Kazakhtelecom – leading telecom operator in Kazakhstan July 2018
1 Important Notice
The information contained in this document (the ‘Corporate Presentation’) has been prepared by Kazakhtelecom JSC (‘Kazakhtelecom’). Kazakhtelecom is a Kazakh incorporated and registered company listed on the Kazakhstan Stock Exchange (‘KASE’). This corporate presentation has not been fully verified and is subject to material updating, revision and further verification and amendment without notice.
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2 Kazakhtelecom is a leader in the Kazakh telecom market…
Kazakhtelecom at a glance Key financial indicators2
$mm IT services Other Fixed 3% 4% voice Pay TV 20% Nationwide telecom operator 4% Presence in 237 cities and regional centres Revenue Mobile EBITDA 33% $963mm XX Fixed Altel/Tele2 JV pro forma financials broadband 3 3.4mm of 1.7mm of (unaudited) 36% fixed voice fixed broadband subscribers Fixed subscribers 1,024 Fixed voice 93% market share 68% market share 963 broadband 167 871 319 269 34,000km+ of 0.7mm of backbone networks 857 PayTV subscribers 310 602 243 644 Backbone Full Kazakhstan 26 77 PayTV 43% market share coverage 302 293 networks 216 233 (9) 2015 2016 2017 6,300+ 6.9mm of base stations Shareholder structure Mobile subscribers #1 by LTE coverage Base Others Mobile1 26% market share with 73% of stations population 15.4% ADRs holders4 15 data centers in Contact centres 9.2% Kazakhstan 51.0% Cloud services IT outsourcing 22,700+ units Sobrio ICT services Data centers capacity Limited 24.5%
Source: Company data 1 Based on JV of Kazakhtelecom with Tele2. Kazakhtelecom owns 49% of voting rights and 51% of the share capital. Kazakhtelecom has a call option to acquire full control starting from 2019; 2 Converted into $ using average National Bank of Kazakhstan KZT/USD exchange rates of 221.7 in 2015, 342.2 in 2016 and 326.0 in 2017; 3 Data for Altel only in 2015; 4 ADRs are traded on OTC market 3 … with a mission to become an integral part of everyone’s life, promoting innovation and superior customer experience
1 Serve needs of the entire family for telecommunications and other services Telecommunication services supermarket Focus on customer experience and loyalty Improvement in sales efficiency 2 Meet corporate demand for wider range of ICT services and integrated solutions Business information platform Wholesale business development Shift from product-focused to client and segment-focused approach
3 Develop mobile services and focus on leadership in the segment
Integrated operator Focus on increased efficiency and profitability through gradual integration of fixed and mobile 4 Develop Fintech services and E-commerce New businesses Digitalization (M2M, IoT) and Big data
5 Enhance organizational effectiveness, personnel productivity and improve operations and Effective business model Group’s corporate culture
4 Successful track record of profitable growth
First operator Formation of 1997 Listing of Fixed line Launch of IPTV Sale of 49% Achieved 100% Formation of Creation of the to introduce Kazakhtelecom Kazakhtelecom coverage of services under stake in Kcell digitalization of Altel/Tele2 JV United LTE services in on KASE Kazakhstan iD TV brand to TeliaSonera fixed voice in the mobile Network Kazakhstan reaches 100%1 networks segment Management (through its centre mobile subsidiary - ICT services Altel) consolidated in Europe-SEA Launch of new transit via a separate
Key Milestones Key DREAM route business line generation DWDM organized (Direction of together with backbone Information China mobile Systems) network
1994 - … 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
298 314
KZTbn 227 104 208 92 191 173 176 37 138 144 153 114 128
190 206 210 Revenue, Revenue,
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 XX Altel/Tele2 JV pro forma financials (unaudited)3 Longstanding successful growth driven by innovative solutions and introduction of new services
Business development Corporate events Source: Company data 1. For all cities/settlements occupied by over 50 people 2. Including Altel/Tele2 JV pro forma financials (unaudited), Kazakhtelecom owns 51% of total number of issued shares 5 3. Data for Altel only in 2015 Kazakhtelecom is a leader in the Kazakhstan telecom market well positioned to capitalize on its potential
Strong telecom market fundamentals with significant potential 1 for further growth
Well positioned across all segments of the Kazakh telecom 2 market
Broad product portfolio and strong access to customers 3 enabling significant cross sale opportunities
Network assets combining nationwide fixed traditional platform and leading spectrum position, securing high customer 4 satisfaction
Strong financial position and significant cash generating 5 potential
Multiple avenues for further growth and shareholder value 6 creation
Experienced management team and effective corporate 7 governance
6 Strong market fundamentals with significant potential for further 1 growth
The second highest GDP per capita in CIS… ...with clear growth envisaged in the mid-term...
GDP / capita 2017A (US$) Real GDP dynamics in Kazakhstan (KZT bn) 10,633 14,946 8,383 14,550 14,107 13,663 5,527 4,239 13,016 13,133 3,625 12,887 3,092 2,269 2,287 2,540
2014A 2015A 2016A 2017A 2018F 2019F 2020F Source: EIU Source: EIU
...supported by the growing population… …with attractive demographics
Population dynamics in Kazakhstan (mm) Age structure (2017) Age distribution in Kazakhstan, 2017A (%) 45% UZB 8% 40% KAZ 10% 26% 18.8 18.6 AZE 18.4 18.2 35% 14% 42% 18.0 ARM 17.8 30% GEO 17.5 <14 15-24 25-54 55-64 ≥65 MLD
25% BLR UKR RUS Population under the age of 25 (%) of 25 age under Population the
20% 0 10 20 30 40 50 14060 16070 2014A 2015A 2016A 2017A 2018F 2019F 2020F Population (mm) Source: EIU Source: CIA 7 1 Strong telecom market fundamentals
Lower fixed broadband penetration compared to regional peers …also in line with rapidly expanding Pay TV market reflects growth potential… Broadband penetration rate, 2016 (%) Pay TV subscribers dynamics in Kazakhstan (‘000 households) Fixed broadband subscribers in Kazakhstan (mm) 2012A 2017A CAGR (‘12A - ‘17A) Penetration (%) 24% 30% 35% 39% 45% 52% 1.6 2.4 8.4%
88% 2,507 2,177 63% 1,827 56% 57% 1,627 Average: 48% 48% 1,372 41% 1,115 33% 35%
9%
2012 2013 2014 2015 2016 2017
Source: GlobalComms, BuddeComm Source: J’son & Partners Consulting Mobile segment is stable but further upside …increasing smartphone penetration …and shift into higher subscriber quality potential is driven by low ARPU,… supported by significant 4G coverage… Monthly mobile ARPU, 2016 (US$) Smartphone penetration dynamics in Kazakhstan (%) Subscriber base breakdown on postpaid / prepaid, 2017 (%)
30.7 31.0 31.4 11%
5.7 11%
14%
16%
17% 24%
5.0 27% 4.8 75 31%
Average: 4.4 4.5 43% US$4.0 3.6 3.9 51
2.4 41
89%
89%
86% 84%
31 83%
76% 73%
1.6 69% 57%
UKR GEO KAZ AZE BLR ARM MDA RUS UZB 2014A 2015A 2016A … 2019F Mobile subscribers in Kazakhstan (mm) Prepaid (%) Postpaid (%) Source: WCIS Source: WCIS, BuddeComm Source: WCIS
8 Strong market position across all segments of the Kazakh telecom 2 market
Telecom market competitive landscape Position on the Kazakhstan telecom market
Market shares by revenue, 2017 Market #1 by market share: 45% share Other Fixed voice and Voice Broadband operators broadband 22% 30% #2 by market share
12% Pay TV Cable Smart TV IPTV
15% #1 #3 21% by LTE by market coverage share (JV of Kazakhtelecom and Tele2) Mobile2 Voice Data Kazakhtelecom owns 51%/49% of economic interest/voting shares Call option to consolidate 100% a leading effective in 2019 provider Wide of ICT service offering services IaaS Security
3 IT 1 ICT Total market size of $2.2Bn SaaS outsourcing Source: Company data, Committee for Statistics of Kazakhstan Republic 1 Based on Company data as of 2017. Converted to US$ with 2017 average exchange rate of 326.0 KZT/US$. Includes fixed voice, fixed broadband, fixed operators, ICT services, Pay TV and mobile 2 Based on Altel / Tele2 JV data 3 Information and Communications Technology
9 2 Market leading position in fixed voice and fixed broadband and close #2 in Pay TV…
Fixed voice Fixed broadband Pay TV
Market share in 2017, % Market share in 2017, % Market share in 2017, % Others Others 1% #1 Others #1 #2 7% by market 16% by market 10% by market share share share
16% 43% 68% 46% 93%
Absolute leader in the fixed voice market The largest market player best positioned to Strengthening position (through organic growth Stable market share of 90%+ underpinned by capitalize on the fast growth of traffic in and acquisitions) in the fast-growing market developing FMS services Kazakhstan Unique FTTH infrastructure facilitating market Unique access to subscribers through own Competitive advantage in packaged solutions share gains infrastructure offerings Services available on multiple platforms (TV, Further growth potential from increasing fixed mobile, PC) and attractive content proposition broadband penetration in rural areas Subscribers’ dynamics, mm and market share, % Subscribers’ dynamics, mm and market share, % Subscribers’ dynamics, mm and market share, %
93% 94% 94% 93% 72% 65% 68% 68% 36% 39% 40% 43%
4.1 3.9 3.7 1.7 0.7 3.4 1.5 1.6 0.7 1.5 0.6 0.5
2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 xx% Market share, %
Source: Company data Note: Market shares based on number of subscribers 10 2 …and enhanced market position in mobile post-JV
Successful track record of gaining market share… First mover advantage in 4G and leading population Mobile market share by subscribers 2014 2017 coverage “Go to” brand for mobile internet 5% / Competitive advantage to attract and retain 13% 26% high-value customers 36% 44% Significant potential for further data growth Growing share of 4G devices (currently 53%1,2) 38% 38% 540 petabytes of data consumed in 20171 (+48% YoY)
…leading to a strong subscriber base Strong dual brand positioning
Number of subscribers, mm JV
7.0 6.4 6.9 4.6 4.4 3.3 15-35 years old 25-40 years old 2.6 1.3 Cost conscious Medium-high income 2014 2015 2016 2017 Smartphone user High speed data Presence in 61 cities with 131 retail outlets and 109 “module” outlets Price seeker Price premium payer JV’s subscriber base continues to demonstrate strong growth Urban citizen Heavy data consumer underpinned by dual brand proposition and superior LTE coverage 4G population coverage remains a key competitive advantage Target audience of 37% of Target audience of 15% of driving data consumption addressable population3 addressable population3 Source: Company data 1 Figures for Altel / Tele2 JV; 2 Data as of March 2018; 3 Defined as fraction of total population aged 15 to 69
11 2 Leading position in corporate segment with broad product portfolio
Individual entrepreneurs, SMEs and large enterprises Telecom operators and wholesale Government Provides complex solutions for each of the B2B Connects telecommunication networks, facilitates Provides telecom and ICT services to the segments: from large corporate clients to inter-network traffic and provides internet access Government of Kazakhstan individual entrepreneurs
48,000+ B2B clients accounts and Partnerships with over 40 B2B 67,000+ accounts of individual international operators Government programmes aimed entrepreneurs clients at digitalization of the economy 400+ out of 500 largest Kazakhstan Cooperation with over 70 local companies are Kazakhtelecom’s operators throughout all of the clients Republic of Kazakhstan
Examples of solutions Key operators of intercity-international Examples of programs networks Package solutions for entrepreneurs Broadband access, telephony, Bridging the Digital Divide unlimited long-distance calls Provision of high-speed internet Video Surveillance Service access to rural areas realized Connecting client cameras to a through public-private secure communication channel and partnership framework cloud storage Key mobile operators E-learning Wi-Fi for business Kazakhtelecom is a part of the Provides restaurants, cafes, offices State Program for the with high-speed Internet Development of Education, VPN implementing e-learning Kazakhtelecom serves 20,000+ services across the country points connected to corporate networks Integrated services offering allowing Kazakhtelecom to capture demand from across multiple business sectors
12 3 Broad product portfolio and strong access to customers enabling significant cross selling opportunities
Focus on clients and their needs
B2C B2B
Home Entertainment Education Shopping Communications Security Data Processes Other needs
a leading 48,000+ B2B customers telecommunications 67,000+ clients-individual provider in B2C segment entrepreneurs
Kazakhtelecom service offering
B2C B2B
Smart Games Fixed IPTV Security WiFi Hosted home telephony PBX Cloud OTT Video Broadband Mobile Data centers & software Video Surveillance cloud solutions M2M
Kazakhtelecom acts as a one-stop shop solution for families and businesses Convenient ecosystem for clients driving cross-selling of services and penetration
13 3 Strong track record of successful introduction of new value-added services
Strong access to customers …
Insight into customers’ needs and consumer patterns B2B Direct access to large customer base for marketing of new Fixed broadband Mobile network Pay TV coverage products and services coverage of over 80% coverage of 88% of of over 80% of 48,000+ B2B of households population households customers
…providing strong foundation for development of innovative value-add services
Packaged solutions Premium & exclusive content Various packaged solutions including high-speed Over 130+ TV channels and programs internet, TV, mobile communication and telephony Partnerships with leading content providers Over 1.5mm packaged services subscribers and more (incl. Megogo, Amedia) than 400,000+ FMS1 subscribers2 Innovative partnerships with game developers (e.g. special offers for World of Tanks subscribers) Value-added services ICT solutions for businesses Continuous introduction of new services Covers all major target markets for ICT Safe internet, parental control services Protection against DDoS-attacks, Virtual Firewall, Provides cloud services, IT outsourcing, Deferred Payment contact centres, Smart home solutions and Cloud based CCTV services virtual hosting
Strong access to customers driving introduction and cross-selling of new value-add services
Source: Company data, Euromonitor International 1 Fixed Mobile Solution; 2 Data as of 2017
14 4 Network assets combining nationwide fixed traditional platform and leading spectrum position, securing high customer satisfaction
Best-in-class transport network Solid data transfer network Outstanding transport network with a total length of 34,000km+ IP/ Multiprotocol Label Switching (MPLS) based network with 3 main nodes in Modern network rolled-out taking into account transit purposes Astana, Almaty and Aktobe connected with channels up to 6x100 Gb/s Strategic advantages from geographical position of Kazakhstan as the main All regional centers are connected to main nodes with channels starting from 4x10 transit country between Europe and Asia with the shortest Europe-SEA transit GB/s route To Russia To Russia Petropavl Connections with multiple Russian operators, maintaining stability of traffic (Samara) с. 9,000 To Russia Bulaevo (Ozinki) Kostanay Kokshetal Pavlodar Coriant (48ch*100G) provision Esil km Ekibastuz Coriant (40ch*10G, 40G) Astana Unique agreements with the world leading content providers on traffic caching Uralsk Karaganda Semey Length of interareal Aktobe Coriant (32ch*10G) Ganyushkino Makat Zhezkagan Oskemen network Kandyagash Ayagoz Alcatel (32ch*10G, 40G) with over 30% of traffic in Kazakhstan cached by Kazakhtelecom Unkaryl Dostyk To Russia Atyrau Shetnuk Taldykorgan Infinera (30ch*10G) (Astrakhan) Beyneu Zharkent To China Main data hub for Middle Asia with cache servers located in Astana, Kyzylorda Merki HuaWei (40ch*10G) Aktau Taraz 9,000 Almaty To China Almaty, Aktobe and Atyrau Shymkent Korday Packetlight (40ch*100G) km+ Bautino To Uzbekistan (Kungrad) Kazygurt Length of rural To Uzbekistan To Kyrgyzstan network (Tashkent) (Bishkek) Length of backbone network of 16,000km+
24 9.6 Tb/s 32 ms 890 Gb/s 30% Interconnection points with Maximum network Latency of Europe-SEA Capacity of external Share of traffic in Kazakhstan international operators bandwidth transit route internet channels cached by Kazakhtelecom
Leading access network Superior switching and IPTV networks Network platforms and data center networks Coverage of over 80% of households in the country 100% digital switching network with 3 ISCs in Astana, Distinguished network platforms, enabling to offer and c.2.3mm connected points overall Almaty and Aktobe broad range of additional services to our customers Speed of up to 20 Mb/s through ADSL 2+ mostly Gradual transition from TDM to NGN technology State-of-the-art data centers network supporting outside of FTTH footprint with NGN share increasing from 51% to 56% from introduction of new cloud based services c.0.9mm connected points through FTTH network 2015 to 2017 with consecutive costs reduction (over 20% of all households) Modern IPTV network with 2 main nodes in Astana Network platforms Data centers Coverage of all major cities and regional centers and Almaty 15 data centers Ongoing FTTH deployment Continuous increase in the quality of IPTV services SIP-platform 11,300+ sqm of server on the back of active rollout of FTTH network Fixed Mobile rooms Structure of connected fixed broadband ports by technology, Ongoing digitalization of Kazakhtelecom Pay TV offering Convergence 2017 + 9 p.p. Platform 22,700+ units capacity ADSL 2+ FTTH Other Content 31% 27% 22% Filtering 60% 30% 10% Platform 69% 73% 78% Maximum bandwidth 20 Mb/s 1 Gb/s n/a Service Delivery Connected points 1.3mm 0.9mm 0.1mm 2015 2016 2017 IPTV Analogue Platform Tier III data center in Pavlodar Source: Company data
15 4 Network assets combining nationwide fixed traditional platform and leading spectrum position, securing high customer satisfaction (cont’d)
World class mobile network Successful JV’s costs savings track Widest LTE population coverage with download speed of up to record with 1,740 mobile sites in Kazakhstan of 73%1 390 Mb/s2 merged
Superior network quality driving customer satisfaction… Robust mobile spectrum portfolio Speedtest (M\bps) NPS (Net Promoter Score) 38% 35% 2,100 MHz 35.1 33.1 33% 20 MHz 20 MHz 20 MHz 29% (UMTS) 1,800 MHz 19.3 40 MHz 15 MHz 15 MHz 14.8 16.6 (GSM/LTE) 9.8 900 MHz 10 MHz 6.6 MHz7.4 MHz (3%) (GSM/UMTS) 800 MHz Not Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 10 MHz 10 MHz Leading mobile (LTE) attractive for JV #1 spectrum portfolio Almaty Astana …and data usage Leading LTE coverage 3G/LTE data consumption, petabytes 300 3G 4G Astana Pavlodar
Karagandy Semey Billions 200
Almaty 100 Shymkent
LTE 0 coverage 73%1 #1 50% 50%3 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 (LTE-A coverage of 72.3%)
Source: Company data, DMtel 1 Altel / Tele2 JV LTE coverage as of 30 June 2018 2 Theoretically achievable download speed in LTE-A 3 JV internal estimate for Beeline 16 5 Strong financial position and significant cash generating potential
Stable top-line growth of 17.7%1… …with increasing EBITDA margins
Revenue dynamics (KZT bn) KZT bn
Altel/Tele2 JV pro forma financials (unaudited)2 Altel/Tele2 JV pro forma financials (unaudited)2
28.6% 27.8% 32.2% 298 314 101 227 92 104 83 37 25 65 9
190 206 210 67 74 76
2015 2016 2017 2015 (2) 2016 2017 EBITDA EBITDA margin1
Prudent capex program3… …brings high cash conversion4
KZT bn KZT bn
14.5% 7.3% 13.8% 58.9% 79.6% 61.9%
27.4 29.1 58.7 47.3 39.3 15.0
2015 2016 2017 2015 2016 2017 Capital expenditure Capex-to-revenue ratio EBITDA minus capex Cash coversion5 Source: Company data 1 Including Altel/Tele2 JV pro forma financials (unaudited) (Kazakhtelecom and Tele2 own 51% and 49% of the share capital and 49% and 51% of voting rights of JV respectively) 2 Altel in 2015, Altel/Tele2 JV in 2016-17 3 Excluding capital expenditure of mobile segment 4 Excluding mobile segment 17 5 Calculated as (EBITDA – Capex) / EBITDA 6 Multiple avenues for further growth and shareholder value creation
Digital Kazakhstan Cloud-based infrastructure solutions
“Bridging the Digital Divide” QazCloud
Provision of high-speed internet access to rural areas realized through JV with Samruk-Kazyna created in 2017, offers a wide range of public-private partnership framework ICT services (Iaas, SaaS, Security, IT outsourcing) Kazakhtelecom has an option to acquire Samruk-Kazyna’s stake in QazCloud 14,000+ KZT KZT Presence of customer KZT km 47bn 137bn support in all 14 2.75bn of fibre-optic to be Capex, 18-21 Revenue, 18-31 regions and cities of constructed, 18-20 Almaty and Astana LT contracts with blue-chip Value of signed LT companies contracts for 2018 Kazakhtelecom to Nationwide scale Guaranteed usage of NPV positive Cost efficient IT solution for businesses Captures industry-wide trends for own the network Government focus service (IRR>WACC) transition to less capital intensive model
Accelerated upgrade of existing networks Network Revenue and further expansion coverage Ecommerce and financial services
Operational Reduction of maintenance costs KT Pay efficiency Own online payment platform M2M Currently works in testing mode Innovative solutions based on the Smart City concept on the basis of Expected to be launched in H2 2018 IoT/M2M technologies Chocomart and Intermarket Roll-out of the largest IoT/M2M network in CIS countries started in 2017 From the end of 2017 e-commerce services are offered Around 14,000 cameras are 90 LoRa base stations in 3 cities set already installed up in 2017 Infrastructure already set-up through chocomart.kz and intermarket.kz: 50,000+ cameras to be installed 400+ LoRa base stations covering 19 For 5mm devices and 1mm Main electronic appliances retailers in Kazakhstan are overall cities to be set up overall users connected to the store platforms Cloud CCTV Energy efficiency Smart Home 40,000+ SKUs ranging from household appliances, services cell phones to toys 180,000+ registered users and 130,000+ monthly visitors Own call center, delivery service and warehouse Varies payment methods available (cash, online credit card, bank transfer)
Source: Company data
18 7 Experienced management team and effective corporate governance
Effective corporate governance
Kazakhtelecom focuses on high corporate governance standards
Efficient Board of Directors Strong presence of Centralized system of internal Transparent remuneration with all required committees1 independent directors on the audit and risk management system linked to the Board of Directors (4/9)2 Company’s performance
Experienced management team with strong professional competencies and industry experience
Kuanyshbek Yessekeyev Askhat Uzbekov Batyr Makhanbetazhiyev Rafael Abykhanov Kaspars Kukelis Marat Abdildabekov Alexander Lezgovko Chairman of the Chief Financial Officer Chief Director, Strategy Chief Director, B2B Chief Director, B2C Chief Director, IT Chief Technical Management Board Officer Total experience of over Total experience of Total experience of over 22 Total experience of over Total experience of over Total experience of over 30 Total experience of 20 years over 18 years years 27 years 20 years years over 33 years
Source: Company data 1 The Audit Committee, the Committee for personnel, remuneration and social issues and the Committee for strategic planning under the Law of the Republic of Kazakhstan; 2 In accordance with criteria stipulated by Article 1 of the Law of the Republic of Kazakhstan “On joint-stock companies”
19 Kazakhtelecom is a leader in the Kazakhstan telecom market well positioned to capitalize on its potential
Strong telecom market fundamentals with significant potential 1 for further growth
Well positioned across all segments of the Kazakh telecom 2 market
Broad product portfolio and strong access to customers 3 enabling significant cross sale opportunities
Network assets combining nationwide fixed traditional platform and leading spectrum position, securing high customer 4 satisfaction
Strong financial position and significant cash generating 5 potential
Multiple avenues for further growth and shareholder value 6 creation
Experienced management team and effective corporate 7 governance
20 Financial overview
21 Key operational metrics
Number of subscribers, mm
Fixed voice Broadband Mobile1 Pay TV
3.88 1.74 3.67 3.43 1.59 6.91 0.74 1.50 6.44 0.61 0.67
2.60
2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017
Monthly ARPU2, KZT ROIC2, %
3,582 3,605 10.1% 3,108 8.4% 8.6%
2015 2016 2017 2015 2016 2017
Source: Company data 1 Altel in 2015, Altel/Tele2 JV in 2016-17 2 Excluding mobile segment 22 Key financial metrics
Stable top-line growth of 17.7%1… …with efficient cost control in place…
Revenue dynamics (KZT bn) Expenses structure (KZT bn)
Altel/Tele2 JV pro forma financials (unaudited))2 177 163 153 20% 298 314 19% 21%
227 92 104 24% 20% 19% 37 39% 39% 36% 190 206 210 2015 2016 2017 Personnel costs D&A Repair and maintenance expenses Rental of channels 2015 2016 2017 Inventories Interconnect Selling expenses Other
…resulting in increasing EBITDA margins… …and prudent capex program3… …bring significant value to shareholders
KZT bn KZT bn KZT bn
Altel/Tele2 JV pro forma financials (unaudited))2 15% 30% 71% 28.6% 27.8% 32.2% 14.5% 7.3% 13.8% 17.6 101 29.1 83 27.4 25 65 9 15.0 3.7 4.5 67 74 76 2015 2016 2017 (2) 2015 2016 2017 2015 2016 2017 Declared dividends EBITDA EBITDA margin 1 Capital expenditure Capex-to-revenue ratio Payout ratio (as % of net income) Source: Company data 1 Including Altel/Tele2 JV pro forma financials (unaudited) (Kazakhtelecom and Tele2 own 51% and 49% of the share capital and 49% and 51% of voting rights of the JV respectively) 2 Altel in 2015, Altel/Tele2 JV in 2016-17 23 3 Excluding capital expenditure of mobile segment Mobile – Altel/Tele2 JV (1/2)
Mobile voice subscribers Voice ARPU Comments
Number of subscribers, ‘000 Monthly ARPU, KZT . In 2016 Tele2 and Altel +13.2% (Kazakhtelecom’s mobile 60% 87% 84% business) created Joint Venture 1 184 6,555 6,553 1 158 (JV) in Kazakhstan, where 1 046 Kazakhtelecom and Tele2 993 1 007 6,096 respectively own 51% and 49% of the share capital and 49% and 5,540 51% of the voting rights ‒ Kazakhtelecom has a call option to acquire full control 2015 2016 2017 1Q'18 2015 2016 2017 1Q'17 1Q'18 starting from 2019 Churn rate (%) . Number of mobile voice subscribers of Altel/Tele2 JV Mobile data subscribers Data ARPU increased for last three years
Number of subscribers, ‘000 Monthly ARPU, KZT (‘15-’17), while number of mobile data subscribers
27 22 20 +5.8% significantly decreased in 2016 due to termination of unlimited 2,118 575 2,023 1,949 internet tariff plans on Altel 1,797 1,843 . Monthly voice ARPU of 376 344 359 Altel/Tele2 JV increased for last three years (‘15-’17) and reached KZT1,184 in 1Q’18 while monthly data ARPU decreased for last three years (due to termination 2015 2016 2017 1Q'18 2015 2016 2017 1Q'17 1Q'18 of unlimited tariff plans on Altel Monthly data traffic / user (GB) in 2016), however returned to
Source: Company data growth in 1Q’18
24 Mobile – Altel/Tele2 JV (2/2)
End-user service revenue Revenue - Terminals and Equipment Revenue - Other
KZT bn KZT bn KZT bn
80.2 22.8 22.9
66.4 17.0 54.2 15.3
21.6 5.8 17.9 5.3 3.8
0.9 0.2 0.3
2015 2016 2017 1Q'17 1Q'18 2015 2016 2017 1Q'17 1Q'18 2015 2016 2017 1Q'17 1Q'18
. Altel/Tele2 JV end-user service . High JV revenue from sale of . Other JV mobile revenue includes revenue sharply increased for last terminals and equipment in 2015 is voice & SMS interconnect revenue, three years (‘15-’17) explained by short-term special visitor roaming revenue, and . Share of end-user service revenue projects with electronics retail shops revenue from FMS, JOA & WLL amounted to ca. 77% in total JV revenue in 2017
Source: Company data 25 Investment program and debt portfolio
Historical capital expenditures1 Comments
KZT bn Efficient capex programme aimed at network development and higher quality and better coverage of telecommunications services 14.5% 7.3% 13.8% in Kazakhstan
27.4 29.1 Starting from 2016, capex is almost fully financed out of 15.0 Kazakhtelecom’s own funds with the remainder financed by financial leasing
2015 2016 2017 Capital expenditure Capex-to-revenue ratio
Evolution of Net Debt and Net Debt/LTM2 EBITDA Comments
KZT bn 0.4x Kazakhtelecom historically had one of the lowest leverage levels among key regional telecom players 25.0 Net cash position of KZT28.9bn as of 2017YE with net cash/LTM (0.1x) (0.4x) EBITDA ratio of 0.4x Positive credit ratings from major rating agencies: BB+ (stable (7.1) (28.9) outlook) by S&P and BB+ (stable outlook) by Fitch Prudent financial policies with 100% borrowings in local currency 20153 2016 2017 fixed rate in 2017 Net debt Net debt/LTM EBITDA
Source: Company data 1 Excluding capital expenditure of mobile segment 2 For the last 12 months 26 3 Including Altel Appendix
27 Macroeconomic environment (1/2)
The second highest GDP per capita in CIS… …translating into real economic wealth… …and a low unemployment rate…
GDP / capita, 2017A (US$) PPP, 2017A (US$) Unemployment rate, 2017A (%) 18.9 10,633 25,490 23,900 8,383 18,600 17,390 11.5
5,527 8.9 Average: 7.6 4,239 10,600 3,625 8,650 9,100 5.9 3,092 4.9 5.2 7,000 4.3 2,269 2,287 2,540 5,700
1.0
UZB MDA UKR GEO ARM AZE BLR KAZ RUS MDA UZB UKR ARM GEO AZE BLR RUS KAZ BLR MDA KAZ RUS AZE UKR GEO ARM
Source: EIU, CIA Source: EIU, CIA Source: EIU, CIA
…with clear growth envisaged in the mid-term… …supported by the growing population… …with attractive demographics
Real GDP dynamics in Kazakhstan (KZT bn) Population dynamics in Kazakhstan (mm) Age distribution in Kazakhstan, 2017A (%)
14,946 8% 14,550 18.8 18.6 10% 26% 14,107 18.4 18.2 13,663 18.0 17.8 13,016 13,133 12,887 17.5 14% 42%
<14 15-24 25-54 55-64 ≥65 2014A 2015A 2016A 2017A 2018F 2019F 2020F 2014A 2015A 2016A 2017A 2018F 2019F 2020F
Source: EIU Source: EIU Source: CIA
28 Macroeconomic environment (2/2)
Kazakhstan has attracted more than US$280bn of FDI over the last decade… …from a diversified pool of countries
Gross inflows of FDI (US$ bn) FDI by country (2017)
29 3% 26 3% 11% 24 24 22 3% 21 21 21 21 19 5% 44% 15 12 9% 8
23%
USA UK Netherlands
France Luxembourg China
2006 2007 2008 2010 2011 2013 2014 2015 2017 2009 2012 2016 2005 Japan Other
Source: National Bank of Kazakhstan Source: National Bank of Kazakhstan
Lower inflation with decreasing rate Strengthening of KZT recently supported by growing oil price
Base rate and inflation in Kazakhstan US$/KZT vs. Brent price (2007-2018)
450 160
20 400 140 18 350 120 16 300 14 100 250 12 80 10 200 60 8 150 6 100 40 4 50 20 2 0 0 0 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Inflation (%) Base rate (%) US$/KZT (LHS) Brent oil (US$pb, RHS) Source: National Bank of Kazakhstan Source: Bloomberg as of 25 June 2018
29 Regulatory environment overview
Telecommunications Committee Regulates the telecommunications sector in Kazakhstan, responsible for a number of functions including: of the Ministry of Information licensing, radio frequencies permissions granting, MNP, Legislation on communication and Communication Profile laws: Law on Communication, Regulations of rendering cellular services
Committee on Regulation of Promotes and maintains market competition in Kazakhstan by monitoring and regulating anti-competitive Natural Monopolies & Protection conducts of Competition and Consumer rights of the Ministry of National Carries out investigations into possible violations of the antimonopoly legislation Economy Profile law: Entrepreneurial code
National Security Committee (NSC) is responsible for SORM compliance and a number of functions, including: Participation in developing and carrying out measures for ensuring security of communication facilities, a National Security Committee list of which is approved by the Government Identifying and blocking radio signals which threaten security of Kazakhstan Secure government communication organization
Mobile Number portability Introduced on 1st January 2016, MNP offers the opportunity to migrate to another operator with the same number. In 2016-17, over 145,000 subscribers migrated to Altel / Tele2 and c. 85,000 subscribers left
After Kazakhstan became a member of the WTO, the Government is required to eliminate foreign Liberalisation of telecom market ownership limits in respect of fixed inner-city and international communications operators; however, Kazakhtelecom remains subject to these limits
In 2015, all mobile operators signed agreements to drop MTR from KZT 8 in 2015 to KZT 5 in 2016 MTR and MVNOs There are no ongoing discussions to change MTRs. MTRs are now in line with neighbouring countries There are currently no mobile virtual network operators (MVNOs) licensed in Kazakhstan
30 Benchmarking with international peers (1/2)
17.7% 2 17.5% Average = 4.6% Average = 3.8% Average = 0.2%
12.3% 11.8% 10.8% 9.1% Revenue 5.9% CAGR1 1.9% 1.3%
'15A - '17A neg. neg. n.a. neg. neg. 0.3% 0.1% Poland
16% 13% 9% 2% 14% 6% 15% 22% 33% 28% 27% 51% 54% 37% 53% 73% 82% 90% 34% 43% 84% 86% 73% 49% Mainly mobile Revenue 41% 40% 33% 32% 9% n.a. 29% n.a. n.a. services
Structure '17A 15% 8% 0 Poland
Fixed Telephony / Broadband Mobile Other
Average = 35.2% Average = 30.0% Average = 37.3%
39.0% 38.4% 38.5% 2 36.9% 36.1% 38.0% 36.6% 32.2% 34.3% 34.6% 31.0% 30.9% 30.4% 28.5% 24.6% 23.6% EBITDA
margin '17A Poland
CIS/Turkey Eastern Europe Middle East Source: Company data, public sources 1 Growth in local currency 31 2 Including Altel/Tele2 JV pro forma financials (неаудированные) Benchmarking with international peers (2/2)
Average = 17.9% Average = 16.9% Average = 13.6% 26.5% 23.3% 21.5% 19.9% 18.9% 16.7% 17.0% 1 16.5% 15.3% 14.9% 13.8% 12.9% 14.3% 13.0% 12.0% 11.0% Capex to
revenue '17A Poland
Average = 48.4% Average = 43.8% Average = 63.5% 69.1% 65.9% 61.9% 60.0% 61.4% 61.0% 54.2% 51.1% 50.9% 46.1% 41.8% 45.4% 35.7% 32.2% 31.0% Cash conversion 23.3%
'17A2 Poland
Average = US$4.4 Average = US$7.9 3 12.8 12.2
3 8.8 8.3 3 3 Mobile 6.3 5.9 4 3 5.4 5.0 4.6 5.0 monthly ARPU 3.9 3.5
'17A (US$) n.a. n.a. n.a. n.a. Poland
CIS/Turkey Eastern Europe Middle East Source: Company data 1 Excluding capital expenditure of mobile segment 2 Calculated as (EBITDA – Capex) / EBITDA 3 Average monthly basis over the period Q4 2017 32 4 ARPU for Russia region Kazakhtelecom group structure
Kazakhtelecom’s subsidiaries and affiliates
Strategic assets Assets subject to restructuring
«Khan Tengri 100% Mobile Telecom-Service Mobile Holding B.V.»1 (51%) LLP JV with Tele2 in the mobile segment
(100%) «QazCloud» LLP (49%) Corporate info- communication services Contact center and Common IT Service Center JV with Samruk-Kazyna to create the single- of Kazakhtelecom JSC service provider of infrastructure solutions TIER II Data Center in Almaty (IaaS, SaaS, IT outsourcing etc.)
Vostoktelecom LLP (100%) KT-IX LLC (100%) NURSAT JSC (100%)2 Fixed communication Telecommunications services in rural areas Technical communication center in Russian Telecommunications operator Federation (Moscow)
E-commerce, Fintech NURSAT+ LLP (100%) Info-Net Wireless LLP (100%) services and other E-commerce and Fintech services Information and communications services
1 JV with Tele2 Sverige AB. Kazakhtelecom JSC holds 51% of the total outstanding shares (49% voting shares); 2 Entity to be liquidated
33 Summary of financial and operating performance
CAGR 2015 2016 2017 (‘15A – ’17A)
Key operating indicators Number of fixed telephony subscribers (mm) 3.88 3.67 3.43 (6.0%) Number of fixed broadband data subscribers (mm) 1.50 1.59 1.74 7.5% Number of mobile subscribers1 (mm) 2.60 6.44 6.91 63.0% Number of Pay TV subscribers (mm) 0.61 0.67 0.74 10.0% Key financial indicators (KZT bn) Revenue 190 206 210 5.3% EBITDA 67 74 76 7.0% EBITDA margin 35.2% 35.8% 36.4% Net income 24 562 25 0.7% Financial position
Net debt / (net cash) 25.0 (7.1) (28.9) Net debt / LTM EBITDA 0.4x (0.1x) (0.4x) Capex Capex3 27 15 29 As % of revenue 14.5% 7.3% 13.8%
Source: Company data 1 Altel in 2015, Altel/Tele2 JV in 2016-17 (Kazakhtelecom and Tele2 own 51% and 49% of share capital and 49% and 51% of voting rights of the JV respectively) 2 Net income in 2016 includes the profit from the discontinued activity of ALTEL JSC in the amount of KZT40,959.8mm 3 Excluding capital expenditure of mobile segment
34