UPDATE 3-Vimpelcom says committed to Ukraine after $2 bln writedown

Thu Mar 6, 2014 9:24am EST

* Reports $2.7 bln loss vs $437 mln profit forecast

* Loss reflects impairment charges for Ukraine, Canada

* Ukraine writedown due to recent turmoil in country

By Megan Davies and Maria Kiselyova

MOSCOW, March 6 (Reuters) - Russian mobile phone operator Vimpelcom slashed the value of its Ukrainian operations on Thursday but said it was committed to its business in the country despite the political and economic turmoil there.

Reporting earnings that fell short of analyst expectations, Vimpelcom also cut the value of its Canadian assets to zero after it withdrew from a 4G spectrum auction and reported a decline in revenue in its key market of Russia.

The third-biggest Russian mobile phone company already unnerved investors in January by slashing its dividend to free up cash for debt repayments.

Shares in Vimpelcom, in which Russia's Alfa Group and Norway's Telenor are the biggest investors, were down almost 4 percent in premarket trading on Nasdaq.

"The biggest disappointment for me is its performance in key regions," said Deutsche Bank analyst Igor Semenov, who has a "hold" rating on Vimpelcom shares.

He said Vimpelcom's Russian average revenue per user, subscriber base and revenue all fell and were worse than he had expected, despite an improvement in service quality.

Vimpelcom reported a $2.7 billion fourth-quarter net loss that reflected non-cash impairments of $2.9 billion, including just over $2 billion in Ukraine where it is the top operator with its Kyivstar brand. The loss compared with a $195 million profit a year ago and a consensus analyst profit forecast of $437 million.

Vimpelcom entered Ukraine in 2005 and bought Kyivstar in 2010 in a deal that valued the business at an estimated $5 billion. It is the top operator there with a 43 percent market share, according to market consultancy AC&M.

Russia and the West are now locked in a battle for influence over the former Soviet republic and the country's economy is deep in crisis.

"LONG-TERM VIEW"

Vimpelcom Chief Executive Jo Lunder said the massive Ukraine writedown was based partly on changed expectations of future cashflow and took into account political and macroeconomic risk.

He said the Ukraine impairment charge was around 75 percent related to political and macro risk and around 25 percent to Kyivstar's performance.

But he did not say what had changed Kyivstar's cashflow outlook, such as the risk of a boycott of Russian companies by some Ukrainians or potential service disruption linked to the upheaval in the country.

"We of course try to stay out of politics. We have a business to run and the changes we've seen in Ukraine have not led to any disruption in our business," said Lunder.

The company had no plans to leave the country, he said, and would even like to invest more there: "We believe in the management team and the brand we have there. So for Vimpelcom, we have a very long-term view on Ukraine".

Russian rival MTS and Astelit, which is owned by Turkcell and Ukrainian billionaire Rinat Akhmetov, are the second and third-biggest players in Ukrainian telecoms. The market is tough because subscribers have been migrating to lower-priced tariff plans as disposable incomes shrink.

Vimpelcom has around 26 million mobile customers there, which accounted for 7 percent of its fourth-quarter revenue.

CANADA, RUSSIA

Vimpelcom also recorded an impairment charge related to Wind Mobile, its business in Canada, which reduces the value of its assets there to zero. In January it withdrew from a 4G spectrum auction there, having failed to negotiate greater control over its Canadian joint venture with Anthony Lacavera.

Wind Mobile is Canada's fourth-largest operator but trails far behind the top three. The widening gap in its airwave assets exacerbates the challenges it faces as it will be unable to upgrade to the latest networks.

"There are still different options available to us," said Lunder. "Selling the asset could be an option. Combining with other operators with spectrum could be an option."

Canadian partner Lacavera said he not had any indication that Vimpelcom wanted to exit more eagerly than previously.

"We've faced a lot of adversities and challenges since we started up Wind (in Canada) and we're still here... We are going to continue to execute on our business plan," he said.

Lacavera said Wind Mobile's spectrum assets alone were worth between $300 million and $500 million.

Vimpelcom also reported weak performance in its home market of Russia, where it underinvested following the financial crisis of 2008 in comparison with rivals MTS and Megafon.

It has been catching up in terms of its number of base stations and overall network quality but is yet to reverse declines in its subscriber numbers. Its total Russian revenues fell 4 percent, year-on-year, in the fourth quarter.

"The issue we are facing right now is that the perception among subscribers in Russia is that we are still lagging a bit," said Lunder. "So our main focus in 2014 will have to be (about)...securing our subscriber base."

Vimpelcom's total revenue fell 7 percent to $5.6 billion against $5.7 billion predicted in the Reuters poll.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.