Russian operator Vimpelcom has presented a “new strategy” to investors — called ‘Value Agenda 2012-2014’. The operator said that the focus of its strategy is now on maximising cash flows, even at the expense of higher revenue growth. This means that the operational effectiveness of the combined company moves to the forefront of attention.
The headlines of Vimpelcom’s strategy are:
Sector follower, rather than sector leader
CEO Jo Lunder claims that he does not believe in first move advantages, preferring to stick to best practices, maintaining flexibility, and keeping options open.
Greater freedom for regional business units
Only two functions will be centralized under the new business structure: procurement and roaming. Other functions are to be performed on the regional level.
No big cross-border M&As are planned
With the big transformation phase over, only local M&As are possible in the intermediate term. $5.1bn of additional revenue by 2014. Management expects to add $4bn of revenue from mobile data, which is set to grow at 13% CAGR 2012-2014. It is also guiding for $1bn more in fixed data revenue, which is set to grow at 11% CAGR. Finally, the company anticipates an extra $0.1bn in mobile voice revenue, a segment estimated to grow at 1% CAGR.
Capex
The company plans a cautious stance on capex for the upcoming years. Management intends to reduce capex as a share of revenue from its 2011 level of ~20% to 15% of revenue iin 2014.
Decision on Euroset deal to be announced in January 2012
VimpelCom is currently mulling the pros and cons of exercising an option to acquire a 25% stake in Euroset. Since VimpelCom management intends to improve the operational effectiveness of its distribution channels, which implies more focus on its own retail network, the management needs to consider different options of increasing its retail network in Russia.
Djezzy issue could be delayed. As the VimpelCom Board of Directors recently decided not to prolong a revenue sharing agreement on Djezzy, which is a riskier option, we think there is a good opportunity for VimpelCom to see upside from Djezzy. There is no timeline for the government to decide on nationalization.