* Bulk of increase from operational improvements
* Current operational cashflow around $5 bln-Reuters calculation
* Hopes for resolution on Algeria, aims to invest this year
* May make divestments over coming year
By Megan Davies
MOSCOW, Jan 16 Telecoms group Vimpelcom, with assets in Russia, Italy and various emerging markets, aims to deliver a major boost of up to $2.9 billion in annual cashflow by the end of 2015 to improve shareholder value.
In its first investor day since 2011, Vimpelcom pledged to pay dividends equivalent to a 7 percent yield as it vies for investor dollars with its Russia-focused rivals, New York-listed MTS and recently-floated MegaFon .
Amsterdam-registered Vimpelcom's largest market is Russia, in which it ceded the number two spot in 2010 to MegaFon while pursuing global expansion through a more than $6 billion deal for Egypt's Orascom Telecom and Italy's Wind.
Vimpelcom's shares rallied 4 percent in early trading in New York. They rose by 8 percent in 2012, lagging MTS's gain of 26 percent. MegaFon trades 25 percent above its November IPO price.
"The biggest message today is that our value-creation model is centered around increasing cashflows," CEO Jo Lunder told a conference call with analysts. "That's up to $2.9 billion in improved cashflows in a three-year perspective."
The company detailed plans to generate annual cashflow improvements of $2 billion from operations and between $600 million and $900 million from financial improvements.
In a slide to accompany the call it said it would achieve this by outsourcing, "lean processes" and "headcount rightsizing".
According to Reuters analysis of Vimpelcom's financial statements, operational cashflow was around $5 billion over the past 12 months.
Lunder said the bulk of the extra cashflow will come from profitable growth initiatives as the industry develops, with fourth generation services a "game changer" for mobile and smartphones replacing computers.
"We think small screens will take out large screens and traffic in the networks will grow rapidly," he said.
The telecoms sector is also now more resilient to economic turmoil than a few years ago, Lunder said.
"The services we're providing are covering such basic needs that you can almost group them with bread and butter," he said.
Vimpelcom's largest shareholders are Altimo, the telecoms arm of Russian billionaire Mikhail Fridman's Alfa-Group, and Norwegian telecoms group Telenor, which have long been at loggerheads over strategy.
Lunder noted that the shareholder dispute between the pair was now resolved, "so another uncertainty is off the table".
Russia's competition watchdog filed a lawsuit in April to contest Telenor's dominant stake in Vimpelcom whose strategic importance required it be kept free of foreign control.
It dropped its case in November, after Altimo raised its stake in Vimpelcom, overtaking Telenor as the biggest shareholder.
Altimo is increasing its economic interest in Vimpelcom to 56.2 percent from 52.7 percent by converting preferred shares. Telenor has a 35.7 percent economic interest.
Vimpelcom is also hoping for a resolution to a dispute over Djezzy, the Algerian asset it bought as part of Orascom.
Under pressure from the Algerian government, Vimpelcom agreed to talks on selling a controlling stake in Djezzy to the state.
The Algerian government then imposed a $1.3 billion fine on Djezzy for violating foreign currency regulations, souring the talks.
"Negotiations in Algeria are still in progress and we are optimistic on resolving that," said Lunder. "We hope we can start investing in Algeria later this year."
Vimpelcom said in an emailed statement that it hopes to retain an interest in the Algerian business.
The company also said it was a "reasonable expectation" that it would make some divestments over the coming year. Vimpelcom has been trying to sell its businesses in Burundi, Zimbabwe, Central African Republic, Cambodia and Laos in order to focus on its main markets of Russia and Italy, sources previously said.
Vimpelcom said it will make dividend payments of at least 80 cents per share a year through 2014, extending an earlier pledge by a year. It recently beat expectations for third-quarter earnings, highlighting the prospects of strong future dividends.