Embracing the digital opportunity

Chairman and CEO's letter

This year has been an important milestone in VimpelCom's history with the launch of our Transformation Program. The strategic priorities that make up this plan allow us to look forward to the future and the promise it holds for us to make a significant impact on 10% of the world's population that we have the ability to reach.

Our world is undergoing an unprecedented shift in the way people are able to communicate and interact. This is reshaping our society, connecting billions of consumers around the world and creating new possibilities. This is a unique opportunity for us as one of the world's largest communications companies. It means we can use this scale to bring new services to customers as they navigate the digital world.

Our heritage as an entrepreneurial and pioneering business means we recognize and embrace that this is a pivotal moment for the industry, as we meet the demands of an increasingly digital world with the infrastructure that comes from a traditional telecommunications era. Our history has taught us the importance of anticipating future trends in communication and ensuring we are best placed to leverage them.

We have already made significant progress on our transformative journey. The changes we have implemented will ensure we continue to deliver the technological solutions our customers demand while enhancing overall levels of satisfaction. By doing so, we are also laying the foundations for increasing returns to our shareholders.

It is with determination that we embarked on our Transformation Program, announced in August, which is expected to deliver at least USD 750 million of annual cash flow improvements by 2018. More than USD 300 million was realized already in 2015 mostly through more efficient capital expenditure (Capex) following our initiative to move to a more asset light operating model. In 2016, we expect the Company to further improve by generating more EBITDA at yet lower Capex, leading to the expectation that this year will see significant operating free cash flow (EBITDA minus Capex) generation. The aim of the Program is to ensure that our business is ideally placed to capitalize on the digital opportunities which our frontier markets bring.

Though we continue to operate in a difficult climate of macroeconomic instability and regulatory change, significant strategic steps forward have been taken. We have made progress in improving our in-market positions and capital strength, agreeing to a joint venture in Italy between Hutch 3 and WIND, announcing a merger between our Mobilink business in Pakistan and Warid, and agreeing to sell our non-core business in Zimbabwe. In Algeria, the transaction with the Fonds National d'Investissement (FNI) provided a more certain future for the business and enabled us to start a full transformation program. The transaction, on a group level, also released significant cash amounts to Global Telecom Holding (GTH) and VimpelCom to pay down gross debt.

There have been difficult moments in 2015 for the Company, with exceptional costs principally in relation to investigations by the U.S. Securities and Exchange Commission, the U.S. Department of Justice and the Dutch Public Prosecution Service (Openbaar Ministerie) concerning our business in Uzbekistan. Resolving this has been a top priority for VimpelCom. While this has been a very challenging experience for our business and our employees, we are pleased to have reached agreements with the authorities in February 2016. The wrongdoing, which we deeply regret, is unacceptable. We have taken, and will continue to take, strong measures to embed a culture of integrity and accountability across the group. We have significantly strengthened our internal controls and compliance program. In the last two and a half years, VimpelCom has appointed a new Chief Executive Officer, Chief Financial Officer, Group General Counsel, Chief Performance Officer, and Group Chief Compliance Officer to drive the necessary change forward.

As we look to the year ahead, we are focused on unlocking opportunities for our customers. Though 2016 will continue to present a challenging environment for the industry, we are confident that our pioneering spirit will help us navigate the challenges ahead.

Our footprint gives us the opportunity to introduce new technologies that can transform the way people learn, work and do business, and our established history and strong position in emerging markets – less contested by global competitors than in more mature markets – are a major source of future growth. The diversity of our service portfolio and significant subscriber base are a strong foundation upon which our Transformation Program is based.

This program outlines our six strategic priorities as we look to build new revenue streams through an increased monetization of our existing customer base of over 200 million customers, and through fixed mobile convergence and business to business (B2B) focus. We will further incorporate digital practices into our business to improve customer experience and engagement, and explore the potential of adding over-the-top (OTT) services and content to our portfolio. As part of our ongoing efforts to streamline the way we provide services, we will cut operating costs, digitize many of our operating systems to enable customer self-care, and open new shared service centers which will have a global scope. We will continue to optimize our portfolio and our capital intensity, building upon the progress made in Italy, Pakistan and Zimbabwe. Our ambition is to create world class operations in every market, with an increased customer satisfaction, and renewed efforts to deliver innovative new services to our customers.

With these six strategic priorities, our transformation program will make the year ahead one of the most important in our history. We will continue to build on the progress made in the second half of 2015, when we saw VimpelCom turning the corner in a number of aspects, despite the very significant currency headwinds which in US dollar terms shaved off a quarter of our top line and gross profitability (EBITDA). Revenues in constant (local) currencies, however, started growing again. We saw our market positions improve, with VimpelCom being market share leader in five and a strong number 2 in three of its countries. Our NPSs have improved in most of our operations, with a lead position in seven countries. With structural improvements around balance sheet strength and much lower associated financial cost, we expect to start generating substantial funds for our shareholders again soon. Once the proposed Joint Venture in Italy (between our subsidiary Wind and Hutch 3) closes, VimpelCom expects to have the opportunity to return to a substantive dividend policy from 2017 onwards.

We are confident that we will embrace the future of the industry as people's communication needs evolve while moving towards a digital lifestyle. Our agility, customer base and expertise give us a strong foundation to embark on this exciting new chapter, pioneering towards the digital frontier.

Alexey M. Reznikovich

Alexey M. Reznikovich

Chairman of the Supervisory Board

Jean-Yves Charlier

Jean-Yves Charlier

Chief Executive Officer