jean-François Bouchoms
VimpelCom Designee
Audit Committee HR and Remuneration Committee
VimpelCom representative: VimpelCom representative:
Andrew Davies Kjell Morten Johnsen
Hutchison representative: Hutchison representative:
Frank Sixt Christian Salbaing
Merger Executive Committee
VimpelCom representatives:
Kjell Morten Johnsen
Alexander Matuschka
Hutchison representatives:
Frank Sixt
Christian Salbaing
4 board members per parent with a Chairman rotating every 18 months holding a casting vote
12 = Chairman (for both Supervisory Board and Committees) rotating every 18 months (first term: 5 November, 20165 April, 2018)
© VimpelCom Ltd 2016
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7. Solid corporate governance with empowered and accountable management team
Shareholder agreed and adopted vision
Fundamental business objectives
5 year business plan
3 year merger integration plan
Budget 2017
Significantly empowered management team
Maximo Ibarra appointed as Managing Director1 of all Italian operations
Wide grant of authorities to manage and lead the JV and execute on the vision provided by the Shareholders
Limited Shareholder and Board reserved matters ensuring management accountability
Avoidance of deadlock
Chairman of the Board will have a casting vote in the case of an equality of votes to avoid deadlocks
Casting vote cannot be exercised in a manner that is contrary to the adopted Business Plan
Governance designed to ensure full empowerment for management and delegation to execute
13 1 Amministratore Delegato
© VimpelCom Ltd 2016
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8. Strong management team in place from the start
JV senior leadership team
Maximo Ibarra
Chief Executive Officer
Dina Ravera Stefano Invernizzi
Merger Integration Chief Financial Officer Officer
Massimo Angelini Mark Shalaby Luciano Sale Michiel van Eldik Paolo Nanni Benoit Hanssen
PR Internal & External Legal, Compliance & Human Resources Consumer & Digital Business & Wholesale Technology Communication Regulatory
with 50 key managers already appointed for the JV across all functions, including new recruits with international experience
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© VimpelCom Ltd 2016
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Wind and 3 Italia merger completion agenda
Jean-Yves Charlier Chief Executive Officer
1. Strong momentum in the Italian market for the launch of the joint venture (JV)
2. Italian market structure & competition
3. Rationale and ambitions for the JV
4. Integration plan now launched
5. JV will generate significant synergies across all areas
6. Iliad impact to be mitigated by the strong JV position and proceeds from the remedy taker agreements
7. Solid corporate governance with senior Board members and empowered management team
8. Strong management team in place from the start
Andrew Davies Chief Financial Officer
1. Transaction structure
2. Enhanced profitability and cash flow generation
3. JV expected to significantly deleverage and distribute to parents 4. JV has no imminent debt maturities 5. JV significantly improves VimpelComs financial profile 6. P&L accounting treatment for VimpelCom 7. Final remarks
Q&A session
15
© VimpelCom Ltd 2016
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1. Transaction structure
Key terms and structure
50/50 JV of VimpelCom and CK Hutchison Holdings
VimpelCom contributed Wind with existing net debt (EUR 9.6 billion as of 30 September 2016)
CK Hutchinson Holdings contributed 3 Italia debt free plus EUR 200 million cash
No cash contributions or closing adjustments for VimpelCom
Neither party may reduce its aggregate indirect shareholding in the JV below 50% for one year post-completion
After three years post-completion, each shareholder can invoke a buy-sell mechanism at any time
Target leverage
Pro forma Net debt/EBITDA ratio at completion ~4.5x
Long-term net leverage target below 3x EBITDA
Key dates
European Commission approval: 1 September 2016
Approval from the Ministry of Economic Development: 24 October 2016
Completion: 5 November 2016
Wind-3 Italia merger: expected by year-end 2016
CK Hutchinson VimpelCom Holdings
50% 50%
HoldCo
Wind 3 Italia
© VimpelCom Ltd 2016
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2. Enhanced profitability and cash flow generation
Revenue and EBITDA
OpFCF2 and leverage
An operator with EUR 6.3 billion revenues and
(EUR billion, FY 2015)
1.8 6.3
4.4
WIND 3 Italia pro forma
Wind 3 Italia
EBITDA margin of 39%
(EUR billion, FY 2015 and % margin)
39%
8pp
31%
2.5
2.0
WIND + 3 Italia pro forma 1
Run-rate synergies
cash conversion of approximately 60%
(% cash conversion3)
59%
38% 1.4
0.7
WIND + 3 Italia pro forma 4
and significant deleveraging profile
5.9x 5.0x
Below 3.0x
WIND WIND + 3 Italia Target FY 2015 FY 2015
1 Including run-rate opex synergies only 3 Defined as OpFCF/EBITDA
17 2 Defined as EBITDA capex (excl. licenses) 4 Including run-rate opex and capex synergies
© VimpelCom Ltd 2016
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3. JV expected to significantly deleverage and distribute to parents
The financial profile of the JV is stronger than Winds stand alone
Net leverage evolution1
Net debt Net debt/EBITDA
EUR billion
10.9
10.0
9.6
5.8x 5.9x 5.6x
~4.5x
Below 3.0x
Q314 Q315 Q316 At closing Target leverage
Wind stand-alone Joint-venture
JVs leverage ratio at closing is ~4.5x compared to an expectation of 5x at signing in 2015
Target to deleverage below 3x over time
The joint venture is expected to distribute to parents:
? 40% of its consolidated FCF2, when leverage is below 4x EBITDA
? 60% of its consolidated FCF2, when leverage is below 3.5x EBITDA
? 80% of its consolidated FCF2, when leverage is below 3x EBITDA
Holding structure providing enough flexibility for cash upstreaming
significant synergies and cash flow growth expected to drive further deleverage and distributions to parents
1 Q3 2015 LTM EBITDA utilised for net debt/EBITDA has been normalized for approximately EUR 50 million (see footnote 1); Q3 2016 LTM EBITDA excluding EUR 19 million of restructuring costs accrued in Q4 2015
18 2 Free cash flow: net cash from operating activities net cash used in investing activities
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4. JV has no imminent debt maturities
Average interest rate is 5.5%, with no imminent maturities
EUR million
575 420
3,513
3,780
150
22 700 775
2016 2017 2018 2019 2020 2021
Tap to SSN 2020 + FRN 2020 New Senior Credit Facility 3 Italia LTE liability Italian State New Senior Secured Notes 2020
Senior Secured FRN Senior Secured Notes 2020 New FRN 2020 New Senior Notes 2021
rapid deleveraging and strengthened credit profile will potentially enhance funding conditions
19 Note: Excluding shareholder loans, factoring. Notional amounts. $ tranche has been converted at CCS €/$ Exchange Rate
© VimpelCom Ltd 2016
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5. JV significantly improves VimpelComs financial profile
As at 30 September 2016, USD billion
Net debt significantly reduced by USD 10.6 billion and the Net debt/EBITDA1 ratio below 2x
Net leverage evolution
Net debt Net debt/EBITDA1
17.4
6.8
3.2x
1.9x Pro-forma, including WIND Reported
VimpelComs leverage is now at a level where the VimpelCom Board can consider the adoption of a meaningful dividend policy by no later than early 2017
20 1 Net debt/EBITDA underlying
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6. P&L accountingtreatmentforVimpelCom
Previous accounting of Italy
(from signing to completion)
FY2015
USD million FY15
Revenue 9,625
Service Revenue 9,332
EBITDA underlying 3,908
EBITDA reported 2,857
D&A, impairments and
(2,350)
other
- o/w impairments (245)
EBIT 506
Net financial expenses (777)
FOREX and Other (343)
Profit/(loss) before tax (613)
Tax (238)
Loss for the period (851)
Profit / (loss) from
263
discontinued operations
Non-controlling interest (103)
Net result (691)
Current accounting
(after completion)
FY2016E1
USD million
Revenue
Service Revenue
EBITDA underlying
EBITDA reported
D&A, impairments and
other
- o/w impairments
EBIT
Net financial expenses
FOREX and Other
Share of net income of
associates
Profit/(loss) before tax
Tax
Loss for the period
Profit / (loss) from
discontinued operations
Non-controlling interest
Net result
50% of net result of
Italy JV (from closing, 5 November to
31 December 2016)
Wind Group net result
(from 1 January 2016 to closing, 5 November) + net capital gain on disposal of WIND
Group
Long term accounting FY2017Eonward
USD million
Revenue
Service Revenue
EBITDA underlying
EBITDA reported
D&A, impairments and other
- o/w impairments
EBIT
Net financial expenses
FOREX and Other Share of net income of associates
Profit/(loss) before tax
Tax
Loss for the period
Non-controlling interest
Net result
Significant capital gain to be expected in VimpelCom Q4 2016 results
21 1 Assuming the closing of transaction by 31 December 2016
© VimpelCom Ltd 2016
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7. Final remarks
JV launched with Italian marketplace back to growth and substantial opex and capex synergies to further drive profitability and cash flow generation
Leading converged player in the Italian market, pioneering in digital engagement with users
Increasing capacity for JV to deleverage and flexibility to distribute to parents
Solid governance designed to avoid deadlock and with significantly empowered management team
Iliad market entrance impact for the JV mitigated by proceeds from remedy package
© VimpelCom Ltd 2016
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Wind and 3 Italia merger completion agenda
Jean-Yves Charlier Chief Executive Officer
1. Strong momentum in the Italian market for the launch of the joint venture (JV)
2. Italian market structure & competition
3. Rationale and ambitions for the JV
4. Integration plan now launched
5. JV will generate significant synergies across all areas
6. Iliad impact to be mitigated by the strong JV position and proceeds from the remedy taker agreements
7. Solid corporate governance with senior Board members and empowered management team
8. Strong management team in place from the start
Andrew Davies Chief Financial Officer
1. Transaction structure
2. Enhanced profitability and cash flow generation
3. JV expected to significantly deleverage and distribute to parents
4. JV has no imminent debt maturities
5. JV significantly improves VimpelComs financial profile
6. P&L accounting treatment for VimpelCom
7. Final remarks
Q&A session
23
© VimpelCom Ltd 2016
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Further information
Investor Relations
Claude Debussylaan 88
1082 MD Amsterdam
The Netherlands
T: +31 20 79 77 234
Visit our website
www.vimpelcom.com
© VimpelCom Ltd 2016
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