VIP Falls Behind Expectations

Nov 26, 2009 (Zacks.com via COMTEX) -- VimpelCom (VIP) reported third-quarter 2009 earnings of 42 cents per ADS (based on an average exchange rate of 31.26 RUR/US$) that narrowly missed the Zacks Consensus Estimate of 44 cents. However, the result beat the year-ago earnings per ADS of 27 cents.

The second-largest Russian telecom carrier reported quarterly net income of RUR13.5 billion (US$432 million), more than double the net income of RUR6.5 billion (US$208 million) reported in the year-ago quarter. This significant year-over-year growth is largely attributable to foreign exchange gains from a strong Russian ruble versus the US dollar.

Operating revenue increased 3.5% year over year to RUR71.3 billion (US$2.3 billion) as growth across Russia, Kazakhstan, Uzbekistan and Tajikistan was partly offset by declines in Ukraine and Armenia. Revenue from the wireless operation was RUR60.7 billion (US$1.9 billion) while the fixed-line business generated revenue of RUR15.1 billion (US$483 million).

Reported OIBDA of RUR36 billion (US$1.2 billion) reflects a year-over-year growth of 7%, yielding an OIBDA margin of 50.4%. The annualized growth reflects the company's ability to reduce costs amid the volatile economic environment. VimpelCom is pursuing various strategies to maximize cash flow through several cost-control measures.

The company's total active cellular subscriber base grew by roughly 7.6 million year over year and by 1.7 million sequentially to 65.4 million. Its broadband subscriber base increased 11% sequentially to approximately 1.9 million.

On a geographic basis, revenue from Russia increased 4.1% year over year to RUR61.2 billion (US$1.9 billion), representing roughly 86% of the company's total sales. Mobile subscriber base in Russia grew 13.2% year over year to 51 million. VimpelCom added 174,000 broadband subscribers during the quarter, bringing the total customer base to 1.83 million. The results were supported by a resurgent Russian economy.

Consolidated revenue from the CIS markets grew 3.9% year over year to RUR11.1 billion (US$355 million). Revenue from Kazakhstan (the largest CIS market) registered RUR5.4 billion (US$173 million), up 11.9% year over year. However, sales declined year over year in other key markets such as Ukraine (down 22.3%) and Armenia (down 3.4%).

During the quarter, VimpelCom spent RUR3.8 billion (US$122 million) in capital expenditures (CAPEX). The company has revised its CAPEX guidance reflecting a stronger ruble versus the dollar. VimpelCom expects CAPEX to be in the range of 10%-12% of its 2009 annual sales. The company plans to lift capital spending by at least 50% in 2010 to support 3G network expansion. VimpelCom's 3G services currently cover all regions of Russia.

VimpelCom repaid debt worth US$690 million during the third quarter. The company successfully reduced its net debt to US$5.5 billion at the end of the quarter from $6.3 billion registered in the previous quarter.

In October 2009, the company's two major shareholders Telenor and Altimo announced plans to merge their holdings in VimpelCom and Ukranian mobile operator Kyivstar to create a jointly owned telecom operator.

VimpelCom remains the second-largest wireless operator in Russia with over a 25% market share. Nevertheless, the company has a higher projected growth rate than its Russian peer Mobile Telesystems (MBT) as it continues to demonstrate the ability to succeed in emerging markets on the strength of sustained subscriber growth.

Besides maintaining its strong market position in the rapidly maturing Moscow metropolitan area, VimpleCom has successfully expanded into incipient Asian markets such as Vietnam and Cambodia. The company completed the commercial launch of its cellular operation in Cambodia in May 2009 under the Beeline brand. This was followed by the launch of wireless operation in Vietnam in July 2009. Moreover, VimpleCom recently signed an agreement to enter the Laos mobile market.

VimpelCom plans to cover more than two-third of Cambodia's population by the end of 2009 and reach over 40 provinces and 41 million people in Vietnam by the end of January 2010. The relatively lower mobile penetration in these new Asian markets offers attractive growth opportunities for the company.

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