VimpelCom has reported a surge in its quarterly profit despite unfavourable currency movements, continued conflict between its shareholders and a run-in with the Algerian government.
Facing challenges on numerous fronts, the huge Russian operator managed to increase second-quarter net income by 83% compared with the same period last year, to $488 million, thanks to cost reductions and the growth of some emerging-market operations.
VimpelCom’s revenues dropped by 4% to $5.75 billion, owing to a rise in the value of the dollar against some local currencies. The operator claims revenue growth was 4% on an organic basis.
VimpelCom is still reaping the earnings benefits of its merger in April 2011 with Wind Telecom, which gave it a presence in several new markets and doubled its base of mobile customers to about 208 million.
Since then, however, a dispute between the company’s main shareholders—Russian investment group Altimo, Nordic operator Telenor and Weather Investments, controlled by Egyptian billionaire Naguib Sawiris—has prevented the Russian subsidiary from paying dividends of approximately $595 million to the parent group.
The injunction preventing the payment of dividends was served by the Moscow Arbitration Court following allegations that Telenor acquired VimpelCom shares from Weather illegally.
Altimo and Telenor have been uncomfortable bedfellows since falling out over the purchase of a Ukrainian mobile operator in 2005, and their antagonism has frequently boiled over into the courtroom.
Chief executive Jo Lunder said the injunction should not hamper VimpelCom operationally because it still has around $1 billion in available cash.
Since VimpelCom’s results were published, and Lunder made her comments, news reports have appeared suggesting that Altimo has agreed to withdraw its claim that Telenor and Weather are in violation of Russian law. According to Dow Jones Newswires, Altimo has paid $3.6 billion to buy voting rights from Weather, increasing its share by 14.8% to 40.5%.
VimpelCom faces another dispute in Algeria, where its stake in Djezzy—controlled by Orascom Telecom Holding, which is 51.7% owned by VimpelCom—has been under threat from the nationalistic stance of the government since 2009. Even so, with talks between VimpelCom and Algeria’s administration under way, Djezzy reported growth of 4% in revenues and 6% in earnings before interest, tax, depreciation and amortisation.
VimpelCom also enjoyed success in its main Russian market, with revenues up 8%, year on year, to 70.3 billion rubles ($2.2 billion), largely due to the growing usage of mobile data and fixed-line broadband services.
Last month, the operator received a license to provide ‘4G’ services, using LTE technology, which could deliver further increases in data usage and revenues in the years ahead.
At the bottom line, the company’s performance was helped by a lower effective tax rate, with some net operating losses incurred in the second quarter of 2011 not recognized for tax purposes.