Leveraging Our Competitive Advantage…

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Leveraging Our Competitive Advantage… Leveraging our competitive advantage… Kcell Annual Report 2013 Kcell is Kazakhstan’s leading provider of mobile telecommunication services by revenue and subscriber numbers. Despite this year’s tougher market environment, we are proud to have retained our leading market position, and look forward to building on this achievement as we move forward. Operating through our Kcell and the speed of data transmission within Activ brands, we have 14.3 million the Kcell network has increased over subscribers in Kazakhstan, more than 560 times, from 9.6 Kbps in 2G network five million of whom use the internet up to 42 Mbps in 3G HSPA DC. on their mobile phones through our network. Over the past 15 years, We successfully completed a global our subscribers have talked for depository receipt (GDR) listing on the approximately 100 billion minutes, London Stock Exchange and ordinary sent 22 billion SMS and submitted shares on the Kazakhstani Stock 26 million GB of data. During that time, Exchange in December 2012. View this report online www.investors.kcell.kz/en Contents Strategic report Governance 02 This is Kcell 33 Corporate governance 03 Network coverage report Strategic 04 Key highlights Financial statements 05 Key events in 2013 40 Consolidated statement 06 Chairman’s statement of financial position 08 Market fundamentals 41 Consolidated statements 10 CEO’s review of profit or loss and other 12 Our business model comprehensive income 13 Our strategy 42 Consolidated statement 14 Key performance indicators of changes in equity 15 Building a great team 43 Consolidated statement 16 Sustainability of cash flows 18 Corporate responsibility 44 Notes to the consolidated 21 Performance overview financial statements Governance 21 Voice communication 22 Data services 22 Value added Additional information 23 Network and technology 72 Corporate information 24 Financial review 73 Glossary 30 Principal risks and uncertainties Financial statements Financial Additional information Additional Kcell Annual Report 2013 01 This is Kcell Established in 1998, Kcell is Our history Kcell was established as a limited liability partnership the leading provider of mobile (GSM Kazakhstan OAO Kazakhtelecom LLP) on telecommunication services in 1 June 1998 to design, construct and operate a cellular Kazakhstan. In 2013, the Company telecommunications network in the Republic of Kazakhstan, using the GSM (Global System for Mobile was number one both in terms of Communications) standard. The Company began its market share of revenue at 54%, commercial operations in 1999 through direct sales and and subscribers at 46.2%. a network of distributors. Prior to 2 February 2012 the Company was a subsidiary We provide mobile voice telecommunication services, of Fintur Holdings B.V. (Fintur), owned 51% and 49% by SMS, MMS, value added services, mobile content Kazakhtelecom JSC (Kazakhtelecom). Fintur itself is services, internet access, and data transmission services. owned jointly by Sonera Holding B.V. and Turkcell Iletisim Hizmetleri A.S., with holdings of 58.55% and 41.45% The Company’s two brands Kcell and Activ are targeted respectively. at corporate clients, including government agencies and the mass consumer market respectively. On 2 February 2012 the 49% stake in the Company owned by Kazakhtelecom was sold directly to Sonera Holding B.V. Kcell has 14.3 million subscriptions in Kazakhstan (Sonera), a subsidiary of TeliaSonera. (according to Company calculations). More than 5 million of these subscribers use the internet on their mobile On 1 July 2012 the General Meeting of participants of phones through Kcell’s network. Over the past 15 years, GSM Kazakhstan OAO Kazakhtelecom LLP approved our subscribers have talked for approximately 100 billion a conversion of the Company from Limited Liability minutes, sent 22 billion SMS and submitted 26 million GB Partnership to Joint Stock Company (the Conversion), of data. During that time, the speed of data transmission with 200 million common shares to be transferred to Fintur within the Kcell network has increased over 560 times, from and Sonera in proportion to their ownership percentage. 9.6 Kbps in 2G network up to 42 Mbps in 3G HSPA DC. The General Meeting also approved the Company’s change of name to Kcell JSC. Kcell successfully completed a global depository receipt (GDR) listing on the London Stock Exchange and ordinary On 27 August 2012 the Ministry of Justice registered the shares on the Kazakhstani Stock Exchange in December Company as a Joint Stock Company. Under Kazakh law, 2012. The offering consisted of a sale by TeliaSonera upon Conversion, retained earnings as of the date of of 50 million shares, representing 25% of Kcell’s share Conversion became share capital of the Company and capital. The controlling shareholder in the Company is ceased to be available for distribution to shareholders. Sweden’s TeliaSonera, one of the largest and most diverse telecommunication companies in Europe and the world. Kcell benefits from TeliaSonera’s ability to negotiate extremely competitive rates and prices for services and equipment as well as their expertise in establishing high quality networks to ensure that customers have access to the best services and solutions available. Our vision for the future is to become indispensable to the business community in Kazakhstan by offering innovative and commercially viable services and solutions in a constantly evolving world. 02 Kcell Annual Report 2013 Network coverage Kcell was the first company to be granted a non-exclusive licence to report Strategic provide GSM standard 900 (GSM-900) mobile telephone services for a 46.8% TerritorY 15-year period from 1998. coverage This was just the beginning of what today has become the largest mobile communications network in Kazakhstan, covering 46.8% of the territory with a population coverage of 95.8%. We now have a licence to provide GSM-900, GSM-1800 and 3G networks for an unlimited period of time. We continue to invest in and develop the technologies to 95.8% support our operations and development plans. Under the POPUlation terms of the general licence, by the end of 2014 Kcell’s 3G network must cover all settlements in Kazakhstan with coverage a population of over 10,000 people and all district centre Governance points. We are currently testing 4G capabilities in anticipation of new 4G licence. Map key GMS coverage Regional centre and cities of national significance Big cities Financial statements Financial Roads of national significance Petropavlovsk Kostanay Kokshetau Ekibastuz Pavlodar Uralsk Astana Semy Aktobe Karaganda Ust-Kamenogorsk Zhezkazgan information Additional Atyrau Balkhash Baykonyr Kyzylorda Taldykorgan Aktau Taraz Almaty Shymkent Kcell Annual Report 2013 03 Key highlights EBITDA, excluding 01 non-recurring items, increased by 3.3% to Revenue increased KZT 104,727 million by 3.1% to (2012: KZT 101,426). KZT 187,599 million EBITDA margin (2012: KZT 182,004 million) increased to 55.8% (2012: 55.7%) 02 04 06 Net finance cost Free cash flow Operating income, increased to grew to KZT excluding non-recurring KZT 2,119 million 80,743 million items, increased by 3.8% to KZT 81,600 million (2012: KZT 516 (2012: KZT (2012: KZT 78,645 million) million) 61,203) Net income increased by 2.5% 07 03 to KZT 63,392 million (2012: KZT 61,828 million) Subscriber base increased by 845,000 05 to 14,307 million (2012: 13,462 million) 04 Kcell Annual Report 2013 Key events in 2013 February 2013 June 2013 Kcell’s common shares were included in the representative On 24 June 2013, dividends of KZT 162.01 gross per list of shares for the KASE Index calculation following ordinary share were paid for the period from 1 July 2012 report Strategic ratification by the Committee on Indices and Securities to 31 December 2012, totalling KZT 32,402 million. Valuation. August 2013 March 2013 • The Company began the process of reconfiguring its The Kcell Board of Directors introduced an internal audit commercial structure. B2B and B2C departments, a function to evaluate the financial and business activities Customer Experience function has been created to align of the Company. the structure more closely with the business strategy, in order to become a more customer-centric organisation May 2013 and optimise business processes. The Kcell Board of Directors adopted the following decisions: September 2013 • The Company opened a credit line with Halyk Bank of The termination of the term in office of Veysel Aral, • Kazakhstan JSC for KZT 30 billion. Chief Executive Officer of Kcell, with effect from 1 June 2013 in view of his transfer to another position • Citibank Kazakhstan JSC and SB RBS Kazakhstan Governance within the Telia Sonera Group. JSC extended their loan agreement with the Company for KZT 14.5 billion until 26 September 2014. • The election of Ali Agan as Chief Executive Officer of Kcell, with a one-year term of office from 1 June 2013 • The Company repaid the syndicated loans to Citibank until 1 June 2014. Kazakhstan JSC and SB RBS Kazakhstan JSC totalling KZT 30.5 billion and accumulated interest of KZT At the Annual General Meeting held on 24 May 2013, all the 820 million. resolutions proposed to Kcell shareholders were approved: November 2013 • To appoint PricewaterhouseCoopers LLP as the auditor • The Company announced the appointment of Khalida for Kcell. Kyrykbayeva as Sustainability and Compliance Officer, • To approve the Company’s annual financial statements a newly created function reporting directly to the CEO. for 2012. The Sustainability and Compliance Officer’s main responsibilities include managing the Company’s To declare a dividend of KZT 162.01 gross per ordinary • sustainable development by implementing relevant statements Financial share, or approximately USD 1.07 gross per Global policies and organizing training sessions on Kcell’s Depositary Receipt (GDR), for the period from 1 July sustainability commitment for its employees and external 2012 to 31 December 2012 to be paid to holders of Kcell stakeholders.
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