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 10 08 06 05 04 03 02 Strategic report Contents 30 24 23 21 18 16 15 14 13 12
Sustainability
uncertainties and risks Principal Market fundamentals Market Chairman’s statement 2013 in Key events Key highlights coverage Network Kcell is This Financial review and technology Network 22 22 21 overview Performance responsibility Corporate Building a great team indicators Key performance Our strategy model business Our CEO’s review
Value added services Data Voice communication 73 72 Additional information 44 43 42 41 40 Financial statements 33 Governance Consolidated statements statements Consolidated Glossary
Consolidated statement statement Consolidated oprt governance Corporate Consolidated statement statement Consolidated Consolidated statement statement Consolidated
Corporate information Corporate statements financial consolidated the to Notes of cash flows of cash equity in of changes income comprehensive other and loss or of profit position of financial
Kcell Annual Report 2013 Report Annual Kcell 01
Additional information Financial statements Governance Strategic report 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 anticipation ofanticipation new licence. 4G in capabilities 4G testing We arepoints. currently centre district all and people 10,000 over of a population with Kazakhstan in settlements all cover must network 2014 of 3G Kcell’s end the by licence, general the of terms our and operations development plans. Under the support to technologies the develop and in invest to continue We time. of period unlimited an for networks 3G and GSM-1800 GSM-900, provide to alicence have Wenow 95.8%. of a coverage population with of 46.8% covering the territory in mobile Kazakhstan, largest communications network the become has today what of beginning the just was This 15-year from period 1998. for a mobile telephone services (GSM-900)provide 900 GSM standard granted anon-exclusive licence to Kcell company first the was be to coverage Network Map key Map Aktau Roads of national significance Big cities of national significance Regional and centre cities GMS coverage Uralsk Atyrau Aktobe Zhezkazgan Baykonyr Kostanay
Kyzylorda Karaganda Astana Taraz Petropavlovsk Kokshetau Shymkent
Ekibastuz Ust-Kamenogorsk 95.8% 46.8% P coverage Territor coverage Balkhash op Kcell Annual Report 2013 Report Annual Kcell Almaty Pavlodar Semy u lation Taldykorgan y 03
Additional information Financial statements Governance Strategic report 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 • • • • proposedresolutions to Kcell shareholders were approved: 2013,the 24 all May on held Meeting General Annual the At • • decisions: following the adopted Directors of Board Kcell The 2013 May Company. the of to evaluatefunction the financial and activities business audit internal an introduced Directors of Board Kcell The March 2013 Valuation. Securities and Indices on Committee the by ratification following calculation Index KASE the for shares of list Kcell’s common shares were included in the representative 2013 February Key events in 2013 commitments). other of pressures time the to due Directors of Board Nordberg, Independent Director, resigned from Kcell’s Company’s Board and as an Independent Director. (Bert the of member anew as HRAylward William To elect 2013. 10 of June date record the at as shares Kcell of holders to 2012 paid be to 2012 31 to December 1July from period the (GDR), for Receipt Depositary share, or approximately 1.07 USD gross per Global ordinary per 162.01 gross KZT of adividend To declare 2012. for statements financial annual Company’s the To approve Kcell. for To as the auditor LLP appoint PricewaterhouseCoopers 2014. 1June until 2013 June 1 from office of term aone-year with Kcell, of Officer Executive Chief as Agan Ali of election The the Teliawithin Group. Sonera position another to transfer his of 2013 in view 1 June from effect with Kcell, of Officer Executive Chief Aral, of Veysel office in term the of termination The
• • 2013November • • • September 2013 • August 2013 million. 32,402 KZT 2012, totalling to 31 December 2012 1July from period the for paid were share ordinary per 162.01 gross KZT of 2013, dividends 24 June On 2013 June they their deal customers. with how in leaders the still are brands Activ and Our Kcell changed. 2013not in has operators mobile of quality the for index satisfaction consumer retail 2013, the Index) in conducted and October Satisfaction November researchthat for conducts the Pan-European Customer Rating, toAccording (an EPSI independent organisation stakeholders. foremployees and its commitment external sustainability on Kcell’s sessions training and organizing policies developmentsustainable by implementing relevant managing include Company’s the responsibilities main Officer’s and Compliance Sustainability The CEO. the to directly reporting function created a newly Officer, and Compliance as Sustainability Kyrykbayeva CompanyThe announced of the appointment Khalida million. 820 KZT of interest accumulated and billion 30.5 KZT totalling JSC Kazakhstan RBS SB and JSC Kazakhstan CompanyThe repaid loans the to syndicated Citibank 2014. September 26 until 14.5 billion KZT for Company the with agreement loan their extended JSC and Kazakhstan RBS JSC SB Kazakhstan Citibank billion. 30 KZT for JSC Kazakhstan of Bank Halyk with line acredit opened Company The and processes. business optimise order to become a more customer-centric organisation in strategy, business the with closely more structure the has been created function to align Experience Customer B2Bcommercial a structure. and B2C departments, its reconfiguring of process the began Company The
Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Chairman’s statement
Dear Shareholder I am delighted to report the results for 2013, Kcell’s first full financial year since its listing on the London and Kazakh stock exchanges at the end of 2012, and I am very pleased to confirm that we have delivered on all the performance indicators that we outlined at the time of our IPO. We were also honoured to receive EMEA Finance Achievement Award for the best Depositary Receipt Program and the award for Best IPO at the prestigious annual East Capital Awards, which focuses on businesses within the region, and is a public endorsement of the dedication and professionalism of Kcell’s management team and people.
Performance We have maintained our leading market position and again recorded an increase in our subscriber base, rising by 845,000 to 14.3 million users (according to Company calculations), in the face of an increasingly competitive domestic market and a tough regulatory framework. We have also seen further growth in revenue of 3.1% to KZT 187,599 million, driven by the demand for our data services “I am very pleased to confirm as the rollout of the 3G network continues. Despite strong pricing pressure, we also sustained an EBITDA margin that we have delivered on all the at a sector-leading level in excess of 55%. performance indicators that we Dividend outlined at the time of our IPO.” The General Meeting (GM) adopted a dividend policy that envisages distribution of at least 70% of the net income Jan Erik Rudberg of the Company for the previous financial year. We are Chairman of the Board pleased to announce that, at the Annual General Meeting (AGM) on 21 May 2014, we will be proposing payment of the annual dividend of KZT 221.81 gross per ordinary share (approximately US$ 1.22), representing 70% of the Company’s net income for the period from 1 January to 31 December 2013 (the first full financial year). In the view of the Company’s strong financial results in 2013, the Board of Directors has additionally recommended the payment of a special dividend of KZT 95.14 (approximately US$ 0.52), representing 30% of the Company’s net income for the first full financial year, to be paid to holders of Kcell shares as at the record date of 7 June 2014.
Board and corporate governance Bert Nordberg, who had been a Board member and Independent Director since November 2012, stepped down due to time pressure of other commitments. We would like to express our thanks for his valuable contribution to the business.
We welcomed William H R Aylward as a new member of the Board and as an Independent Director following his election at the 2013 AGM. Mr Aylward brings with him extensive experience as Chairman, CEO and Non-Executive Director of both private and public companies with expertise across a variety of sectors including telecommunications (mobile and fixed-line) and technology.
06 Kcell Annual Report 2013 30 April 2014 April 30 Board the of Chairman Rudberg Erik Jan in Kazakhstan. industry telecommunications the we aim to remain at the forefront of developments within focusing on both commercial and innovation, technological of requirements By our customers. shifting the constantly fulfil to continue we as services innovative and products new develop to continue will Kcell 2014 beyond, In and business. of areas all across activities our informs underpinsand ongoing basisto ensure that sustainability an on operations our reviewing are we time, same the At year. financial current the in Kcell for focus strategic a key remains to revenue growth drive and subscriber services data accessible and attractive of provision successful The Outlook support. loyal and work hard their for all them thank formally to like I would Board, the of behalf On business. the of success overall the to invaluable –is centres call or engineering administration, inmade – management, working whether by everyone contribution year.The the for result financial a healthy Mr Agan has delivered employees Kazakhstan, across and team management strong his of help the With (Azerbaijan). Azercell and (Uzbekistan) Ucell subsidiaries, held of theGroup havingpost previously CEO in two TeliaSonera the of workings the of knowledge substantial financial andas telecommunicationssectors well as has more in than years’ 20 the experience international He Kcell. at CEO as over took Agan 2013, Ali June In People oftheCompany. the financial and activities business evaluate to function Audit Internal an introduced also We Policy.Risk Management Policy and Anti-corruption Conduct, and Ethics of Code Kcell arevised including this, of support in 14 policies new adopted and approved we the of year, and During all interests rights stakeholders. the that protects framework governance a corporate strong establish to diligently worked have Committees Board The Kazakhstan. within system regulatory the and practice best both international that with governance comply corporate of high to standards maintaining Kcell is committed
Kcell Annual Report 2013 Report Annual Kcell 07
Additional information Financial statements Governance Strategic report Market fundamentals
The macro-economic situation The average weighted index of consumer satisfaction Kazakhstan is the ninth largest country in the world and with mobile operators in Kazakhstan over the past year almost as big as the whole of Europe. Along with natural remained unchanged at 76.5 points. Kcell brand is gas and oil, the country is one of the world’s major perceived by its clients as better than others. producers of gold, uranium and grain. The research results show that Kazakhstan mobile As might be expected with such a profile, Kazakhstan has subscribers gave the highest marks to Kcell and Activ, with one of the most favourable growth economies among the both brands topping the ratings for customer satisfaction. CIS countries. For most of the last decade the annual In 2013, Kcell subscribers assessed their satisfaction at growth rate for GDP was in excess of 8%. Although this 77.5 points and Activ users at 76.5 points. EPSI Rating year-on-year increase slowed to 6% in 2013, GDP remains stated: “Customer satisfaction in the industry, on average, a healthy US$ 220.3 billion (2012: US$ 203.5 billion) and remained at the same level as last year, although over the per capita GDP is US$ 12,933 (2012: US$ 12,119), with last four years there has been a slight decline. In this IMF predictions for 2014 set at a growth rate of 5%. respect, Kcell has a definite competitive advantage.”
The telecommunications market Mobile internet access According to data reported by the Agency of “Analytical agency iKS-Consulting carried out a Statistics of the Republic of Kazakhstan in 2013, the comprehensive study of the mobile internet access market telecommunications market in Kazakhstan generated a in the Republic of Kazakhstan and reported the following total revenue of KZT 644 billion (2012: KZT 598 billion). outcomes for market development in 2013. Within that, mobile services (voice and other services) is by far the most dynamic sector. Revenues increased at a Estimated revenues from internet access and data compound annual growth rate of 7% between 2009 and transmission services in mobile networks in 2013 were 2013, reaching KZT 307 billion in 2013 (2012: KZT 308 KZT 47.4 billion, an increase of more than 40% compared billion) and accounting for 48% of the total market revenue. with the previous year. By way of comparison, the market volume for broadband access in fixed networks (excluding The rapid increase of revenues naturally correlates to the revenues from internet access services in respect of substantial increase in the number of mobile subscriptions telecom operators) in 2013 amounted to KZT 72.7 billion, which has increased by twice over during the same period. an increase of only 18% compared with 2012. In 2009, there were 11.8 million subscribers and by at the end of 2013 this had risen to 23.6 million. The mobile voice According to iKS-Sonsulting, the number of active devices communication penetration rate in Kazakhstan was 180% with access to the internet and mobile data in the mobile in 2013. networks in 2013 was about 2.8 million. Smartphones dominated the market with a 72% share. The remaining EPSI Rating is an independent organisation that conducts market share is split between USB-modems (13%), M2M research for the Pan-European Customer Satisfaction devices (10%) and tablets (5%). Index. According to EPSI research, the retail consumer satisfaction index for the quality of mobile operators in 2013 The users of the above devices, which account for less than has not changed. Kcell is still the leader in dealing with 25% of the number of registered internet users on mobile its customers. networks, generate about 90% of all revenues from mobile data services. In the research, for which the data collection took place in October and November 2013, some 1,250 subscribers in Mobile internet market trends in Kazakhstan Kazakhstan rated the quality of their mobile operator over According to iKS-Consulting, increased smartphone the previous 12 months. The survey was conducted via penetration will be the main driver of the development of telephone interviews by an independent Kazakh contact the mobile Internet market. This will be facilitated by such centre under the supervision of EPSI experts and in factors as: accordance with European standards of EPSI Rating. Cheaper smartphones with competition influencing Data sets were analysed to determine the major brands • the price from manufacturers. with the greatest share of the market, taking into account the dynamics of prior years. • Active promotion by mobile operators of package offers, including the possibility of purchasing smartphones EPSI analysis of the experience of a consumer’s at reduced prices. relationship with a mobile operator is based on five aspects of satisfaction – the image, quality of the product, the • Growth of an internet-literate population and its consumer’s expectations regarding the company, quality involvement in the social and economic processes, of service and price/performance ratio (value for money). embracing social networking, mobile payments, etc.
08 Kcell Annual Report 2013 costs relating tocosts readdressing calls. of equipment special the installation and interconnect for costs additional the account into take to have also will Company The retention. aid to best its do will Kcell a result. as rate churn in increase an see to expect we operator an as but customers our for benefit great of obviously is 2014. for MNP planned trials 2015, in with operators mobile all by introduced be to is (MNP) portability number mobile of implementation the initiative, MTC The portability number Mobile it. on based prices regulate and examination expertise new conduct or Court Supreme the to appeal to right afurther has MTC The Company. the of favour in ruled have courts three and order the challenged We by prices approximately 15-20%. tariff lowering maximum the requiring order an issued 2013 MTC January In min. VAT) per (excluding 13.02 KZT to reduced was MTR 2013 when January in place took reduction first The years. 15%three by over incrementally (MTR) rates termination agreement Beeline with and Tele2 to reduce mobile an 2012, signed we December in this, of anticipation In services. interconnection on caps price set then may and examination expert an of findings the awaiting currently is MTC 2013. in The Court Supreme the in case the lost but instances two in ruling this to achallenge won had We Register. the in included were 2011 Beeline and Kcell October In Register). (the Entities Monopoly and Dominant of Register State the in included operators of caps tariff set and tariffs interconnection regulate to right the has (MTC) Communication and Transport of Ministry The authorities. regulatory the from pressures by driven also were strategies pricing Innovative pressure Regulatory technology. 4G further of launch expected the of ahead 4G, testing and network 3G own our in substantially we areon investing impact our position, market significant we While have a not2G and experienced 3G networks. of out roll active 2013 began and during Kazakhstan in network 4G LTE commercial first the launched Altel and products. tariffs competitive of launch the with regions other in inleadership ‘strong’ regions and increasing market share approachbusiness was a key focus, protecting our market regional –our Altel and Tele2 (MTS) (VimpelCom), Beeline from the other main – increasing competition operators (54%). With revenue and (46.2%) share market of terms in both Kazakhstan in operator mobile lead the is Kcell Increasing competition 2013 in trends beyond Market and
provide to meet the needs of our customers. we and products and innovatingreviewing the services demands.future At the same time, we are constantly support can we that ensure to infrastructure network our of quality the in invested and expanded have We limitless. is services value-added and data for potential the growth year-on-year, rising income disposable and 25 under aged population the of 30% With substantially. increase to set is Kazakhstan in phones smart of penetration the wings, the in waiting 4G and capabilities 3G increased With in annual this report. section Performance our see sectors, market our about (2012: 10.3% and 8.3%). For more detailed information respectively revenue total of 14% 9.3% for and accounting now services, value-added of take-up and usage data in increase significant the by for compensated than However, the in reduction voice communication is more continue. will trend downward this that expect we the world around companies and like all telecommunication other (2012: year 80.6%) previous the with compared down was this 2013, in but revenue total of 76.6% at Company, the for Voice remains communication the major source of revenue potentialGrowth
Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Chief Executive’s review
Our IPO at the end of December 2012 will have been seen by many as a new beginning for Kcell. But for the Company, 2013 marked the start of business as usual – building on our track record of 15 years’ of operational excellence while retaining our position as the leading mobile telecommunications provider in Kazakhstan and providing value for our shareholders.
We have delivered on all our promises to the stock market.
Our performance Despite difficult market conditions in a highly competitive environment, revenue for 2013 increased by 3.1% to KZT 187,599 million (2012: KZT 182,004 million), and would have increased further to 5.5% without the application of the MTR reduction from January 2013. A strong contribution from data services more than compensated for the drop in revenue from voice communications with data revenue up 39.9% to KZT 26,232 million (2012: KZT 18,755 million). EBITDA, excluding non-recurring items, was up by 3.3% to KZT 104,727 million (2012: “We have delivered on all our KZT 101,426 million). Our EBITDA margin, which is an indicator of operational efficiency, increased to 55.8% promises to the stock market, and (2012: 55.7%) and remains one of the highest in the global look forward to 2014 as a year of telecommunications industry. Operating income, excluding non-recurring items, increased by 3.8% to KZT 81,600 great opportunity.” million (2012: KZT 78,645 million). Net income increased by 2.5% to KZT 63,392 million (2012: KZT 61,828 million). Ali Agan Chief Executive Officer Our ability to deliver superior profitability in a challenging environment is testimony to our robust financial and operational frameworks. Regular reviews of and increases in efficiency, aligned with organisational transformation, are major contributors to this. The cash-generative capacity of the Company means that we are able to continue with our progressive dividend policy and at the same time, meet our funding commitments and invest in the improvement of our operations.
The subscriber base will be cleaned during 2014 to delete non correct figures from the statistics.
Retaining market leadership We are proud to retain market leadership in our core business, both in terms of market share and revenue. We are already seeing how our focus on a regional business approach is helping protect our market leadership in ‘strong’ regions. In other regions, we launched a number of innovatively priced tariffs which served to boost our market share.
But this is not simply about staying ahead of the competition. The strength of our position provides us with a compelling platform on which to build the future success of our brands. Key to this is the development a wider range of enhanced products and services to both improve the experience of our existing customer base and help us attract more customers.
10 Kcell Annual Report 2013 to other markets – 30% of the population is under 25. 25. under is population the of –30% markets other to compared young quite still is market Kazakhstan the of communication needs for the future. demography The their with pace keeping about also but today need they that products and services the create we that ensuring to key is customer relations teams and call in centres the regions to through our know our better supportive customers Getting business. the to value add and that of will enhance Kcell their experience and services products approachcentric enables us to new devise tariffs, and ourabout their customers behaviour. Our customer- have we knowledge of depth the on based is strategy Our centre the at customers Putting Europe. in providers LTE first the one as experience company’s parent our on draw to able being of advantage the have also will we TeliaSonera, of part As licence. 4G get we moment the at network 4G its launch to ready is Company The coverage. mobile andensure high thathave our quality extensive customers to infrastructure network overall our in billion KZT 22.8 invested we alone, year last the In LTE technology. support to network radio and core the preparing been have we years three last the Over capabilities. 4G of expansion the from come change biggest the see to going are we But usage. increased successfully so doing in –and services data from gained be to potential and possibilities the up opening of objective the with packages bundled priced, attractively- subscribers Kcell offered also we but base, 16,114,191 customer our in rise the to due is this part In GB. to GB by from 112.3% increased 7,589,056 traffic data 2013,over.own In our times 70 increase will traffic data global 10 years next the in that forecasting are sector telecoms the in companies and firms research credible The revenue from 10.3% in year. the previous 14% to total Kcell’s of increase this 2013, saw In we further. revenue data our boost inevitably will and potential future of plenty us gives this increases, phones smart towards trend the As take-up. a50% been has there market, our for benchmark abetter perhaps is which Russia, In phones. smart are phones new all of 100% almost year last where Scandinavia, with example for 15%, at compared low is relatively still phone in penetration Kazakhstan Smart banks. the with integrated service payment automatic and launched an for services cloud-based platform apublic implemented we example, year, for last the During in Kazakhstan. the telecomsdevelopments within industry of forefront the at remain to aim we innovation, technological and commercial both on focusing By LTE. 4G are technologies readysuch generation as for the next and usage data driving are we fact, In business. our to from voice, tomorrow will data be the contributor biggest comes still today revenue our of share biggest the Although our offer Strengthening
section of this annual report. this annual of section is in Sustainability the activities responsibility corporate on information our andhealth Further the environment. sport, heritage, cultural Kazakhstan’s education, cover that projects aWe range of responsibility support corporate thethroughout Company. approach operations into everyday sustainability a co-ordinate to is role whose Officer Compliance and 2013, In November Sustainability we appointed activities. business our of part integral an these make to aspire and seriously very and social responsibilities environmental economic, our take We nation. the of life cultural and in social the participant and an active Kazakhstan of economy the to contributor asignificant both is Kcell responsibility corporate and Sustainability 30 April 2014 April 30 Officer Executive Chief Agan Ali stakeholders. its and Kcell for year profitable very and exciting an both this make to place in everything have support, and, their a with highly and skilled workforce energetic have We brands. our to subscribers more attract and base customer loyal our after look to continue we if potential – enormous provides us– with and value-added services services data for appetite The beings. human than earth on for us. are There now more mobileopportunity phones great of ayear be case any in 2014 will future, near the in nationally 4G of launch the await eagerly we While to help us aid retention. options innovative at looking be will we so aresult as rate churn increased an see to likely are we but customers our for advantages obvious has 2014. MNP during trialled be will 2015 in this and (MNP) portability number mobileAll are operators obliged to introduce mobile change. regulatory compounded byother more mobile further operators, from competition intensive of year another be to 2014 set is to future the Looking more crucial. to is them lives in engageeven their with everyday services and products income, our role ininnovative developing disposable their of value high the and GDP in increase year-on-year the with taken But prospects. Kcell’s for adopters of new technologies would own be on beneficial its keen are group age this of proportion asignificant That
Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Our business model
Today 14.3 million subscribers in Kazakhstan (according and services that both enhance the customer experience to Company calculations) are connected through Kcell’s and increase brand loyalty. The revenue generated 2G and 3G networks. We meet the needs of our customers from our market-leading position, combined with cash through our brands Kcell, focusing on B2B and high generative growth and a robust capital structure, enables net-worth individuals, and Activ, our consumer brand. In us to reinvest in our asset base to create value for all our this way we are able to deliver tailored, innovative products stakeholders.
OUR MARKET-LEADING BRANDS
Focus on high-value OUR VALUE customers PROPOSITION
B2B+high-net-worth individuals SERVICE Value for Free cash flow COMPANY money for dividends and investment Focus on market share
Mass market Reinvestment into the asset base to deliver Tailored products growth and value and services to meet the evolving needs of our customers OUR ASSET BASE
Products Network Our people Brands & services
CREATING VALUE THROUGH...
Innovative Enhancing Brand Extensive high Our people products the customer awareness and quality coverage and services experience customer loyalty – 2G and 3G
12 Kcell Annual Report 2013 telecommunications industry in Kazakhstan. industry telecommunications remain at the forefront of the developments within commercial and innovation, technological we aim to both on focusing By granted. is licence 4G the as soon as Kazakhstan across network 4G our launch to ready also are We customers. our to services data of potential and possibilities the up opening as well as services data of usage increasing of objective the with subscribers priced, bundled packages to were Kcell offered attractively- of Avariety country. our within penetration phone smart of growth the through services, data for demand the of expansion the seeing already are We to more helpcustomers. us and attract products services enhanced of range awider develop to which on platform acompelling with us provides (46.2%), subscribers of (54%) number and revenue of terms in both leaders, market as position our that, than more But business. in ourWe our core leadership market maintain will provider. a service and our growth; fulfilling roleas to cash-generative our commitment offering; our services data strengthening namely: retaining our as market position leader; efforts, our concentrate to continue we which on pillars key four is which by underpinned our strategy long-term business value to our We shareholders. will achieve this through delivering and creating on focus asustained have We position our leadership Driving Our strategy customer experience Delivering anenhanced Data servicesisthemaindriverforgrowth Leadership indatasegment Strategic objectives customer centricity Service provider companywithstrong Creating valueforshareholders Cash generativegrowth and operatingleverage Allows ustoexploitourscaleadvantages Maintaining marketleadership
throughout thethroughout Company. approach operations into everyday sustainability a integrating with tasked and CEO the to directly in2013,November and Officer Compliance reporting Sustainability of our we intent, first appointed statement and alla our As strong our relationship with stakeholders. on business the and how impacts this and sustainability, tocommitment the tenetsof governance, compliance However none of this would our be achievable without needs ofthe evolving our customers. meeting to closer ever getting are we lives, everyday our of part innovation telecoms make can we how on focusing by We are proud ofnetworks. our background pioneering and, national our of quality the improve and products best the provide to strive we as activities our all to approach acustomer-centric have we company, aservice As weaker. is position our where those in and leader market the already are we where regions the in position we are to seeking enhance our in Kazakhstan, services are the leading provider of mobile telecommunications are totransformation, major we this. Whilst contributors inincreases organisational alignedwith efficiency, of reviews and Continuous and frameworks. operational in a challenging is environment embedded in our financial profitability superior that delivers growth Cash-generative
• Provide ahighquality,• engagingservice Focus oncustomercare andretention • Continue tostrengthen brands • Regional differentiation • Develop innovativeproducts • Set competitivepricingstrategies • • Closer alignmentwithTeliaSonera• Drive costandcapitalefficiencies • Exploit economiesofscale • Increase penetrationofmassmarketsegment • Focus onhigh-valuecustomers • Seeking theopportunityforLTE• trialandtesting qualityandcapacity Network developmentfocusedonsuperior • Partner withcontentproviders • Drive penetrationofsmartphoneanddevices • Expand 3Gnetworkroll-out • Secure spectrum • Strategic priorities • Capability-based expansiontonewmarkets • outsideGSM Extensive marketportfoliocoveringareas • Move from mobileoperatortoserviceprovider • Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Key performance indicators
Financial indicators Units of measurement 2011 2012 2013 2012/13 Revenues KZT million 178,786 182,004 187,599 3.1% EBITDA excluding non-recurring items KZT million 105,794 101,426 104,727 3.3% EBITDA margin % 59.2 55.7 55.8 0.1 pp Capital expenditures (CAPEX) KZT million 26,801 26,730 22,849 CAPEX/Revenue % 15.0 14.7 12.2 -2.5 pp Free cash flow KZT million 5 4,108 61,203 80,743 Net debt/EBITDA % – 0.46 0.06 – Net Income KZT million 66,858 61,828 63,392 2.5%
Operating indicators Units of measurement 2011 2012 2013 2012/13 Subscribers* (total) million 10,850 13,462 14,307 6.3% subscribers Kcell subscribers million 1,497 1,741 1,714 subscribers Activ subscribers million 9,353 11,721 12,593 7.4% subscribers Average revenue per user (ARPU) KZT 1,472 1,252 1,106 -11.7% MOU min per month 122 168 152 -9.4% per subscriber
* According to Company calculations.
Revenues EBITDA excluding Capital expenditures (CAPEX) KZT M non-recurring items KZT M KZT M 178,786 182,004 187,599 105,794 101,426 104,727 26,801 26,730 22,849
2 011 2012 2013 2 011 2012 2013 2 011 2012 2013
Free cash flow Net debt/EBITDA Net income KZT M % KZT M 80,743 0.46 66,858 61,828 63,392 61,203 54,108
0.06
2 011 2012 2013 2 011 2012 2013 2 011 2012 2013
14 Kcell Annual Report 2013 business opportunities. business create can mindset innovative and attitude apositive drive, astrong through that people recruit and attract to wants make Company The happen theborders. across business to up team that simplicity, for drive aconstant with People a customer people strong focus.business-minded with values Kcell happen. it make and value add respect, show who people high-performing recruit to aims Company The Recruitment well). as bonus annual for eligible are employees (these KPIs linked and quarterly to component monthly variable a and afixed have schemes incentive the on Employees and achievements. personal results annual performance Kcell’s on based is bonus This bonus. annual an and pay the Company’sperformance: employees basic receive Kcell’s focuseson optimisingemployee system incentive staff. company motivate and retain promote, to and performance, staff improve to system analysis effectiveness Kcell staff uses a comprehensive Rewarding performance as a employer. responsible reputation its is developing and strengthening dynamically human resources management, the Companyeffective and togrowth, ensure fair remuneration. to Thanks for environment and professional personal supportive for conditions employees working and a comfortable create to possible everything do we this, of Because on a deeper of our needs. understanding customers’ based employees to a is proposition delivering essential of our customer-centric organisation, the contribution a As growth. for plans our to fundamental is people in andInvesting theskills knowledge, of behaviour our market. telecommunications and, ultimately, leadership in the ideas, execution the of plans business Company, implementation the of new operations ensuring in the asset stable Our employees are our important most team great a Building
with occupational safety and standards. health safety occupational with on monitoringcompliance occupational healthand safety; outreach communications care services; conditions; health labour sanitary standardising conditions; labour optimal andguaranteeing clothing equipment; protective training, in management healthandobjectives include safety safety Primary System. Management Safety and Health Unified for their are implementation defined intheCompany’s management and andHealth objectives measures safety occupational safety. on acts regulatory other and Kazakhstan of Republic the of Code Labor the with accordance in out carried are area this in Kcell’s priority measuresin All unconditional operations. an is employees our of health and safety occupational The business trips. during insurance medical also provides Company the agreement, the of part As duties. professional of performance during occurring accidents against insurance social employees compulsory and them with provides its of health and lives the for responsibility takes Kcell relative. aclose of death or employee an of sickness of case mealcommunications, allowance and financial aid inthe mobile of provision room, afitness to access transportation, insurance, medical includes:that voluntary package Companybenefits aThe provides comprehensive Kazakhstan. in law by required those above Kcellmembers, a provides over number and of benefits family their and employees its of life of quality the improve as well as operations its of areas all in environment work motivating and apositive create to effort an In safety & health and benefits Employee industry. in training for communications the that specialise in Kazakhstan institutions educational higher and with secondary Company co-operates the programmes, training own its improve to order In staff. Kcell the of part as retained and teachers qualified whoare as trainers welland asknowledgeable experienced coaches professional using School external the Business in conducted is Training mind. in goal this with created was Kcell project development. The School Business business of part important an be to employees its of development and continuingKcell education professional considers Training development and
Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Sustainability
As a leading provider of During 2013 a number of initiatives were undertaken to support the implementation of the Anti-Corruption Policy telecommunications services, Kcell is throughout the business: a vital part of the social and economic • All employees (with the exception of those on maternity infrastructure in Kazakhstan. leave) have taken an e-learning course about the principles of the policy achieving a pass rate of 99.9%). We provide services that help people and companies communicate in a simple, effective and environmentally • New tendering procedures have been developed, aimed friendly way – when and where needed. Kcell shares the at making the tendering process fair, transparent and to TeliaSonera Group values: add value; make it happen; and eliminate conflict of interest. These will be rolled out show respect. These values guide all our everyday work during 2014. and relations with stakeholders. • Gift and Entertainment Guidelines have been introduced, including an electronic Gift Register implemented. At Kcell, we believe that sustainability is an umbrella term to describe business operations that are designed to • In early 2014 the Company will institute a centralised realise our economic, environmental and social procurement function. This will minimise corruption responsibilities. Our sustainability work mainly involves risks and make the process more structured, transparent ensuring environmental and social sustainability along and controlled. with our supply chain, taking care of the well-being of our employees, complying with ethical business practices in all Privacy Policy markets, safeguarding our customers’ privacy, respecting In Kcell we recognise that privacy is important to our freedom of expression and supporting research related to customers. The purpose of this policy is to set consistently exposure to electromagnetic fields. high Kcell standards to respect privacy. The primary objective is to ensure that customers feel confident that Kcell and sustainability in 2013 Kcell respects and safeguards their privacy. Kcell is a In May and December 2013, the Kcell Board of Directors telecom operator managing significant networks and data adopted three new policies related to sustainability. volumes, and we therefore aim to ensure network integrity These were a revised Code of Conduct and Ethics, an and data security to protect privacy. With this policy, we Anti-Corruption Policy and a Privacy Policy. These are also aim reduce legal and regulatory risks as well as outlined below, along with details about the progress made reputational and brand exposure. in implementing the principles of each policy during the year. Copies of these and all our policies can be found on During 2013, we implemented the following in support our website: www.investors.kcell.kz. of the Privacy Policy: • We amended our Public Agreement with subscribers in Anti-Corruption Policy November with particular reference to our guidelines Kcell is committed to the highest standards of business on personal data disclosure. A full copy of the Agreement conduct. We act in a responsible way, based on a firm is available on our website at: www.kcell.kz. set of values and principles. We advocate free and fair trade, striving for forthright competition and ethical • We are currently monitoring a pilot project that applies conditions within the legal frameworks. intelligent audit software to log user activity.
We interact with a variety of stakeholders, including Kcell seeks to meet the highest international standards for customers, suppliers, consultants, business partners, sustainable development and social responsibility. governments and regulatory bodies. In Kcell’s operations worldwide, we do not pay or receive bribes or other illegal Human rights payments to obtain or retain business. Our management is TeliaSonera adopted a Freedom of Expression Policy in committed to implementing effective measures to prevent, December 2013. At Kcell we have adopted this in line with monitor and eliminate corruption in any form. our own Charter and the Kcell Freedom of Expression Policy will be submitted to our Board of Directors for consideration in 2014.
16 Kcell Annual Report 2013 simultaneously and transparently. simultaneously promptly, Company the of valuation the affect that our shareholders and the market of all major developments developmentsustainable of shareholder value. We inform group of and, shareholders as such, aims for long-term, awide for investment attractive an be to strives Kcell Relationship withour shareholders Conduct. and Ethics of Code the on course e-learning an passed employees of 2013, In 99.9% invest. to continue we which in area an is and mind in this with created Kcell projectdevelopment. was The School Business development of our to employees business is vital We believe that and the continuing education professional restructuring. and optimisation 7.7%by count head to due year, decreased employees. the reporting During the staff 1,488 had Company 2013, the 31 of December As Organisation’s Labour International conventions. core and declaration UN the by outlined as employees all of dignity and rights human international the supports people Kcell in environment. a working professional motivated and qualified retain and develop attract, to strive we choice; of employer an be to is aim Our success. our to key are employees our that recognise we Kcell At Employees recycling. consumption, and supporting electricity and paper reducing by, example, for yourself with start wait, don’t is: approach the implement, to Easy and ofemissions footprint the our ecological offices. aims gas to which programme, greenhouse reduce recycling waste. is environmental This a practical aimed at engaging employees and in resources saving initiative Office Green Kcell the 2013In introduced we our vendors. of some from data contributed 2013, also in we time first the For (CR) activities. responsibility corporate our (GRI)Initiative requirements, as well as information about Reporting Global consumption, in with accordance our about energy and resource Report Sustainability TeliaSonera the in inclusion for data contributes Kcell our businesses. and between synergies practices best of use the maximise to opportunities for look constantly We activities. own our of impact and through our to actions minimise the environmental services friendly and environmentally resource-efficient by and utilising promoting developing, sustainability global to way. contribute We sustainable environmentally an in business our conducting to committed are We responsibility Environmental
climate of the country. country. the of climate social the improve help and company asuccessful to build continue will we stakeholders, our all of interests the with plans for By balancing the business the long-term growth do. we that all in first and honesty respect mutual society,wider putting and the partners business employees, customers, with interacts it as Kcell for crucial are These transparency. and – sustainability practice business of modern principles main the upholding to committed is Company The project. each to value add us the feedback gained and over experience time help and our stakeholders with We communicate regularly operates. it which in society the of aspects all to contribute that policies responsibility social mature with organisation an as Kazakhstan in credentials its established has Kcell 15 years, last the During Interaction with society 2014. in began implementation and management, we have adopted a Kcell Supplier Code chain supply improving to commitment our of part As andenvironment anticorruption. the conditions, labour on human rights, standards international to support andsuppliers contractors We ourrelations and expect healthy co-operation. Wecontractors. focus on long-term, good business and suppliers to partner areliable be to aims Kcell and competitors partners our business suppliers, with Relationship and theinvestment Stock exchange community State andlocal
authorities Society Shareholders Kcell Annual Report 2013 Report Annual Kcell Business partners Customers Employees
17
Additional information Financial statements Governance Strategic report Corporate responsibility
Back in 2007 we were the first Education for the future We believe that investment in education is crucial for the telecommunications company in economic growth and intellectual development of our Kazakhstan to sign up to the United country. We have set up two different ventures to support Nations Global Compact. this philosophy: • The Kcell Business School, where we support lecturers, We actively support this initiative, which encourages students and researchers through our co-operation with businesses worldwide to adopt sustainable and socially the country’s leading higher education institutions, such responsible policies. as: Al-Farabi Kazakh National University, Kazakh-British Technical University, KIMEP University, Kazakh National Kcell invests in a wide range of CR projects to support the Technical University, Almaty Institute of Energy and communities within which it operates. These traditionally Communications, International IT University, Karaganda cover education, Kazakhstan’s cultural heritage, sport, State Technical University, Karaganda State University, health and the environment. Kazakh National Conservatory, Kostanay State University, Zhautykov Republican Specialized Physical When reviewing potential CR projects, the Company and Mathematical Secondary Boarding School. considers the following objectives: • Making digital technologies more widely available. • In 2013 we began working with an international platform for e-learning – Coursera – which is being developing • Long-term steady growth. by the world’s leading universities. Globally, more than 70 partner universities with 3.6 million students are • Competent top management and employees. supporting Coursera. Kcell has chosen five popular • Confidentiality and security of networks. courses, not currently offered by universities in Kazakhstan, which will be translated into Kazakh. • Honest business practices. • Gamification. • Responsible delivery network. • Creative programming for digital media and mobile • Responsible marketing activities. applications. • Responsible employees. • Inspiring leadership. We aspire to the highest international standards of • Networks: friends, money and bytes. sustainable development and social responsibility, and making these part of our everyday business activities. We • Learn to program: the fundamentals. have identified the top priorities within the CR framework, by undertaking a comprehensive analysis of the interests of Alongside this successful promotion of high quality online all parties involved and based on our previous experience. education in Kazakhstan, Kcell is also helping push the boundaries of mobile learning. We have joined a We have designated five key areas for our CR focus: government-led initiative to encourage the use of the ‘trinity of languages’ (Kazakh, Russian and English) • Education. throughout the country. Last year we launched the SMS-based service, ‘Phrase of the Day’, to help those • Cultural heritage. studying the languages. In 2013 we launched the upgraded • Sport and healthy lifestyle. version implementing three difficulty levels: easy, medium and advanced. • Social support for children and people with disabilities by providing charitable or sponsorship assistance through relevant public organisations. • Preservation of the environment.
18 Kcell Annual Report 2013 700 children have received assistance through this project. this through assistance received have children 700 To over date, Kazakhstan. in performed be cannot that children for surgery finance to used is money the and Fund Volunteery organisation Mercy a non-government by managed are Donations number. ashort via money donate subscribers our project the 2007. Within since other companies telecommunications with co-operation in working been has Kcell which on Kazakhstan, in project charitable SMS first the is Lives’ Children’s ‘Save and Tajikistan. Kyrgyzstan Russia, and Belarus Kazakhstan, from coaches tournament brought together 1,000 athletes and 500 The etc. kures, kazak gymnastics, artistic and rhythmic cycling, boxing,swimming, and athletics, weightlifting as such disciplines, 13 sports covering competitions among Games youth. included Games The Sport Eurasian III the for operator mobile official the was Kcell club.cycling national team, and team the of the continental Astana the teams: three by represented be will Kazakhstan race. the win to competing be will countries 16 different Union (UCI). Cycling International Twenty teams from the of auspices the under Kazakhstan in organised to be race professional first the Tour Almaty, of race, cycling international the of sponsor official the became Kcell disabilities. intellectual with for and children adults programme sports world biggest the Olympics, Special the of partner active an been has 11 Kcell last years the During Enabling and sport health
• • • conducted: has fund the this, of part As seminars. and exhibitions conferences, as such areas in sector ICT the and the developmenttelecommunications of start-ups supporting are fund the of goals main The and JSC Beeline. Kazakhtelecom company, info-communication Zerde of Kazakhstan, of Transport and of Communications the RepublicMinistry Trustees from the which also representatives comprises of Board the of 2012. amember in are We established of the Development ICT Kcell Fund, support continues its acumen business Supporting of the National Academy of Sciences. Archaeology of Institute the of team the by developed was application the of content historical The AppStore the in and Market Play Google –on Russian and English –Kazakh, languages three in available is and platforms mobileiOSThe and application with works Android mobile to life. and significance geography history, the brings as a nation and this application development of Kazakhstan the in part amajor played Road’ Silk Great ‘The West. the and East the between route trading main the was this countries, 30 over through travelling and 6,437km some covering years, of Road’. hundreds Silk For ‘The Great In 2013 Kcell developed a unique mobile application, heritage Promoting cultural around Almaty and of other Kazakhstan. cities around Almaty belt green the improving of aproject in participating is atree‘, Kcell ‘Plant association, public with partnership In Environmental preservation service base on WebRTC technology. WebRTC on base service telephony –IP CONNECT AION e-waiter; and service e-menu including owners, café and restaurants at aimed – MENU BARAKAT services; fulfillment offering portal shopping –social SHOPPY.KZ service; online were: four E-queue projects winning The exhibition. 2013 announced atresults and conference the ASTEX the with received) (165 applications contest A start-up Accelerator. TechDrive and Alliance ICT Czech with MoU and Karaganda. Almaty 14 in at Astana, the leading presentations universities
Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Corporate responsibility continued Major CR projects during 2013
Project category Project name Project description Education Hack Day in International IT Sponsorship assistance in carrying out project Hack University Day in International IT University. The project created a video for YouTube and social media aimed at dispelling myths on radiophobia. Education Republican School of Women In co-operation with the Women Entrepreneurs Union leadership project of Kazakhstan association, we are carrying out the Republican school of women leadership project in three cities. Culture TEDxAlmaty 2013 Sponsorship of TEDxAlmaty 2013 event. TED conferences bring together leaders of modern thought to present their ideas within an 18-minute timeframe. Kazakhstan hosts TEDxAlmaty – the letter ‘x’ signifying an ‘independently-organised TED event.’ Kcell provided sponsorship assistance to enable free participation in the conference. Environment Kcell Green Office project Internal official launch of Kcell Green Office project in Kcell HQ. Health Help for the Palliative Centre of Financial assistance for the purchase of medical and Almaty specialist equipment for the Palliative Centre of Almaty in co-operation with non-government organisation ‘Solnechny Krug’. Sport Almaty mini-football league Sponsorship to enable the Almaty mini-football league to hold mini-football tournament. Sport Billiards Federation of Kazakhstan Support for hosting the World Billiards Tournament. Other The Project www.usynovite.kz Assistance for the voluntary foundation “Mercy”, providing mobile communications for the project www.usynovite.kz. Other Seminar: ‘On the way to gender Sponsorship for Kazakhstan’s Business Women equality: The UNO Convention on Association’s seminar: ‘On the way to gender equality: the Elimination of All Forms of held in Almaty at the Kazakhstan State Pedagogical Discrimination against Women’ University.
20 Kcell Annual Report 2013 the TeliaSonera roaming network. international within tariffs roaming preferential of advantage take to able also are subscribers Company’s the And countries. 168 roaming 375 agreements with in operators more than commercial 2013, of we have end the At growth. substantial segment of the telecoms market that is experiencing another –is country the to visitors to calls incoming for and Kazakhstan using theircalls phones foroutside subscribers Roaming for – outgoing the of provision mobile services Kcell brands. and Activ our to loyalty customer strong by is rewarded plans, thethroughout regions, tariff innovative allied with network distribution of ourthe highextensive quality topreferences. in Our investing commitment and ensuring that meet needs our and subscribers’ and services organisation, we are focused on products delivering retaining our leading a As position. customer-centric us to contributed have factors different of A number calculations). Company to (according country the in users mobile all of (2012: 46.2% 13.5 million), users 14.3 million to 845,000 by increased base subscriber Our • • • • in more detail below: explained are and follows as are year the for segment headline revenueby figures The market in Kazakhstan. 54% of the total revenue for the mobile telecoms market represents which million), 182,004 (2012: KZT million 3.1%187,599 by 2013 for increased KZT to Total revenue environment and acompetitive tough framework. regulatory the in changes of spite in position market leading its retaining and defending in succeeded Company The revenue and number of subscribers. by in Kazakhstan mobile services remaining leading the provider of achieved Kcell with successfully market share retention, we which of keyOne the focuses for 2013 was overview Performance (2012: KZT 1,385 million). million). (2012: KZT 1,385 210 million –KZT revenue Other (2012: KZT 15,195). 17,426 million –KZT services Value-added T18,755(2012: million). KZ million 26,232 –KZT revenue Data million). 146,669 (KZT 143,731 million –KZT services Voice
base along with attractive off-net tariffs. off-net attractive with along base subscriber own our in increase overall the by driven also was turn in This operators. mobile other of subscribers from million),26,945 due to a higher volume of calls incoming (2012: million 28,826 7.0% by KZT to increased revenue (2012: 114,747 million 109,272 Interconnect million). KZT to 4.8% by decreased revenue voice Outgoing 2013.of half 1,142KTZ second the at for out flattened also the throughout year has and ARPU on150 quarter quarter around been 4.7 consistently (2012: has MOU 5.2). KZT to ARMU in reduction slight a only in resulted and traffic voice boost to helped that factor another was base subscriber increase The mobile year-on-year competitors. of our other off fend and demand stimulate both to introduced we which tariffs incentive special of launch the to due partially was this (2012: However, minutes). 21,901minutes million 23,311to 6.4% by million increase actually did traffic Voice LTE in 2015 should enhance this. 4G nationwide of launch anticipated the –and continues network 3G the of rollout the as revenue added value and data both in growth acorresponding by for compensated is value revenue voice in decline this However, smartphones. via voice services calls data and accessing over texting – favouring technology mobile innovative with as a engage younger of actively generation users industry the across mobile telecommunications experienced being one is communication voice in trend downward This revenue. total of 80.6% up made it 2012 over when adecline is 2013, in it revenue total Company the of share a76.6% represents still this While million). (2012: 143,731 146,669 million KZT to 2.0% by during the year decreased Revenue from voice services and conferencecalls. identification caller forwarding, call mail, voice waiting, call as offering well as for subscribers services call primary provides Kcell Voice communication data traffic and the demand for more innovative services. innovative more for demand the and traffic data in increase substantial the support to continue can we that ensure to roll-out, the of ahead 4G testing and network 3G new our in heavily investing are We further. even boosted be will data for appetite the that anticipate we Kazakhstan in phone penetration of the acceleration smart With roaming experience. a positive through loyalty strengthen and traffic) in increase an to led tariff the in decrease (the revenue increase subscribers, for 2013,during tariffs enablingus cheaper to provide covered roaming by partners with discountagreements were countries visited most The 24%. by increased Roaming revenue of ourthe whole services. spectrum across positive very 2013 for were results roaming The
Kcell Annual Report 2013 Report Annual Kcell
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Additional information Financial statements Governance Strategic report Performance overview continued
Data services Value-added services Kcell provides data transmission services, which are Kcell offers a wide range of additional services, including primarily internet access services. short message services (SMS), multimedia messages services (MMS), and information and entertainment We remain in a leading position, providing data services in services (such as ring back tones, financial services Kazakhstan for about five million data users. The growth of weather forecasts, exchange rates, news, and other smart phone penetration continues to drive up the demand information). for data services, both in terms of increased number of users and increased usage of applications and services. Like data services, the rise in smartphone adoption also brings with it an increase in the take-up of our value-added Data revenue was 39.9% higher for the year contributing services and in 2013 revenue from these increased by KZT 26,232 million (2012: 18,755 million) to Kcell’s overall 14.7% to KZT 17,426 million (2012: KZT 15,195 million). revenue. Data traffic itself more than doubled, increasing We have made value-added services (VAS) a particular by 112.3% to 16,114,191 GB (2012: 7,589,056 GB). To focus for development since they give us a clear support this usage and maintain the quality of transmission competitive advantage over other mobile operators. They for our subscribers, in 2014 we will continue the roll out also encourage our subscribers to make more and better of 3G. use of their phones, and we know from our proactive customer relations programmes that this also increases Growth in data traffic was partially offset by packages customer satisfaction with the Company. with lower tariffs per MB, which resulted in a decrease in average revenue per MB (ARMB) to KZT 1.6 (2012: We experienced another drop in revenue coming KZT 2.4). A variety of attractively priced, bundled packages specifically from SMS with a 5% decrease year-on-year with reduced prices per MB of data transferred were and down to KZT 9.1 billion (2012: 9.6 billion). Kcell offers offered to subscribers with the objective of increasing SMS packages, including SMS bundling with other usage of data services. services, in order to minimise the reduction in SMS revenues. The fall in SMS traffic is due to the increased Smartphone penetration in the Kcell network is currently availability of voice and data services, including around 15% and remains below that of more developed communication via social networks, but also the use of countries. Wider availability of internet-enabled mobile instant messaging apps such as iMessage and WhatsApp. devices and the relatively young population of Kazakhstan, who are early adopters of innovation, will boost the number We continue, therefore, to expand the selection of services of mobile data users. that we offer which provide our subscribers with access to third-party applications, including SMS-notifications on With our own 3G network, offering new data services such a variety subjects, information and entertainment portals, as mapping services, access to social networks and media entertainment voice services, virtual services through consumption services, we are well positioned to take mobile social networks, and many other entertainment advantage of the long-term growth potential in this services. The Company also provides other text and increasingly important segment of our market. interactive services, such as news reports, sports scores, traffic reports, and weather forecasts. Some of these services are provided using MMS or video technologies developed by Kcell.
22 Kcell Annual Report 2013 support networks for mobile technologies. data networks support the of optimisation extensive with continue also will We and in coverage parameters our line other with networks. quality both achieve to order in network 3G our of build-out the complete to is future the for objective primary Kcell’s points. centre district all and people 10,000 over of apopulation with Kazakhstan in settlements all cover must the general licence, by the end of 2014 Kcell’s 3G network of terms the Under people. 50,000 over of a population with areas all covered network 2013, of the end the At bandwidth. 10 MHz using by 42 Mbps to up of rates data potential current with capabilities multimedia interactive full HSDPA technology, offers Dual-Carrier and HSPA+ uses which network, 3G Our 3G network Corporation. ZTE and Ericsson by is maintained and supplied was network collocated the for equipment The people. 1,000 over of apopulation with Kazakhstan in settlements all covered network 2G 2013,of our By in areas. end the urban particularly this, expanding We optimising and are selectively currently network. 2G its of capacity the enhancing constantly is Kcell patterns. usage as well as used, depending mainly of on content the handset and type kbps, 300 to kbps 50 from vary rates data Packet MHz. 1800 and MHz 900 at technology 2G advanced an is technology EDGE GPRS/ GSM/ Our services. added value and transmission data calls, voice allows network 2G The 2G network technologies. HSPA+ and EDGE GPRS, on based are services andproviding both data data voice The communications. – MHz 2100 and MHz 1800 MHz, –900 bands frequency three at operates which network, acollocated has Kcell 2013. during rollout 3G continued We Astana. and Almaty particularly cities, major the in coverage of rates high especially have We coverage. population 95.8% with country the of 46.8% covering and in Kazakhstan, and now has mobile network the communications largest substantially grown has Kcell 1998, in services telephone mobile provide to licence first its granted being Since technology and Network
fibre to the home assets. home the to fibre transmission- our expand to opportunities exploring are We effective. cost be would not believes building own fibreoptic network its it in areas in which channels geographic transmission as well as satellite networks operators’ transmission data other and Kazakhtelecom’s uses also Company The Kazakhstan. in cable operate fibreoptic networks providers smaller of number alarge and providers large several of other In operators. addition tonetworks Kazakhtelecom, optic fibre the extent, alesser to and, operator, incumbent the Kazakhtelecom, of nationwide fibre optic network using the networks city-wide its CompanyThe connects km. is 1,366 length cable optic fibre intra-city total Company’s The Kazakhstan. in cities 19in major the Company and owned operatedfibreoptic networks 2013, of end the At LTE launching. for network the prepares and 3G for capacity increases points, HUB main the protects fibreoptic network intra-city The optic network. fibre intra-city its expand to continued has Company The Transmission obtaining the licence. about body regulatory the with discussion the continue We LTE network. to registering fallback, CS delays; packets LTE-LTE, handoverthroughput: between LTE-3G, 3G-LTE; DL/UL as tested been having parameters following the with capabilities, 4G our of testing thorough completed have We for 4G. the spectrums frequency assigned been have we once antennas and units some add to only require we and platforms network’s radio the for stations base new installed have We LTE technology. support to weyears have been the preparing core and radio network three last the Over granted. is licence 4G the as soon as Kazakhstan across network 4G our launch to ready are We 4G preparation
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Additional information Financial statements Governance Strategic report Financial review
Key highlights 2013 • Revenue increased by 3.1% to KZT 187,599 million (2012: KZT 182,004 million). • EBITDA, excluding non-recurring items, was up by 3.3% to KZT 104,727 million (2012: KZT 101,426 million). The EBITDA margin increased to 55.8% (2012: 55.7%). • Operating income, excluding non-recurring items, increased by 3.8% to KZT 81,600 million (2012: KZT 78,645 million). • Net finance cost increased to KZT 2,119 million (2012: KZT 516 million). • Net income increased by 2.5% to KZT 63,392 million (2012: KZT 61,828 million). • Free cash flow grew to KZT 80,743 million (2012: KZT 61,203 million). • Subscriber base increased by 845 thousand to 14.3 million (2012: 13.5 million) (according to Company calculations).
Financial highlights Change 2012/13 KZT in millions, except key ratios, per share data and changes 2011 2012 2013 (%) Revenue 178,786 182,004 187,599 3.1 EBITDA excl. non-recurring items 105,794 101,426 104,727 3.3 Margin (%) 59.2 55.7 55.8 – Operating income 82,898 77,902 81,600 4.7 Operating income excl. non-recurring items 82,898 78,645 81,600 3.8 Net income attributable to owners of the parent company 66,858 61,828 63,392 2.5 Earnings per share (KZT) 334.29 309.14 316.96 2.5 CAPEX-to-sales (%) 15.0 14.7 12.2 – Free cash flow 5 4,108 61,203 80,743 –
Revenues Revenue increased by 3.1% to KZT 187,599 million (2012: KZT 182,004 million).
Revenue from voice services decreased by 2.0% to KZT 143,731 million (2012: KZT 146,669 million). Data revenue was 39.9% higher at KZT 26,232 million (2012: KZT 18,755 million). Revenue from value-added services increased by 14.7% to KZT 17,426 million (2012: KZT 15,195 million). Other revenue fell by 84.8% to KZT 210 million (2012: KZT 1,385 million).
KZT in millions, except percentages 2011 % of total 2012 % of total 2013 % of total Voice services 146,077 81.7 146,669 80.6 143,731 76.6 Data services 14,064 7.9 18,755 10.3 26,232 14.0 Value added services 14,532 8.1 15,195 8.3 17,426 9.3 Other revenues 4,114 2.3 1,385 0.8 210 0.1 Total revenues 178,786 100.0 182,004 100.0 187,599 100.0
24 Kcell Annual Report 2013 number of sites and base stations. base and sites of number the in increase an from resulting costs rental site and (2012: million), 24,604 KZT higher maintenance expenses million 25,800 KZT to expenses and fees interconnect in increase an by largely driven was this million), 76,291 KZT (2012: million 79,469 KZT to 4.2% by grew sales of Cost sales of Cost Expenses modems. USB and handsets of sales lower of result the largely was decrease The million). 1,385 (2012: KZT 210 million KZT to 84.8% by decreased revenue Other revenueOther services. entertainment tones, mobile credit and other information and back ring as such services, content of provision the from revenue in increase an to due primarily was increase 15,195 (2012: The million). KZT million KZT 17,426 to revenue increasedValue-added by 14.7% services Value-added services services. data of usage increasing of objective the with subscribers to offered were transferred data of MB per prices reduced with packages bundled as such packages data priced attractively of A variety 2.4). 1.6 (2012: KZT KZT to (ARMB) MB per revenue average in adecrease in resulted which MB, per tariffs lower with packages by offset partially was traffic data in 112.3% 16,114,191 to (2012: GB GB). Growth 7,589,056 by increased traffic 18,755 Data million). (2012: KZT million 26,232 KZT at higher 39.9% was revenue Data Data services tariffs. off-net attractive with along base subscriber the in increase overall an from resulted turn in This operators. mobile other of subscribers from calls incoming of volume a higher million (2012: million).This 26,945 from resulted increase 28,826 7.0% by KZT to increased revenue Interconnect 114,747 (2012: KZT million million). KZT 109,272 Outgoing voice revenue decreased by 4.8% to 5.2). KZT KZT 4.7 (2012: to decrease to ARMU caused which tariffs, lower by offset partially was subscribers of number the in and traffic in growth (2012: However 13.5 million to 14.3 million) base subscriber the in increase an of aresult as minutes) (2012: 21,901 23,311 to minutes 6.4% up million was million million).Voice traffic 146,669 (2012:143,731 KZT million KZT to 2.0% by decreased services voice from Revenue Voice services
The equity/assets Net debt/EBITDA Net debt/equity CAPEX. in decrease and capital working in movements to due primarily million), KZT 61,203 (2012: 80,743 million KZT to increased flow cash Free (2012: 12.2% to 14.7%). decreased ratio CAPEX-to-sales the and million) 26,730 (2012: KZT million Capital expenditure 309.14).(2012: KZT 316.96 KZT to increased share per earnings and million) 61,828 (2012: KZT million 63,392 KZT to 2.5% by increased Net income million). 15,558 (2012: KZT million Income tax million). KZT 516 Net finance (2012: 55.7%). 55.8% to increased margin EBITDA The 101,426 million). (2012: KZT million 104,727 KZT 3.3%to EBITDA flow cash and position financial Earnings, and amortisation expenses. and amortisation depreciation and expenses consulting in adecrease to due 11,005 primarily 10,017 (2012: million) KZT million KZT to 9.0% by decreased expenses administrative and General expenses administrative and General cash collection. for commission in adecrease by primarily was driven 17,195 (2012: KZT million drop KZT 16,614 The million). to 3.4% by decreased expenses marketing and Selling expenses marketing and Selling , excluding items, by increased non-recurring
expense increased by 3.4% to KZT 16,089 16,089 KZT to 3.4% by increased expense cost increased to KZT 2,119 KZT to (2012: million increased cost attributable to owners of the parent company company parent the of owners to attributable ratio was 6.0% (2012: 6.0% 69.4%). was ratio rate was 0.06 (2012: 0.06 0.46). was rate ratio was 61.0% was (2012: ratio 44.2%). (CAPEX) decreased to KZT 22,849 22,849 KZT to decreased (CAPEX) Kcell Annual Report 2013 Report Annual Kcell 25
Additional information Financial statements Governance Strategic report Financial review continued
Condensed consolidated statements of comprehensive income
KZT in millions, except per share data, number of shares and changes 2011 2012 2013 Chg (%) Revenues 178,786 182,004 187,599 3.1 Cost of sales -69,955 -76,291 -79,469 4.2 Gross profit 108,831 105,712 108,130 2.3 Selling and marketing expenses -15,763 -17,195 -16,614 -3.4 General and administrative expenses -9,943 -11,005 -10,017 -9.0 Other operating income and expenses, net -227 389 101 Operating income 82,898 77,902 81,600 4.7 Finance costs and other financial items, net 725 -516 -2,119 Income after financial items 83,624 77,386 79,481 2.7 Income taxes -16,765 -15,558 -16,089 3.4 Net income 66,858 61,828 63,392 2.5
Total comprehensive income attributable to owners of the parent company 66,858 61,828 63,392 2.5
Earnings per share (KZT), basic and diluted 334.29 309.14 316.96 2.5 Number of shares (thousands) Outstanding at period-end 200,000 200,000 200,000 Weighted average, basic and diluted 200,000 200,000 200,000
EBITDA 105,794 100,683 104,727 4.0 EBITDA excl. non-recurring items 105,794 101,426 104,727 3.3 Depreciation, amortization and impairment losses -22,896 -22,781 -23,127 1.5 Operating income excl. non-recurring items 82,898 78,645 81,600 3.8
26 Kcell Annual Report 2013 Cash CAPEX Cash and cash equivalents assets non-current Other plant and equipment Property, Total cash flow from investing activities investing from flow Total cash flow cash Free Cash flowfrom operating activities capital inChange working Total current assets Trade and other receivables Inventories Total assets non-current assets Intangible Assets in millions KZT Condensed consolidated of statements financialposition Cash flow for the period the for flow Cash from flowfinancingCash activities activities financing before flow Cash capital working in change before flow Cash in millions KZT Condensed consolidated statements of cash flows liabilities and Total equity Total liabilities current Trade liabilities and payables, current other liabilities tax Deferred parent the of owners to attributable Total equity earnings Retained capital Share Equity Total assets Cash flow for the period the for flow Cash Cash and cash equivalents, opening balance opening equivalents, cash and Cash Short-term borrowings Short-term long-term liabilities Other Cash and cash equivalents, closing balance closing equivalents, cash and Cash Total liabilities non-current
and
liabilities
As at 31 Dec 31 at Dec As 144,983 144,983 100,372 125,565 120,252 -58,000 116,338 -27,305 -27,305 20,245 20,245 18,434 16,229 89,071 4,108 5 4,108 5 -3,892 -3,892 19,418 81,413 -7,658 4,486 5,245 1,353 1,836 1,353 3,991 6,759 3,915 2011 2011 495 – Kcell Annual Report 2013 Report Annual Kcell As at 31 Dec 31 at Dec As 129,598 149,641 149,641 110,337 -24,984 -24,984 -59,481 33,800 66,203 20,043 28,355 32,403 15,990 48,991 85,324 77,346 61,203 61,203 86,187 61 0 16,14 6,092 1,353 3,075 3,075 1,722 1,722 ,04 5,10 3,121 2012 2012 863 988 978 31 at Dec As 159,280 159,280 129,455 112,369 -64,902 -17,313 -17,313 33,800 63,393 98,056 90,639 55,429 29,825 30,708 13,955 24,721 15,841 15,841 80,743 80,743 18,916 18,916 10,410 97,193 5,232 6,658 3,075 1,426 3,131 7,417 2013 2013 499 27
Additional information Financial statements Governance Strategic report Financial review continued
Condensed consolidated statements of changes in equity
2011 2012 2013 Share Retained Total Share Retained Total Share Retained Total KZT in millions capital earnings equity capital earnings equity capital earnings equity Opening balance 3,915 107,479 111,394 3,915 116,338 120,253 33,800 32,403 66,203 Dividends – -58,000 -58,000 – -115,877 -115,877 – -32,402 -32,402 Transformation from LLP to JSC – – – 29,885 -29,885 – – – – Total comprehensive income – 66,858 66,858 – 61,828 61,828 – 63,392 63,392 Closing balance 3,915 116,338 120,253 33,800 32,403 66,203 33,800 63,393 97,193
Non-recurring items
KZT in millions 2011 2012 2013 Within EBITDA Restructuring charges, synergy implementation costs, etc. – 743 – Total – 743 –
Investments
KZT in millions 2011 2012 2013 CAPEX Intangible assets 2,711 2,325 1,517 Property, plant and equipment 24,090 24,405 21,332 Total 26,801 26,730 22,849
Related party transactions For the year ended 31 December 2013, Kcell purchased services for KZT 790 million and sold services for a value of KZT 272 million. Related parties in these transactions were mainly TeliaSonera and its group entities, Turkcell and Fintur Holding B.V.
Net debt As at 31 Dec As at 31 Dec As at 31 Dec KZT in millions 2011 2012 2013 Long-term and short-term borrowings – 48,991 24,721 Less short-term investments, cash and bank 1,353 -3,075 -18,916 Net debt -1,353 45,916 5,805
28 Kcell Annual Report 2013 Employees, period-end Churn rate (%) rate Churn (min/month) MOU prepaid which Of (thousands)* period-end Subscribers, * According to Company calculations. data Operational Ericsson. from equipment telecommunications of purchase to related mostly million), 4,285 2012: KZT (December million 5,809 KZT totalled equipment and plant property, of respect in obligations 2013, contractual 31On December Contractual obligations 12 months) rolling (%, employed capital on Return 12 months) rolling (%, equity on Return Financial key ratios 2014 correspondingly. March 2014 26 and January 27 on maturity with JSC ATF bank with agreement line credit the under 1.2 billion KZT and 2.75 billion KZT of amount the in tranches two utilised Kcell 2013, JSC December 26 On 12 months. of of maturity a rate annum, per 7.4% interest afixed with 14.5 billion KZT of amount the in apart for prolonged was Kazakhstan RBS SB JSC and Kazakhstan Citibank JSC with Agreement Facility Loan 2012. This September 26 on Kazakhstan signed RBS SB JSC and Kazakhstan Citibank JSC with Agreement Facility Loan the under Kazakhstan RBS JSC SB and Kazakhstan Citibank JSC to loan billion 30 KZT of part 15.5 billion KZT repaid Kcell 2013, JSC September 26 On 2012. 17 on October signed Kazakhstan RBS SB JSC and Kazakhstan Citibank JSC with Agreement Facility Loan the under loan 15 billion KZT repaid fully Kcell 2013, JSC September 26 On 6.5%. of rate interest afixed and period access a12 month with 6billion to KZT up of line acredit for Kazakhstan HSBC SB JSC with agreement line acredit signed Kcell 2013, JSC September 25 On accordingly. tranches 12 to months 1month for 7.3% to annum 5.3% per from rate interest an and period access a24 month with billion 30 KZT to up of line acredit for Bank Savings Halyk JSC with agreement line acredit signed Kcell 2013, JSC September 25 On financingLoan ARPU (KZT) ARPU Equity/assets ratio (%) ratio Equity/assets Owners’ equity per share (KZT) share per equity Owners’ rate (multiple,Net debt/EBITDA rolling 12 months) (%) ratio debt/equity Net 10,850 9,353 1,584 1,472 35.4 2011
122 As at 31 at Dec As 13,462 11,721 1,252 601.3 1,612 2011 25.3 2012 55.6 82.9 67.0 168 n/a n/a Kcell Annual Report 2013 Report Annual Kcell As at 31 at Dec As 12,593 14,307 1,488 1,106 331.0 107.0 2013 31.2 2012 44.2 93.4 0.46 69.4 152 31 at Dec As Chg (%) Chg 486.0
65.2 0.06 76.5 2013 -11.7 61.0 23.3 -9.4 -7.7 6.0 6.3 7.4 29
Additional information Financial statements Governance Strategic report Principal risks and uncertainties
All businesses are subject to risk. At Kcell we recognize Risk management framework that effective risk management is key to safeguarding Our risk management framework has been developed successful outcomes for the Company, but also for our in line with the COSO (Committee of Sponsoring employees, customers and shareholders. Our focus is Organisations of the Treadway Commission) Enterprise on identifying any risks that could prevent us from meeting Risk Management Framework (ERM). our goals and objectives. By identifying both current risks and potential threats for the future, we are able to plan Our business-focused risk management process identifies accordingly and mitigate the negative impact that could and evaluates potential threats to the business and ensures be caused if no actions were taken. plans are in place to prevent and rectify problems for the continuity of the business. The Kcell risk management Taking responsibility for risk management framework emphasises the management of risks as part The Kcell Board of Directors has overall responsibility of daily operations and all business units are tasked with for the risk profile of the business and in 2013 adopted continuously identifying, assessing and monitoring risks a Risk Management Policy with principles based on those across all activities. within the TeliaSonera Group Policy. Risk management process
Chief Executive Officer Risk management approach
Chief Finance Risk management 01 process Officer Risk identification Departments Risk Telia Sonera Directors reporting Internal and 04 02 and Financial Control Mitigation Information & Risk monitoring Unit, FD actions communication assessment (quarter / half-year) Risk Risk mitigation register plan 03 Risk management Department Risk Coordinators
Keys: Risk owner The main principles of the risk management process are: All staff Direct reporting Doted line reporting • Integrity – We consider the elements of the overall risk of the Company in the context of corporate risk management system. Risk management is fully integrated into the business planning and control processes, with procedures that • Openness – The corporate risk management system are transparent, practicable and traceable. Our aim is is easily accessible and understandable. to instil a culture at Kcell where everyone takes personal • Structuring – Our integrated system of risk management ownership of the responsibility for risk management and is has a clear structure. accountable for the risks inherent in daily decision-making. • Awareness – Our risk management system necessitates Within Kcell operations, our management teams are objective, accurate and timely information. responsible for: • Continuity – The risk management process is on an • Identifying and assessing risks and deciding how risks ongoing one. should be managed and mitigated. • Cyclic – The process of risk management is a constantly • Making relevant and reasonable efforts to safeguard recurring cycle built of its main components. business continuity. • Transparent reporting and communication of risks. • Recruiting staff to oversee effective risk and risk mitigation evaluation and reporting processes. • Maintaining overall risk awareness within their area of responsibility. • Ensuring that adequate documentation is kept.
30 Kcell Annual Report 2013 to hedge risk exposures. exposures. risk to hedge instruments financial derivative use not does Company The on the financialperformance. effects adverse potential minimise to seeks and markets financial of management programme focuses on the unpredictability risk overall Company’s The risk. credit and risk liquidity risks: market (including risk foreign exchange risk), financial of avariety to it expose activities Company’s The Financial risk management process. risk our within routines daily the of part as place in actions mitigating have already and rating risk alow have and ofand systems technologies. Most these information chain, culture, regulations, recruitment, Board composition supply processes, internal in errors or defects to due losses for potential the as identified are risks Operational risk Operational products. and tariffs competitive of launch the with in ‘strong’ regions and increasing market share in regions leadership market protecting by, example, for risks these mitigate to looks Company The Kazakhstan. in portability number mobile of introduction planned the of result the as subscribers of rate churn the in rise the as such legislation in changes or operators mobile other of activities by the includeThese caused the increased competition price management. of high requiringconsidered the attention risk, are risks changes. strategic Most customer or industry changes or in regional the political and environment strategy,business Company development, competition, of implementing and defining in errors or changes to due losses for potential the as identified are risks Strategic risk Strategic operational, financial,legal, natural disaster/catastrophe. strategic, operations: day-to-day our to key are that a numberrisks identified andof principal uncertainties we management thehaveThrough risk framework related to the achievement of objectives. these opportunities and threats the and success its to critical including factors and objectives operational strategic its as well as the development of of a sound understanding exists, it which in environment cultural and political social, legal, the operates, it which in market the Company, the of an knowledge requires intimate This to uncertainty. exposure Company’s the categorise we identification risk Using Risk identification
and liabilities as of 31 December 2013. 31 of as December liabilities and assets bearing interest floating have not does Company independent of changes in market rates. The interest substantially are flows cash operating and income Company’s The – risk rate interest value fair and flow Cash foreign exchange risk. management does not hedge the Company’sKazakhstan, to the undevelopedin market for financial instruments Tenge. Due the against Dollar US the of movement the major of concentration foreign exchange from arises risk movement in Tenge/US Dollar exchange rates. Hencethe to sensitive less is Profit Dollars. US in denominated are roaming as such services certain as well as inventories, plant and ofpurchases equipment property, and Company’s the of majority –The risk exchange Foreign atperiod. theand end term deposits of the reporting equivalents cash and cash its placed has Company the are alsoinherent inherent to to the country the banks where risks of an emerging market, certain characteristics some display to continues Kazakhstan of Republic the As exposure. risk credit decrease to periodically banks those of ratings credit the reviews Company The credit ratings. highest the have that Kazakhstan in banks those only accepts Company The default. of risk minimal have to deposit of time the at considered are which banks, of number a with relationships established has Company The loss. of risk management believes that there is no significant factors, ofcollection could receivables be influenced byeconomic and bothof individuals companies. Although customers, among islargea diversified number portfolio customers risksincethe of credit concentrations no significant has Company The paid. is debt the until disconnected provided are their liabilities for mobilesettle services to fail that Customers balances. due past on up follows and receivables trade outstanding of analysis ageing and Company’s The other factors. management reviews past experience into financialposition, accounttaking its customer the of quality credit the assesses control risk are ratings these used. If there is no independent rating, arehistory. customers Ifindependently rated, corporate an appropriate with credit andcustomers distributors to made are services and products of sales that ensure to place in policies has Company –The risk Credit risk. credit and risk rate interest risk, exchange foreign as such areas, specific covering policies written as well as for principles overall management, risk written provides under adopted policies by the Company. management The outbyRisk management is the management carried teams
Kcell Annual Report 2013 Report Annual Kcell
31
Additional information Financial statements Governance Strategic report Principal risks and uncertainties continued
Legal risk Natural disaster/catastrophe risk Legal risks are identified as the potential for uncertainty Natural disasters or catastrophes are identified as those due to legal actions or uncertainty in the applicability or risks caused by natural phenomena or process, provoked interpretation of contracts, laws or regulations. The Legal catastrophic situations characterised by sudden reduction Department in the Company checks the queries/orders for in population, demolition of material values, defeat and compliance with legislation, monitors the amendments to death of people. The Company has implemented plans to legislation and participates, whenever possible, in draft mitigate against disasters such as fire, accidents, failures law debates. and man-made disasters. These include fire drills, fire alarm system, regular servicing of vehicles, preventive measures against seasonal diseases, medical insurance, annual medical examination, diesel generators for use during a power failure, water reserve delivery to the Company’s employees and undertaking preventive works.
Risk management review 2013
Category Risk Actions taken Financial During 2013, the major challenge faced by our Fraud Preventative measures have now been put (fraud) Control Unit (FCU) involved the use of SIM Box and in place and SIM Box traffic decreased other so-called GSM gateways – devices that are dramatically by 65% in November and 82% in used to reroute calls so that no interconnection fees December, in comparison to the same period are payable/collectable. in 2012. Financial The rise in the market of international premium rate Our Fraud Control Unit continues to research (fraud) providers (PRS) has brought with it an increase in the and create innovative tools for use against incidence of international revenue share fraud (IRSF). international and local IRSF to help keep losses to a minimum. Legal Interconnection regime and MTRs regulation The Kcell challenged the inclusion and was Ministry of Transport and Communication (MTC) has successful in having the Company excluded the right to regulate interconnection tariffs of from the scope of regulation for more than two operators included in the State Register of Dominant years. However, Kcell lost its appeal in the and Monopoly Entities (the Register), and set tariff Supreme Court and was included in the caps. In October 2011 Kcell and Beeline were Register. The MTC is currently awaiting the included in the Register. findings of an expert examination and may then set price caps on interconnection services. According to a Memorandum, signed by Kcell, Beeline and Tele2, in January 2014 mobile termination rates (MTR) were reduced from KZT 13.02 (excluding VAT) per min to KZT 11.1 (excluding VAT) per min. Legal Smart Connect campaign and Daytime unlimited tariff The Company disputes these allegations and plan The Agency for Competition Protection (ACP) will protect its rights in Court. In view of recent initiated two investigations into alleged violation by changes to the legislation the Company’s view Kcell of the anti-monopoly law with respect to the is that the fine (if applicable) should only be ‘Always Available’ service and ‘Daytime unlimited’ applied to the revenue received from the zone tariff plan. of violation not on total revenue from voice services as claimed by the ACP. Legal Tariff caps set by MTC In January 2013 MTC issued an The Company challenged the order and three order requiring the lowering maximum tariff prices by courts have ruled in favour of the Company. approximately 15-20%. The MTC has a further right to appeal to the Supreme Court or conduct new expertise examination and regulate prices based on it.
32 Kcell Annual Report 2013 Corporate governance principles and profitability. stability financial promotes and value, market and efficiency Kcell’s increases stakeholders, all of interests and rights the for protection and respect requires governance corporate of system Company’s Our expertise. and professionalism transparency, responsibility, honesty, fairness, of principles the on based is Kcell at governance Corporate governanceCorporate Governance. We also comply with the regulations of the Kazakstan Stock Exchange concerning joint stock companies and securities. companies stock joint concerning Exchange Stock Kazakstan the of regulations the with comply Wealso Governance. Corporate of Code UK the with comply all Governance Corporate of Code Kcell the and Charter our Exchange, Stock London the on listing GDR our with keeping In governance. corporate of standards high maintaining to committed is Kcell Settlement of disputes corporate Settlement protection Environmental policies human resources Effective policies dividend Effective and ethics Legality operations disclosure of information on Company in Transparency and objectivity (CEO) Officer Executive Chief and Directors of Board the by management of the Company Effective shareholders of and interests theProtecting rights the reputation of the Company.the reputation and shareholders all of rights the protect effectively to order in negotiation, through resolution seek can participants dispute, acorporate of event the In Conduct. and Ethics of Code Kcell’s the and law the by established standards safety environmental and operations complies with its conducting in the need Company preservation forThe considers environmental conditions. working of regulation and issues social address to staff with relations of Ethics and of Conduct the TeliaSonera Group, and develops partnership Code the and law the under rights employees’ its guarantees Company The development goals and the ratio of long-term net debt to EBITDA. Company’s the account into taking dividends, of payment on Meeting the of decision in Shareholders’ the General with accordance is distributed ofthe Shareholders’ relevant Meeting. the resolutions General Net income and Charter law, the the with accordance in dividends pays Company The and of ethics. generally accepted business standards Code Kcell law, the the with accordance strict in operates Company The Company. the about transparency maximum ensures of information and disclosure accurate Timely plan and business development strategy. the established with accordance CEO The manages theand Company’s prospects. in daily operations a of balanced and progress with shareholders accurateprovide assessment and value market Company’s the increase to aims Directors of Board The provides detailed information relevant to their interests. and decisions, key in shareholders its of participation effective in assists shareholders, all of treatment equitable and fair guarantees Company The
Kcell Annual Report 2013 Report Annual Kcell
33
Additional information Financial statements Governance Strategic report Corporate governance continued
Improving corporate governance in 2013 Board of Directors During 2013, Kcell adopted 14 new policies in support The Board of Directors ensures general management of of its commitment to establishing a strong corporate Company activities. Members of the Board of Directors are governance framework: elected at the General Meeting, where the terms of office of such members are also decided. The current members of Procurement Policy • the Board of Directors are elected for the term until the next Financial Management Policy • General Meeting, the agenda of which will include the issue Insurance Policy • of re-election of the Board of Directors. • Risk Management Policy Communication Policy • Besides formulating strategies and approving plans for Recruitment Policy • the Company’s development, the Board of Directors is Remuneration Policy • responsible for taking decisions on establishing Kcell Insider Information Policy • branches and representative offices, on the acquisition Insider Trading Policy • or disposal by the Company of 10% or more of third party Security Policy • shares, on the conclusion of major transactions and Code of Ethics • transactions with related parties, and for approval of annual Anti-corruption Policy • budgets, as well as on other issues that belong to the Privacy Policy • exclusive competence of the Board of Directors according CEO’s instructions • to the Company’s Charter and the Joint-Stock Companies Act of the Republic of Kazakhstan. During the year we also elected a new Chief Executive Officer, held our first AGM since IPO – which included Membership of the Board of Directors representation of GDR holders through the depositary There has been only one change to the Board composition bank – and introduced an Internal Audit function. during the year: Bert Nordberg, who had been a Board Kcell has purchased specialist software called Directors member and Independent Director since November 2012, Desk which is designed to improve Board communications stepped down due to time pressure of other commitments. and effectiveness. This will provide end-to-end security William H R Aylward has been elected as Independent for our governance and workflow management. Director on 24 May 2013, he replaced Bert Nordberg. Annual General Meeting William H R Aylward (Born 1951) At the Annual General Meeting (AGM), held on 24 May Member of the Board of Directors and as an Independent 2013, all the resolutions proposed to Kcell shareholders Director1 since 24 May 2013. were approved: Mr Aylward has extensive experience as Chairman, CEO To appoint PricewaterhouseCoopers LLP as the • and Non-Executive Director of both private and public auditor for Kcell. companies across a variety of sectors including • To approve the Company’s annual financial statements telecommunications (mobile and fixed-line) and technology. for 2012. Since 2011 he has served as Chairman and CEO of • To declare a dividend of KZT 162.01 gross per ordinary Alchemy Group, which operates primarily in the Balkan share, or approximately USD 1.07 gross per Global Peninsula and focuses on telecommunications, media and Depositary Receipt (GDR), for the period from energy, and as strategic investment advisor at Redwave 1 July 2012 to 31 December 2012 to be paid to holders Technology LTD since 2006. of Kcell shares as at the record date of 10 June 2013. From 2008 to 2011 he was CEO of Belvedere Media Santa • To elect William H R Aylward as a new member of the Monica, CA, and prior to that held senior management Company’s Board and as an Independent Director; positions in a number of companies including Jonathan Bert Nordberg, Independent Director, resigned from Partners INC, Bulgarian Telecommunications Company, Kcell’s Board of Directors due to the time pressures Advent International, Fusion Telecommunications Ltd, of other commitments. Landtel Communications Inc, Kingston Communications Plc and Westminster Cable UK. On June 24, 2013, dividends totalling KZT 32,402 million, He graduated from the University of London with a BSc KZT 162.01 gross per ordinary share, were paid for the in Mechanical and Production Engineering. period from 1 July 2012 to 31 December 2012.
No Extraordinary Meetings of Shareholders were held 1 Members of the Board of Directors regarded as Independent Directors in 2013. according to the law of Kazakhstan, subject to the provisions of clause B.1.1. of the Code of Corporate Governance of Great Britain.
34 Kcell Annual Report 2013 Corporate structure Kcell. of shares held Directors of Board the of 2013, members no During Mats GöranSalomonsson Tolga Kokturk Berndt Kenneth Karlberg 1968) (Born Aral Veysel Jan Erik Rudberg 2013: in unchanged remained Board the of rest The General Meeting Chief ExecutiveOfficer Shareholders Board ofDirectors (Born 1977) 1977) (Born (Born 1945) 1945) (Born (Born 1954) (Born (Born 1950) 1950) (Born
Internal AuditOfficeInternal Committee Strategic Planning Committee Social Matters Remuneration Committee Personnel & Committee Audit Internal Auditors
Kcell Annual Report 2013 Report Annual Kcell 35
Additional information Financial statements Governance Strategic report Corporate governance continued
Committees of the Board of Directors In line with the legislation on joint stock companies within Kazakhstan, the following Committees have been established by Kcell to consider important issues and prepare recommendations for the Board of Directors: a Strategic Planning Committee, a Personnel Remuneration Committee, an Internal Audit Committee and a Social Matters Committee. The Board may create other Committees at its discretion.
The Chairmen of each Committee are Independent Directors. The law also requires that Committees are drawn from the members of the Board of Directors who have the necessary expertise to serve on the given Committee. All Committees are advisory bodies of the Board of Directors.
Personnel and Strategic Planning Remuneration Internal Audit Social Matters Committee Committee Committee Committee Committee Makes Makes Makes Makes role recommendations to the recommendations to recommendations to the recommendations to the Board of Directors on the Company’s Board Company’s Board of Company’s Board of the Company’s strategic of Directors on Directors on financial Directors on internal development. qualification statements, internal documentation requirements for controls and risk regarding social employees, management, and responsibility, Company appointment and internal and external participation in social dismissal of certain audits. projects, and resolution employees, bonuses of internal team and salary for conflicts. management bodies, and internal documents evaluating staff fitness, training and motivation of employees.
36 Kcell Annual Report 2013 accumulated interest of KZT 820 million. of interest accumulated and billion 30.5 KZT totalling JSC Kazakhstan SB RBS and JSC Kazakhstan Citibank to loans syndicated of the 2014; repayment the September 26 until KZT 14.5 billion for JSC Kazakhstan RBS SB and JSC Kazakhstan Citibank by Company the for agreement loan of the extension the billion; KZT 30 for JSC Kazakhstan of Bank Halyk with line a credit of opening the approved: Board The September 2013 • • decisions: following the adopted Directors of Board Kcell The 2013 May Company. the of to evaluatefunction the financial and activity business audit an internal introduced Directors of Board Kcell The March 2013 below: year the areduring outlined approved andbyMajor transaction resolutions the Board to prior publication. results quarterly for development;strategies future of discussion the anddiscussion approval of and issues business-related and major transactions transactions; party interested to CEO;management reporting directly approval of top and CEO the of salary the determining included: of the Board the throughout year activities routine The callsconference or voting in absentia. via conducted rest the and person in 2013: held four during 21 of meetings atotal held Directors of Board The Board activities until 1 June 2014. 1June until 2013 June 1 from office of term aone-year with Kcell, of Officer Executive Chief the as Agan Ali election The Group. TS in position another to transfer his of 2013 in view 1 June from effect with Kcell, of Officer Executive Chief Aral, of Veysel office in term the of termination The
2013 was US$ 304,000 (before tax). (before 304,000 US$ 2013 was in Directors of Board the to paid remuneration total The office. takes Director the after year one paid is membership Committee remuneration fee and annual additionalremunerationfor annual fixed the of 50% remaining the office; takes aDirector after months six paid is membership Committee remuneration fee and annual additionalremunerationfor annual fixed the of 50% terms: payment the to According Directors. of Board the of Committee other any in participating for tax) (before 6,000 US$ Committee; Audit Internal the in (before tax); 15,000 US$ (before for tax) participating 25,000 US$ of Directors of Board Company the chairing for remuneration annual auxiliary tax); (before 75,000 US$ of not employed at TeliaSonera: fixed annual remuneration for and whoare independent those directors directors, the following was remunerationwhich in force during 2013 held Meeting on General The 9 November 2012, approved their duties. fulfilling when Directors of by incurred expenses compensation the Board of the for provides also regulation The Committees. in the Board of remuneration for Directors’ the participation annual and byan auxiliary Boardmeetings members, the remuneration, of depends which the on the attendance annual afixed parts: two of comprised is Directors of Board at TeliaSonera. amount The of remunerationpaid to the employed not are who Directors, the to as well as Directors, of remunerationis their duties, paid to Independent fulfilment the for members Directors’ of Board the to paid terms of of remunerationand expenses compensation and amount the on regulations Kcell’s with accordance In Directors of Board the of Remuneration Kazakhstan. within businesses responsible socially for model arole be to strive we as sustainability on focus amajor be also will There HR. marketing, and sales example, for area, business aspecific to devoted be will meetings face-to-face planned the of Each segment. by segment Company, the of study in-depth an conduct to decided has Board the arising, matters urgent any and items agenda regular its to addition In 2014 for agenda Board The
Kcell Annual Report 2013 Report Annual Kcell
37
Additional information Financial statements Governance Strategic report Corporate governance continued
Executive Management The Chief Executive Officer (CEO) manages the daily operations of the Company. He is responsible for all matters not within the exclusive jurisdiction of the Board of Directors or the Annual General Meeting of Kcell. In addition, the CEO is responsible for executing decisions taken by the AGM and the Board of Directors.
The executive management team of Kcell is a highly professional team of experts with extensive experience of working in the Kazakhstani and international mobile services markets and expertise in the fields of telecommunications, finance, marketing and information technology.
Ali Agan (Born 1970) Chief Executive Officer at Kcell since June 2013. Mr. Agan holds an MBA in Finance from the University of Baltimore (USA). He also studied at the University of Toronto (Canada) and has a degree in Economics from the Faculty of Political Sciences at the University of Ankara (Turkey). Mr Agan has more than 20 years’ international experience in the financial and telecommunications sectors, across a broad range of functions including sales, distribution and content provision. Mr Agan joins from Ucell, a subsidiary of TeliaSonera Group and the second largest operator in Uzbekistan, where he was CEO from September 2012. Prior to that, from May 2008, he was Deputy CEO and from December 2008 CEO of Azercell, a subsidiary of TeliaSonera Group and the leading mobile operator in Azerbaijan. From 2005-2008, Ali Agan was CEO and Board member of MEP Communication a GSM distribution company with $ 500 mln turnover, he held Board responsibilities across 16 of the Group’s businesses covering five countries. Prior to that Mr Agan was engaged in Finance industry and also worked as Vice President in bank and insurance company.
Bauyrzhan Ayazbayev (Born 1978) Aida Dossayeva (Born 1960) Aliya Kishkimbayeva (Born 1975) Chief Financial Officer at Kcell since 2011. Corporate Affairs Department Director Legal Department Director at Kcell Mr Ayazbayev graduated as a lawyer from at Kcell since 2008. since 2010. the Kazakh State Law University and Ms Dossayeva graduated from the Almaty Ms Kishkimbayeva graduated with a received an MBA from KIMEP University. Institute of National Economy. She specialty in English from the Kazakh He has held a number of positions at Kcell received a Ph.D. in economics from University of International Relations and since joining in 2006, including Deputy Kazakh State National University, and World Languages, and as a lawyer from Chief Accountant, Chief Accountant and graduated from the University of KIMEP the Adilet Higher Law School. Deputy Finance Director. in Public Relations and International She joined Kcell in 2007 as a senior Journalism (MA). From 2001 to 2005 he served as Senior associate and later served as Company Auditor for the Kazakhstan Branch of From 1994 to 1997, she served as a Head of Contracts and Litigation. Prior to PricewaterhouseCoopers LLP and from Director of the admission committee and joining Kcell, Ms Kishkimbayeva worked as 2005 to 2006 he served as Manager of financial aid at KIMEP University. From a lawyer at CJSC AralParker (Joint Venture) Operational and Financial Accounting 1997 to 1998, she was Account Manager and PetroKazakhstan Inc. (Joint Ventures). for JSC PetroKazakhstan Oil Products representing Oracle BV in Kazakhstan and (Kazakhstan). from 1999 to 2004 worked at the Eurasia Foundation, funded by the U.S. Agency for International Development. From 2004 to 2008 she held the position of Manager for Client Relations, and was later Director of Corporate Sales Department at Microsoft Kazakhstan LLP.
38 Kcell Annual Report 2013 in 2003 at Nestle in Uzbekistan. Nestle at 2003 in began his career Mr Nasritdinhodjaev Manager. and Marketing Segment Consumer Consumer of Head including positions, of anumber held and 2008 in Kcell He joined Uzbekistan. in operator largest second the and Group TeliaSonera of a subsidiary Ucell, of Director Marketing as served Nasritdinhodjaev Mr 2012 2013, to From University. in from Economics Tashkent Economic Degree Master’s received 2002 In 2000. in Economy and Diplomacy in Uzbekistan World of University from Graduated September 2013 since JSC Kcell of B2C of Director Nasritdinhodjaev Hikmatulla Manager.Communications Marketing of position the held 2013 she Internal From Communications. 2010 to for responsibility had also and Director as Human Department Resources served she 2010, till 2004 From Department. inpositions the Customer Relations managerial of anumber held and 1998 in group) TeliaSonera of (part LLC Telecom Azercell in career her started Salimova Ms University. State Baku from History in Graduated July 2013 assignment). (TS international since Kcell at Director Resources Human Salimova Sevda (Born 1974) 1974) (Born (Born 1979)
position up to the Bank Branch Director. Director. Bank Branch the to up position from generalprogressing employee where he spent 12Kazakhstan, years the leading bank in Kazkommertsbank, the joined he 1997 in that, to Prior Branch. Almaty of Manager Branch, Kostanay of Head including positions of anumber held has and 2009 in Kcell joined Dzhilkibayev Mr Economic and Management. in Specialization Public University. Pavlodar from economist an as Graduated 2013. January since Kcell at Department ofDirector Regional Operations Marat Dzhilkibayev Asia LLP. Central Manager in Wimm-Bill-Dann Marketing Trade as served she 2008, to 2007 LLP. From Palmolive Colgate in Specialist Marketing Customer as served she 2007, to 2006 from that, to Prior Marketing Manager. Corporate and Head Marketing Corporate including 2008, since at Kcell positions of anumber held Tsoi has Ms Administration. degree in Business Bachelor degree in Science and Master with University KIMEP from Graduated September 2013. since Kcell at Director B2B Tsoi Olga (Born 1982) 1982) (Born (Born 1976) (Born
also as a consultant to Telecomm company. Telecomm to a consultant as also and basis’ aturn-key ‘on delivery its and was engaged in project TSG development he 1998-2005 From Kazakhstan. Page, Alma in communication paging of Director as 1997-1998 worked he From products. of communications wireless department in and inMotorola Kazakhstan Germany for worked 1997, to Mota Mr 1990 From California. of Southern Management from University MS Systems Boston University; Graduated as computer engineer from since 2008. Business Development Director at Kcell Daniel Mota (2012: nine). 2013 in personnel key management as wereThere ten classified Directors 326,824 thousand). 2013 (2012: KZT 31 December ended year the for thousand 340,189 KZT totalled compensation Directors’ the Company. ofdepending on financialperformance bonus salary,contractual performance management of consists positions a executive full-time in their services remunerationThe paid to for Directors Directors’ remuneration ratio, expenses/revenues capital ratio. expenses EBITDA/capital margin, EBITDA %, in increase revenue KPIs: and goals subject to the achievement of strategic senior management’s remuneration is paid of the part bonus The programmes. similar other any or options stock compensatory the CompanyCurrently has no JSC. Kcell of shares held senior management mentioned above the of members the of none 2013, During Shareholding and remuneration Kcell Annual Report 2013 Report Annual Kcell (Born 1963) 1963) (Born
39
Additional information Financial statements Governance Strategic report Consolidated statement of financial position
31 December 31 December In thousands of Kazakhstani Tenge Note 2013 2012 Assets Non-current assets Property, plant and equipment 8 112,368,845 110,336,802 Intangible assets 9 13,954,545 16,139,75 4 Other non-current assets 10 3,130,944 3,121,627 Total non-current assets 129,454,334 129,598,183
Current assets Inventories 499,180 977,772 Trade and other receivables 11 9,268,357 14,364,046 Prepaid current income tax 834,480 1,596,283 Due from related parties 7 306,862 29,546 Cash and cash equivalents 18,916,258 3,075,138 Total current assets 29,825,137 20,042,785 Total assets 159,279,471 149,640,968
Equity Share capital 12 33,800,000 33,800,000 Retained earnings 63,392,942 32,403,052 Total equity 97,192,942 66,203,052
Liabilities Non-current liabilities Deferred income tax liability 18 5,231,448 5,10 4,217 Other non-current liabilities 1,426,245 988,203 Total non-current liabilities 6,657,693 6,092,420
Current liabilities Borrowings 14 24,721,178 48,990,985 Trade and other payables 13 21,490,816 21,256,936 Due to related parties 7 502,045 318,187 Deferred revenue 15 7,346,686 6,011,022 Taxes payable 1,368,111 768,366 Total current liabilities 55,428,836 77,345,496
Total liabilities 62,086,529 83,4 37,916 Total liabilities and equity 159,279,471 149,640,968
Approved for issue and signed on behalf of the Management on 17 April 2014
Ali Agan Baurzhan Ayazbaev Chief Executive Officer Chief Financial Officer
The accompanying notes on pages 44 to 71 are an integral part of these consolidated financial statements.
40 Kcell Annual Report 2013 tax income before Profit expense Finance income Finance The accompanying notes on pages 44 to 71 are an integral part of these consolidated financial statements. financial consolidated these of part integral 71 an to are 44 pages on notes accompanying The Operating expenses operating Other income operating Other expenses andGeneral administrative expenses andSelling marketing profit Gross sales of Cost Revenues TengeIn thousandsof Kazakhstani other comprehensiveand income Consolidated statements of profit or loss year the for Profit expense Income tax year the for income Total comprehensive income comprehensive Other basic Tenge), (Kazakhstani share per Earnings Profit and total comprehensive income for both periods is fully attributable toGroup’sthe and incomeProfit comprehensive forisfully total both periods attributable shareholders.
and
diluted
profit
Note 16 18 17 17 17 12 Kcell Annual Report 2013 Report Annual Kcell 108,130,302 187,599,216 (16,088,993) (79,468,914) (16,614,320) 79,480,883 63,391,890 63,391,890 81,599,575 (10,017,121) (2,417,920) (363,278) 463,992 299,228 316.96 2013 –
182,003,503 105,712,028 (76,291,475) (11,004,899) (15,557,863) (17,194,652) 77,385,896 61,828,033 61,828,033 77,901,934 (181,237) 647,126) (6 570,694 131,088 309.14 2012 41 –
Additional information Financial statements Governance Strategic report Consolidated statement of changes in equity
Charter/ Retained Total In thousands of Kazakhstani Tenge Share capital earnings equity Balance at 1 January 2012 3,914,895 116,337,563 120,252,458 Total comprehensive income for the year – 61,828,033 61,828,033 Transformation from LLP to JSC (Note 1,12) 29,885,105 (29,885,105) – Dividends declared – (115,877,4 39) (115,877,4 39)
Balance at 31 December 2012 33,800,000 32,403,052 66,203,052
Total comprehensive income for the year – 63,391,890 63,391,890 Dividends declared – (32,402,000) (32,402,000)
Balance at 31 December 2013 33,800,000 63,392,942 97,192,942
The accompanying notes on pages 44 to 71 are an integral part of these consolidated financial statements.
42 Kcell Annual Report 2013 year the of end at equivalents cash and Cash changes capital working before flows cash Operating Cash and cash equivalents at beginning of the year the of beginning at equivalents cash and Cash equivalents cash and cash in increase Net activities financing in used cash Net paid Dividends Repayment of borrowing from bankProceeds borrowing activities financing from flows Cash activities investing in used cash Net Purchase of intangible assets equipment and plant property, of Purchase activities investing from flows Cash activities operating from cash Net paid Interest Cash cash Restricted Due from related parties Trade and other receivables assets and intangible equipment and plant property, of disposal on gains less Losses costs Finance Impairment of trade receivables Income taxes The accompanying notes on pages 44 to 71 are an integral part of these consolidated financial statements. financial consolidated these of part integral 71 an to are 44 pages on notes accompanying The revenuesDeferred received fromDeposits subscribers parties related to Due payables other Trade and payable Taxes Inventories Net income activities operating from flows Cash TengeIn thousandsof Kazakhstani flows of cash Consolidated statement Amortisation of intangible assets Amortisation Depreciation of property, plant ofDepreciation and property, equipment for: Adjustments
generated
from
operations
Note 18 14 14 12 11 9 8 Kcell Annual Report 2013 Report Annual Kcell 100,243,743 (64,902,000) (40,402,000) (51,400,000) (15,795,866) (17,312,896) 26,900,000 90,638,983 63,391,890 98,056,016 18,916,258 19,549,811 15,841,120 (2,187,727) (1,517,030) 2,972,661 4,361,840 1,012,056 3,075,138 3,577,512 2,417,920 (277,316) 889,034 323,608 183,858 478,592 733,770 599,745 (50,363) 79,046 2013 1787439) (107,877,4 (23,263,472) (24,983,703) (59,481,086) 53,395,353 86,239,425 85,324,387 61,828,033 86,186,931 (4,999,000) 18,812,111 (1,192,368) (1,720,231) 3,968,634 1,352,996 3,075,138 2,167,238 1,722,142 (772,393) (509,082) (152,020) 858,484 105,384 440,768 136,797 47,126 6 (56,047) (52,494) (62,759) 19,519 2012 43
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements
1 The Group and its operations In 2008, the Group accepted an offer from the government These consolidated financial statements have been of the Republic of Kazakhstan to acquire additional 5 MHz prepared in accordance with International Financial radio frequencies in the range of 1800 MHz. On 26 August Reporting Standards for the year ended 31 December 2008, the competent authority approved an addendum to 2013 for Kcell JSC (the “Company”) and its subsidiaries the Group’s operating GSM license. The revised license (together referred to as the “Group”). provides the Group with a right to operate both GSM-900 and GSM-1800 networks. Under revised terms, the Group The Company was established as a limited liability provided all locations with population over 1,000 people partnership (GSM Kazakhstan ОАО Kazakhtelecom LLP) with mobile services using GSM-900 and GSM-1800 on 1 June 1998 to design, construct and operate a cellular standards by 31 December 2012. telecommunications network in the Republic of Kazakhstan, using the GSM (Global System for Mobile The Company acquired KT-Telecom LLP (“KT-Telecom”) Communications) standard. The Company began its in 2008 and AR-Telecom LLP (“AR-Telecom”) in 2007. commercial operations in 1999 through direct sales and The purpose of these acquisitions was to obtain wireless a network of distributors. Prior to 2 February 2012 the local loop (“WLL”) licenses (Note 9). In 2009, KT-Telecom Company was owned 51 percent by Fintur Holdings B.V. and AR-Telecom commenced their operating activities; (“Fintur” or “Parent” company) and 49 percent by accordingly the Group started to prepare consolidated Kazakhtelecom JSC (“Kazakhtelecom”). Fintur itself is financial statements since 2009 (Note 2). In 2010, WiMAX owned jointly by Sonera Holding B.V. and Turkcell Iletisim services were launched in Astana and Atyrau under WLL Hizmetleri A.S., with holdings of 58.55 percent and licenses. Subsequently in 2011, the ownership of WLL 41.45 percent respectively. On 2 February 2012 the licenses have been transferred to the Company. 49 percent stake in the Company owned by Kazakhtelecom was sold directly to Sonera Holding B.V. (Sonera), On 25 December 2010, the competent authority signed a subsidiary of TeliaSonera. On 1 July 2012 the General an addendum to the existing GSM license, which provides Meeting of participants of GSM Kazakhstan LLP approved the Group with a right to operate a 3G network. In a conversion of the Company from Limited Liability December 2010, the Group launched 3G services in Partnership to Joint Stock Company (the Conversions), Astana and Almaty. The addendum requires the Group to with 200,000,000 common shares to be transferred to provide all locations with population over 10,000 people Fintur and Sonera in proportion to their ownership with mobile services using UMTS/WCDMA standards percentage. The General Meeting also approved the until 1 January 2015 (Note 9). Company’s change of name to Kcell JSC. On 27 August 2012 the Ministry of Justice registered the Company as a On 1 July 2011 the Ministry of Communication and Joint Stock Company. Under Kazakh law, upon Conversion, Information of Kazakhstan extended the Company’s retained earnings as of the date of Conversion became general license from initial 15 years to unlimited period share capital of the Group and ceased to be available for of time. distribution to shareholders. The Company’s ultimate parent and controlling party is TeliaSonera. The Company has successfully completed its offering of Global Depositary Receipts on the London Stock In an auction arranged by the Republic of Kazakhstan in Exchange and common shares on Kazakhstan Stock June 1998, the Group obtained a non-exclusive general Exchange on 13 December 2012. The offering consisted license for 15 years to provide mobile telephone services of a sale by TeliaSonera of 50 million shares, which in accordance with GSM standard 900 (GSM-900). The represents 25 percent of the Company’s share capital Group started its commercial activity in 1999 through direct (Note 12). sales and a network of distributors. The Group provides cellular services throughout most of the territory of the The Company’s registered address is 100, Samal-2, Republic of Kazakhstan. At present, the Group is one of Almaty, Republic of Kazakhstan. The head office is located three GSM cellular phone carriers operating in the at Timiryazeva street, 2, Almaty, Republic of Kazakhstan. Kazakhstani market. The Group operates under its own brands, Kcell (postpaid and paid-in-advance subscribers) and Activ (prepaid subscribers).
44 Kcell Annual Report 2013 financial andsopolicies asoperating tobenefits. obtain the govern to power has otherwise or rights voting the of half one than more of interest an has indirectly, or directly (including entities) purpose special in the which Group, are companies and those Subsidiaries other entities Consolidated financialstatements of the Republicoutside of Kazakhstan. countries most in currency convertible afreely Tenge not is Tengeto converting into At other present, currencies. relating and exist controls currency restrictions Exchange 1=Tenge 2012: 150.74).Tenge USD 153.61 (31 December 1= USD was balances currency foreign translating for used exchange of rate principal 2013 the 31At December year. the for loss or profit the in recognised are in denominated foreign currency and liabilities assets and ofof from the monetary translation such transactions from the settlement Gains resulting and losses Kazakhstan. by NationalBankestablished of the Republic of transaction the of date the at prevailing rate exchange Foreign are currency transactions accounted for at the (ii) Transactions and balances is of currency Tenge. the functional Group entities The operates. economic in environment the which entity Functional is currency the of currency the primary (“Tenge”), stated. otherwise unless Tengeare presentedin of thousands Kazakhstani instatements amounts All consolidated financial these (i) currency Functional and presentation Foreign currency translation estimates. those from differ could results Actual 3. Note are in disclosed statements consolidated financial tothe are and significant where assumptions estimates higher degree of judgement or complexity, or areas Group’s a areas The policies. accounting involving the applying of process the in judgement its exercise to management requires also It estimates. accounting critical certain of use the requires IFRS with conformity in of preparation statements The consolidated financial (refer to Note 4, Pronouncements). New Accounting stated otherwise unless of statements, these preparing time the at as adopted early and issued or effective and issued interpretations IFRIC and standards IFRS those with havebeen statements prepared financial in accordance areset below.statements out financial consolidated These appliedpolicies in of the preparation consolidated these accounting principal The value. fair on based instruments financial of recognition initial the by modified as convention cost under the (“IFRS”) historical Standards Reporting Financial International prepared in with accordance havebeen statements consolidated financial These preparation of Basis 2 policies
Basis of preparation and significant accounting accounting significant and of preparation Basis
in the profit or loss for the year when the asset is retired. is asset the when year the for loss or profit the in amount are recognised carrying with proceeds comparing by determined disposals on losses and Gains date. reviewed, and adjusted if appropriate, at each reporting are lives useful and values residual assets’ The life. physical its of end the until asset the use to expects Group the if nil is asset an of value residual The life. useful its of end the at expected condition the in and age the of already was asset the if disposal, of costs estimated the less asset the of disposal from obtain currently would Group the that amount estimated the is asset an of value residual The Other devices and transmission Switches Buildings values over their estimated useful lives: useful estimated their over values residual their to cost their allocate to method straight-line the using calculated is equipment and plant property, is notLand on depreciated. other Depreciation items of (ii) Depreciation use. for available is asset the in is progress notamount. depreciated Construction until to and at buildings carrying equipment their transferred are assets completion, Upon cost. at carried is progress in andcapitalised the is replaced retired. part Construction plant and of equipment property, itemscomponents are or parts major replacing of Cost incurred. when of minor and repairs Costs maintenance are expensed or purchase price. cost construction the at arriving in deducted are rebates and discounts trade Any use. intended its for condition working to asset the bringing of costs attributable directly and any taxes, and non-refundable duties including import or cost purchase price, construction comprises Cost accumulated depreciation and for provision impairment. less cost, at stated are equipment and plant Property, (i) and subsequentmeasurement Recognition Property, plant and equipment the Group’swith policies. consistent policies accounting use uniform subsidiaries its of all and Company The recovered. be cannot cost the are also eliminatedunless losses unrealised are groupeliminated; companies between on transactions gains and unrealised balances transactions, Intercompany ceases. control that date the from deconsolidated are date) and (acquisition Group the to transferred is control which on areanother consolidated from Subsidiaries the entity. date the Group controls whether whenassessing considered are exercisablepresently or convertible presently are that rights voting potential of effect and existence The
Kcell Annual Report 2013 Report Annual Kcell Useful lives in lives years Useful 10 25 to 4 to 8 4 to 8 4 to
45
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
2 Basis of preparation and significant accounting Operating leases policies continued Where the Group is a lessee in a lease which does not Property, plant and equipment continued transfer substantially all the risks and rewards incidental (iii) Impairment to ownership from the lessor to the Group, the total lease At each reporting date the management assesses whether payments are charged to profit or loss on a straight-line there is any indication of impairment of property, plant and basis over the period of the lease. equipment. If any such indication exists, the management estimates the recoverable amount, which is determined The lease term is the non-cancellable period for which as the higher of an asset’s fair value less costs to sell and the lessee has contracted to lease the asset together its value in use. The carrying amount is reduced to the with any further terms for which the lessee has the option recoverable amount and the impairment loss is recognised to continue to lease the asset, with or without further in the profit or loss for the year. An impairment loss payment, when at the inception of the lease it is reasonably recognised for an asset in prior years is reversed if there certain that the lessee will exercise the option. has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell. Inventories Inventories are recorded at the lower of cost and net Intangible assets realisable value. Cost of inventory is determined on the The Group’s operating GSM license (GSM-900, GSM-1800 weighted average basis. Net realisable value is the and 3G), as disclosed in Notes 1 and 9, are recorded at estimated selling price in the ordinary course of business, cost and are amortised on a straight-line basis over the less the cost of completion and selling expenses. estimated economic useful life of the license/right. Trade and other receivables The economic useful life of the original GSM license and Trade and other financial receivables are initially 3G license is estimated by management at 15 years. recognised at fair value and subsequently measured at The useful life of the initial license term is in line with the amortised cost using the effective interest method, less management assessment of the development of provision for impairment. communication technology. The economic useful life of the right for the radio frequencies (GSM-1800) is estimated by A provision for impairment of receivables is established management to expire in line with the original GSM license. when there is objective evidence that the Group will not be able to collect all amounts due according to the original Other intangible assets are amortised over their estimated terms of receivables. The amount of the provision is the useful lives as follows: difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted Useful lives in years at the original effective interest rate. The amount of the Computer software and provision is recognised in the profit or loss for the year. software license rights 4 to 8 When a trade receivable is uncollectible, it is written off Other telecom licences 10 against the provision for impairment account for trade Other 8 to 10 receivables. Subsequent recoveries of amounts previously written off are credited to the profit or loss for the year. If impaired, the carrying amount of intangible assets is The primary factor that the Group considers whether a written down to the higher of value in use or fair value less receivable is impaired is its overdue status. costs to sell. Prepaid taxes, deferred expenses and advances to When the Group acquires a group of assets that does not suppliers are stated at actual amounts paid less provision constitute a business, it allocates the cost of the group for impairment. between the individual identifiable assets in the group based on their relative fair values at the date of acquisition. The Group accounted for the acquisitions of AR-Telecom and KT-Telecom (Note 9) as the acquisitions of groups of intangible assets rather than businesses. Accordingly, the costs of acquisitions of those entities were allocated to the costs of acquired assets.
46 Kcell Annual Report 2013 position on a net basis. anet on position financial of statements the in stated is date reporting the at unsettled purchases and sales to VAT related Accordingly, VAT of basis. anet on settlement the permits legislation tax The asupplier. from invoice atax of receipt VAT upon output against VAT reclaimable is Input rendered. aregovernment when goods are shipped or services the to payable is sales to related (“VAT”) tax added Value tax added Value note.subsequent events the in disclosed are issue for authorised are statements and period before the consolidated financial reporting the end ofapproved. declared after the Anydividends and declared are they which in period the in equity are recorded and asDividends a deducted from liability Dividends equity. in premium share as recorded is issued shares of value par the over received consideration of value and income. other comprehensive Anyexcess of the fair to ofexpensed or the profit loss consolidated statement are shares new of issue the to attributable directly costs Incremental equity. as classified are shares Ordinary Share capital are included in assets. other non-current date reporting the after months twelve least at for a liability settle to used or exchanged being from restricted Balances method. interest effective the using cost amortised at carried are equivalents cash and Cash value. in change of risk insignificant to subject are and less or months three of maturities original with banks with call at held deposits and hand in cash include equivalents cash and Cash Cash and cash equivalents year. the for loss or profit in recognised is loss impairment a corresponding and accordingly down written is prepayment the of value carrying the received, be not will aprepayment to relating services or goods assets, the that indication an is there If received. are prepayments the to relating services or goods the when loss or profit to off written are prepayments Other Group. the to flow will asset the with associated benefits economic future that probable is it and asset the of control obtained has Group the once asset the of amount carrying the to transferred are assets acquire to Prepayments recognition. upon initial as non-current classified be itself will which asset an to relates prepayment the year, when or one after obtained be to expected are prepayment the to relating services or goods the when non-current as classified is Aprepayment impairment. for provision any less cost at carried are Prepayments Prepayments 2 policies
Basis of preparation and significant accounting accounting significant and of preparation Basis continued
operators. operators. lines to of rental other transmission and subscribers, revenues includeOther of sales to handsets distributors services. mail voice and fax parties, third of content providing and inforservices MMS, SMS, of consists services added Value and other services. data include WAP services revenues from GRPS, services Data using the Group’ssubscribers network. charged to for otheroperators wireless non-Group and revenues roaming in operators’ network, other wireless roaming revenues charged to the Group’s for subscribers includes call outrevenue,Voice fees, interconnect service and other revenues. value added services, services, data services, voice follows: as categorised is Revenue or receivable. received consideration the of value fair the at measured is VAT. and granted Revenue discounts for adjusted value, sales the at basis accrual an on recorded is Revenue Revenue recognition period. current the in asset related the of cost the adjust rate discount the in changes from or outflows, the of amount or timing estimated retirement obligation thatfrom changes result in the asset existing an of measurement the in Changes period. otherfor than to purposes during produce that inventories period aparticular during used is item the as or acquired is plant and equipment whenan either whenincurred item property of item an of cost the to added are obligations) plantof and property, equipment (asset retirement an and item removing of dismantling costs Estimated obligations retirement Asset small. be may obligations of class same the in included item one any to respect with outflow an of likelihood the if even recognised is of the class obligations asconsidering a whole. A provision by determined is settlement in required be will outflow an arethere likelihood athe that number of obligations, similar Where made. be can amount the of estimate a reliable and obligation, the settle to required be will resources of outflow an that probable is it and events, past of aresult as obligation constructive or legal apresent has Group the when are and recognised charges for liabilities Provisions Provisions for liabilities and charges method. interest effective the using cost amortised at carried are payables trade Subsequently, value. fair at payables trade recognises Group The obligations under its the contract. performed counterparty the when accrued are payables financial other Trade and Trade and other payables
Kcell Annual Report 2013 Report Annual Kcell
47
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
2 Basis of preparation and significant accounting Payroll expenses and related contributions policies continued Wages, salaries, contributions to pension funds, paid Revenue recognition continued annual leave and sick leave, bonuses, and other benefits (i) Call out revenue are accrued in the period in which the associated services Call out revenue is recognised based on the actual airtime are rendered by the employees of the Group. used by the subscribers. Prepayments received for call out revenue are not recognised as revenue until the related Pension payments service has been provided to the subscriber. Revenue is The Group does not incur any expenses in relation to recognised based on the actual traffic time elapsed, at provision of pensions or other post-employment benefits the customer selected calling plan rates. to its employees. In accordance with the legal requirements of the Republic of Kazakhstan, the Group (ii) Interconnect revenues and costs withholds pension contributions from employee salaries The Group charges interconnect per minute fees and fixed and transfers them into state or private pension funds on monthly payments to other local wireless and fixed line behalf of its employees. Upon retirement of employees, operators for calls originated outside and terminated within all pension payments are administered by the pension the Group’s network. The Group recognises such revenues funds directly. when the services are provided. The Group is charged interconnect fees per minute and fixed monthly payments Income taxes by other local wireless and fixed line operators for calls Income taxes have been provided for in these consolidated originated within the Group’s network and terminated financial statements in accordance with Kazakhstani outside of the network. The Company recognises such legislation enacted or substantively enacted by the end costs when the services are provided. of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit (iii) Data revenue or loss for the period except if it is recognised in other The data service is recognised when a service is used by comprehensive income or directly in equity because it a subscriber based on actual data volume traffic or over relates to transactions that are also recognised, in the the contract term, as applicable. same or a different period, in other comprehensive income or directly in equity. (iv) Roaming revenues charged to the Group’s subscribers Roaming revenue from the Group’s subscribers for Current tax is the amount expected to be paid to or roaming in other operators’ network is charged based on recovered in respect of taxable profits or losses for the information provided by other operators to the Group. current and prior periods. Taxable income or losses are based on estimates where the consolidated financial (v) Roaming fees charged to other wireless operators statements are authorised prior to the filling of the relevant The Group charges roaming per minute fees to other tax return. Taxes, other than on income, are recorded wireless operators for non-Group subscribers utilising the within operating expenses. Group’s network. The Group recognises such revenues when the services are provided. Deferred income tax is provided using the balance sheet liability method for temporary differences arising between (vi) Value added services the tax bases of assets and liabilities and their carrying Value added services mainly consists of content provided amounts for financial reporting purposes. In accordance by third parties, different inforservices, fax and voice mail. with the initial recognition exemption, deferred taxes When invoicing the end-customer for third party content are not recorded for temporary differences on initial service, amounts collected on behalf of the principal are recognition of an asset or a liability in a transaction other excluded from revenue. than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable (vii) Deferred revenue profit. Deferred tax balances are measured at tax rates Prepayments received for communication services are enacted or substantively enacted at the reporting date recorded as deferred revenue. The Group recognises which are expected to apply to the period when the revenue when the related service has been provided to temporary differences will reverse or the tax loss carry the subscriber. forwards will be utilised. Deferred tax assets for deductible temporary differences are recorded only to the extent that Sales commission to dealers and distributors it is probable that future taxable profit, including deferred The Company sells part of payment scratch cards, sim tax liabilities, will be available against which the deductions cards, and handsets using various distributors and dealers. can be utilised. Deferred tax assets and liabilities are The Company pays a certain commission to distributors netted only within the individual companies of the Group. and dealers depending on the number of payment scratch cards, sim cards or handset sold. The commission is recognised when the item is sold to the subscriber.
48 Kcell Annual Report 2013 in the statement ofin financial theposition. statement items related of values carrying the in included are and deferred at origination, if any), are not presented separately fees (including premium or discount amortised and coupon accrued both including expense, interest accrued interest method. interest income Accrued and effective the using amount maturity to discount or premium any of and recognition initial at deferred costs transaction of interest includesimpairment Accrued losses. amortisation incurred for write-down any less assets financial for and interest, accrued plus repayments, principal any less recognition at initial wasrecognised instrument financial the which at amount the is cost Amortised market data. by observable supported not assumptions require may techniques Valuation available. not is information pricing market external which for instruments financial certain value fair at measure to used are investees the of data financial of consideration or models based on recent arm’s or transactions length models flow cash discounted as such techniques Valuation as appropriate.position open net the to price asking or bid the apply and positions risk offsetting the for values fair establishing for a basis as prices mid-market use may Group the risks, market offsetting with liabilities and assets For market. active an quotedwhich are in forliabilities financial price asking current the and assets financial for price bid current the is value Fair transaction. arm’s an length in parties willing knowledgeable, exchanged, between orsettled, a liability be could asset an which for amount the is value Fair below. described as cost amortised or value fair at carried are financial instruments Depending on their classification (i) Key measurement terms Financial instruments the Group’s segment. as operations a single reporting as theCompany’s identified CEO. GroupThe determined separately. chief decision-makerhas The operating been reported are segments the all of more or percent ten are decision maker. revenue, whose Segments result or assets to provided the Group’sinternal reporting chief operating the with consistent amanner in reported are Segments Segment reporting outstanding. securities dilutive potentially or dilutive no has Group The year. reporting the during outstanding shares participating of number average weighted the by Group the of owners to attributable loss or profit the dividing by determined per shareare Earnings shares. to be participating Preference shares are not redeemable and are considered Earnings per share 2 policies
Basis of preparation and significant accounting accounting significant and of preparation Basis continued
and due to related parties (Note 7). (Note parties related to due and 13) (Note payables financial other and trade comprise Group’s The cost. liabilities financial at amortised carried liabilities of includefinancial Group the liabilities Financial liabilities of financial (iii) Classification accounting. hedge apply not does Group year.The the for loss or profit in included are instruments derivative of value fair the in Changes negative. is value fair when liabilities as and positive is value fair when assets as carried are instruments derivative All value. fair their at carried are options rate interest and andagreements, currency rate interest currency swaps, rate forward futures, rate interest contracts, exchange including foreign financial instruments, Derivative position. of infinancial the consolidatedequivalents statements cash and cash and 7) (Note parties related from due 11), (Note receivables 10), (Note trade cash restricted Group’s The assets. loans comprise and receivables non-current as classified are These period. reporting the of except greater than for 12 maturities the end monthsafter assets, current in included are They market. active an in quoted not are that payments determinable or fixed with financialassets Loans and are receivables non-derivative recognition. initial at assets financial its of classification management The the determines receivables. of the Group includeFinancial assets loans and assets financial of (ii) Classification rate. interest effective the of part integral an are that contract the to parties calculation includes all fees paid or between received value present The instrument. the of life expected whole the over amortised are discounts or premiums Such rates. market to reset not are that variables other or instrument, the in specified rate floating the over spread credit the reflects which discount or premium the for except date, repricing interest to the next instruments interest variable of flows cash discounts rate interest effective The amount of the financial instrument. to the net carrying ifperiod, appropriate, or financialshorter a instrument the of life expected the through losses) credit future (excluding receipts or payments cash future estimated discounts exactly that rate the is rate interest effective The amount. carrying the on rate) interest (effective interest of rate periodic aconstant achieve to as so period, incomeinterest or over expense interest the relevant allocating of amethod is method interest effective The
Kcell Annual Report 2013 Report Annual Kcell
49
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
2 Basis of preparation and significant accounting Useful lives of property, plant and equipment and policies continued intangible assets Financial instruments continued Management determines the estimated useful lives and (iv) Initial recognition of financial instruments related depreciation and amortisation charges for its Derivatives are initially recorded at fair value. All other property, plant and equipment and intangible assets. financial assets and liabilities are initially recorded at fair This estimate is based on projected period over which value less transaction costs. Fair value at initial recognition the Group expects to consume economic benefits from is best evidenced by the transaction price. A gain or loss the asset. It could change significantly as a result of on initial recognition is only recorded if there is a difference technical innovations and competitor actions in a between fair value and transaction price which can be high-tech and competitive mobile industry. Carrying evidenced by other observable current market transactions amount of assets most affected by judgements (switches in the same instrument or by a valuation technique whose and transmission devices) amounted to 68,228,770 inputs include only data from observable markets. thousand Tenge (Note 8) as of 31 December 2013 (2012: 61,080,559 thousand Tenge). Management will increase (v) Derecognition of financial assets the depreciation charge where useful lives are less than The Group derecognises financial assets when (a) the previously assessed estimated lives, or it will write-off assets are redeemed or the rights to cash flows from or write-down technically obsolete assets that have been the assets otherwise expired or (b) the Group has abandoned or sold. transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through The management assesses the useful life of arrangement while (i) also transferring substantially all the telecommunication licenses based on technology risks and rewards of ownership of the assets or (ii) neither development and legal terms of the license agreements. transferring nor retaining substantially all risks and rewards The useful life of GSM and 3G license is assessed as of ownership but not retaining control. Control is retained estimated by the management as 15 years. The useful if the counterparty does not have the practical ability to sell lives are reviewed at least at each reporting date. the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Impairment of non-financial assets At each reporting date management assesses whether there is any indication of impairment of non-financial 3 Critical accounting estimates, and judgements assets. If any such indication exists, management in applying accounting policies estimates the recoverable amount, which is determined The Group makes estimates and assumptions that affect as the higher of an asset’s fair value less costs to sell the reported amounts of assets and liabilities within the or its value in use. Calculation of value in use requires next financial period. Estimates and judgements are application of estimated data and professional judgment continually evaluated and are based on management’s from management, which are considered reasonable experience and other factors, including expectations of in the existing circumstances. future events that are believed to be reasonable under the circumstances. Management also makes certain In accordance with the Group’s accounting policy, for the judgements, apart from those involving estimations, in the purposes of impairment testing, assets are grouped at process of applying the accounting policies. Judgements the lowest levels for which there are separately identifiable that have the most significant effect on the amounts cash flows (cash-generating units). Management has recognised in these consolidated financial statements determined the whole telecommunication network of the and estimates that can cause a significant adjustment to Group as one cash-generating unit. Telecom licenses and the carrying amount of assets and liabilities within the other intangible assets, including WLL licenses, do not next financial period include: generate independent cash flows and are assessed for impairment together with the related network assets. Total carrying value of the cash generating unit as of 31 December 2013 is 126,323,390 thousand Tenge (2012: 126,476,556 thousand Tenge).
Management has considered whether there are any indications of impairment of property, plant and equipment and intangible assets as of 31 December 2013 and concluded that no impairment indications existed at this date.
50 Kcell Annual Report 2013 • • 20132011 are: November and 2010, December October in amended and 2009 November Measurement”. IFRS 9 “Financial Instruments: Classification and adopted. early not has Group the 2014 which later, and or 1January after or on beginning periods annual the for mandatory are that issued have and been new interpretations standards Certain 5 Group’sthe significantly statements. financial 2013 affect 1January from effective interpretations and standards other no above, described otherwise Unless Refer tostatements. Note consolidated financial20. these in disclosures additional in resulted Standard The set-off. of including rights arrangements, of netting potential effect or to evaluatestatements theconsolidated financial effect entity’s an of users enable that disclosures requires 2013). 1January amendment The after or on beginning periods annual for 2011 effective December and in 7(issued IFRS to –Amendments Liabilities” “Disclosures Financial –Assets Offsetting and Financial andof balances. transactions measurement on impact any have not did but statements, ofin consolidated financial changed presentation income”.comprehensive resulted amended The standard other and loss or profit of “statement to changed 1has IAS by used title suggested The future. the in loss or profit to reclassified be may they not or whether on based groups, items in presented income into other comprehensive two income. to require amendments separate The entities disclosure of items in presented other comprehensive 2012) 1July changed the after or on beginning periods 2011, June annual in for (issued effective Statements” Financial of 1“Presentation IAS to Amendments 2013: 1January from Group the for effective became and followingThe new interpretations standards interpretations 4
at fair value through profit or loss. or profit through value fair at measured be to are instruments debt other All features”). loan “basic only has it is, (that only interest and principal of payments represent flows cash contractual asset’s the (ii) and flows, cash contractual the collect to asset the hold to is model business entity’s the of objective (i) the both and instrument adebt is it if only cost amortised at measured subsequently is instrument An of the instrument. flowcharacteristics cash and the contractual instruments financial its managing for model business entity’s the on dependsmade at initial recognition. classification The be to is decision The cost. amortised at subsequently measured be to those and value, fair at subsequently measurement categories: those to be measured two into classified be to required are assets Financial Adoption of new or revised standards and and standards revised or new of Adoption New Accounting Pronouncements Pronouncements New Accounting Key features of the standard issued in in issued standard the of features Key
the Group’sstatements. financial significantly affect to expected not are interpretations and standards new the above, described otherwise Unless Group. the on impact its and amendment the of the Group isimplications The considering net settlement. may systems beto equivalent considered settlement gross some that and set-off’ of right enforceable alegally has ‘currently of meaning the clarifying includes This criteria. offsetting the of some applying in guidance 32 to identified to IAS addressinconsistencies 2014).1 January amendment The added application after or on beginning periods annual for effective and 2011 December in (issued 32 IAS to Amendments FinancialAssetsOffsetting and FinancialLiabilities – 9. IFRS of version existing the adopt to intend not does Group The voluntary. standard the of application date, thus making effective removed mandatory its 2013 November 9in IFRS to made amendments The • • • address accounting foraddress accounting macro hedging. not does currently standard the because hedges all to 39 IAS apply to continuing 9and IFRS of requirements the hedge applying accounting choice between an policy accounting with entities provides standard management. risk The moreaccounting with closely Hedge accounting requirements were amended to align or through in profit loss income. comprehensive other value fair at designated liabilities financial of risk credit own in changes of effects the present to required be will entity an that is change key 9. The IFRS to unchanged forward carried were of liabilities financial measurement and classification for 39 IAS in requirements the of Most investment. on areturn represent they as long as loss, or profit in presented be to are Dividends basis. instrument instrument-by- an on made be may election This loss. or profit to losses and gains value fair of recycling no be to is There or income than rather profit loss. comprehensive other through losses and gains value fair realised and unrealised to recognise be made recognition, at initial can election irrevocable an investments, equity other all For loss. or profit through value fair at measured be will trading for held are that instruments Equity value. fair at subsequently measured be to are instruments equity All
Kcell Annual Report 2013 Report Annual Kcell
51
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
6 Segment information The Group’s operations are a single reportable segment.
The Group provides mobile communication services in Kazakhstan. The Group identifies the segment in accordance with the criteria set in IFRS 8 and based on the way the operations of the Group are regularly reviewed by the chief operating decision maker to analyse performance and allocate resources among business units of the Group.
The chief operating decision-maker (“CODM”) has been determined as the Company’s CEO. The CODM reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined a single operating segment being mobile communication services based on these internal reports.
Within the segment all business component demonstrates similar economic characteristics and are alike as follows: • Providing mobile communication services to prepaid subscribers. • Providing mobile communication services to postpaid and paid-in-advance subscribers.
The chief operating decision-maker assesses the performance of the operating segment based on a measure of Revenue, EBITDA, EBIT, and Profit for the year. The Group defines EBITDA as Profit before income tax, finance income and costs, depreciation, and amortisation. The Group defines EBIT as Profit before tax, finance income and finance costs. The Group’s definition of EBITDA and EBIT may differ from that of other companies.
The accounting policies used for segments are the same as accounting policies applied for these consolidated financial statements as described in Note 2.
The segment information for the year ended 31 December 2013 and a reconciliation of segment’s measures of profit or loss to profit for the year is provided as follows:
In thousands of Kazakhstani Tenge 2013 2012 Revenue 187,599,216 182,003,503
EBITDA 104,726,898 100,682,679 Depreciation and amortisation (23,127,323) (22,780,745)
EBIT 81,599,575 77,901,934 Finance income 299,228 131,088 Finance cost (2,417,920) (6 47,126)
Profit before income tax 79,480,883 77,385,896 Profit for the year 63,391,890 61,828,033
The Group’s revenue for each service is presented in the Note 16. All revenue is attributable to the customers in Kazakhstan. All non-current assets other than financial instruments and deferred tax assets are located in Kazakhstan.
52 Kcell Annual Report 2013 Turkcell owner of Parent) (Minority prior 2 February 2012) 2February prior owner (Minority Kazakhtelecom follows: 2013 as 2012 and were 31 December ended years the for parties related with items income The parties related to Total due TeliaSonera parent) (Ultimate parties –related Total revenues Entities of TeliaSoneraEntities group of TeliaSoneraEntities group Turkcell owner of Parent) (Minority of TeliaSoneraEntities group of TeliaSoneraEntities group Amounts due to related parties at 31 December 2013 follows: 2012 as and are 31 at December parties related to due Amounts 2014. in repaid fully be will thousand Tenge of 306,862 amount the in parties related andbasis of have which long-term cooperation a Group’s good history.The credit management believes that due from is do determined by not entities havebuttheirthe Group reliability on assigned These ratings the credit roaming services. are due due past neither fromAmounts related nor impaired. parties for from related receivables It represents parties parties related from Total due Fintur Holding B.V. Holding Fintur (Parent) TengeIn thousandsof Kazakhstani Entities of TeliaSoneraEntities group Revenues TengeIn thousandsof Kazakhstani Entities of TeliaSoneraEntities group of TeliaSoneraEntities group TengeIn thousandsof Kazakhstani 2013 follows: 2012 as and are 31 at December parties related from due Amounts under ofinclude and common control TeliaSonera. entities associates the of relationship, not merely the legal form. is Group’s The TeliaSonera. of substance TeliaSonera Entities ultimatecontrollingparty the to group directed is attention relationship, party related possible each considering In decisions. operational and financial making in party other the over control joint or influence significant exercise can or common control, under is party, other the control to ability the has party one if related be to considered generally are Parties 7 Turkcell owner of Parent) (Minority Entities of TeliaSoneraEntities group Balances and transactions with related parties related with transactions and Balances
Roaming Interconnect Roaming Interconnect Roaming Roaming Roaming Interconnect Technical assistance and support operational assistance technical Consulting, Roaming and support operational assistance technical Consulting, Roaming Roaming Rent
Kcell Annual Report 2013 Report Annual Kcell 31 31
December December 502,045 306,862 392,660 271,944 113,485 190,974 136,105 43,686 98,626 24,100 56,177 13,113 4,456 2,324 5,066 2013 2013 2013 79 – 31 December 31 December 284,503 232,297 412,961 132,183 318,187 29,546 25,849 20,532 48,481 4,464 8,688 3,697 2012 2012 2012 53 – – – –
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
7 Balances and transactions with related parties continued The expense items with related parties for the years ended 31 December 2013 and 2012 were as follows:
In thousands of Kazakhstani Tenge 2013 2012 Operating expenses Entities of TeliaSonera group Transmission 845,957 – Entities of TeliaSonera group Roaming 390,723 357,620 Entities of TeliaSonera group Interconnect 208,551 – Fintur Holding B.V. (Parent) Technical assistance 108,157 92,454 Turkcell (Minority owner of Parent) Roaming 59,836 168,033 Telia Sonera (Ultimate parent) Roaming 22,368 21,054 Kazakhtelecom (Minority owner prior 2 February 2012) Interconnect and transmission – 538,025 Total expenses – related parties 1,635,592 1,17 7,186
The Group has transmission (Note 19) and interconnect agreement with KazTransCom JSC, that became a related party of the Group starting from 14 January 2013 (Note 19).
The Group has also roaming agreements with Latvijas Mobilais Telefons SIA (“Latvijas Mobilais”), Omnitel Telecommunication Networks (“Omnitel”), Sonera Carrier Networks Ltd. (“Sonera Carrier”), Sonera Corporation, Telia Mobile AB Finland (“Telia Mobile”), the subsidiaries of TeliaSonera, Megafon and Estonian Mobile Telephone Group (“Estonian Mobile”), the associates of TeliaSonera, Turkcell, and Fintur’s subsidiaries, which are as follows: Azercell Telecom B.M. (“Azercell”), Geocell Ltd. (“Geocell”), Moldcell Ltd. (“Moldcell”), Telia Denmark, NetCom ASA (Telia NetCom Holding AS), TOV Astelit (“TOV Astelit”), Indigo Tajikistan (“Indigo Tajikistan”), Coscom LLC and Spice Nepal Pvt. Ltd. (“Spice Nepal Pvt. Ltd.”) under which they earn and incur certain revenues and costs. Since these revenues and costs occur continually, the balances between them are normally settled by means of mutual set-off.
In January 2003 the Group entered into a Technical and Management Support Agreement (“TMS Agreement”) with Fintur. In accordance with the TMS Agreement, Fintur provides the Group with technical and management assistance.
The Group delivers consulting, technical assistance and operational support to TeliaSonera UTA Holding B.V. and Indigo Tajikistan.
Memorandum on understanding On 26 August 2012, Sonera and the Group entered into a memorandum of understanding (the Buy and Sell MoU). Under this MoU the Group has the right to require Sonera to sell to it, and Sonera has the right to require the Group to acquire from it, all participatory interests owned by Sonera in KazNet Media LLP (KazNet) and in Rodnik Inc LLP (Rodnik). Subject to satisfaction of the applicable conditions, each of Sonera and the Group is entitled to exercise its option at any time starting from nine months after the date of the planned offering of global depository receipts and listing on local stock exchange (Note 19).
The contractual right of Sonera to sell the underlying assets (debt and equity interests and related rights and obligations) to Kcell is a financial instrument (derivative) within the scope of IAS 39. The derivative instrument should be measured at fair value, with the changes in fair value recognised in income statement. The Group does not have an unconditional right to avoid the settlement.
Sonera has the right to terminate the Buy and Sell MoU at any time by serving a written notice to the Company.
Unless otherwise agreed by Sonera and the Company, exercise of these options is conditional upon Fintur having consented to, authorised or voted in favour of the acquisition to be made by the Company as a result of the exercise of such right. In addition, completion of the acquisition contemplated by the exercise of options is subject to law, regulation and any requisite approvals. Sonera has the option to sell (the “Put Option”) and the Company has the option to buy (the “Call Option”) the participatory interest. Strike price of both the options equals net costs incurred by Sonera, annually compounded using the interest rate (interest accruals begins when the costs are incurred or the receipts are cashed and ends when the participatory interest are transferred).
54 Kcell Annual Report 2013 Additions 201231 December Carrying Accumulated depreciation 2012 31 at December Cost Depreciation charge Depreciation Depreciation charge Depreciation Disposals Transfers Disposals Cost at 31 December 2013 31 at December Cost Accumulated depreciation Transfers Additions 201131 December Carrying 2011 31 at December Cost Tenge Kazakhstani In thousandsof follows: as were equipment and plant property, of amount carrying the in Movements 8 include forpersonnel ten 2013. positions management as key classified Tenge). Directors 2013 (2012:thousand 31 326,824 December ended year the Tenge for 340,189to thousand equal is income comprehensive other and loss profit of statements the in costs staff in included rentfrom the Group and expenses parent companies. of Totalreimbursement apartment directors’ compensation ofGroup,the bonus depending on and financialperformance in compensation other salary, form of performance acontractual of consists positions management executive time full in services their for directors to paid Compensation Directors’ compensation respect. this in notification a written issuing by it cancel to option the has Sonera as nil is assets the acquire to Option Call the of value The zero. is which cost, original at derivative the measured Company The the of derivative. valuation in uncertainty an is there Accordingly, regulation. 4G/LTE in changes requires of timing in uncertainty an is there addition In Fintur. of authorisation the without exercised be can Option Call the nor Option Put the Neither Memorandum on continued understanding 7 201331 December Carrying Accumulated depreciation still in use, was approximately 44,824,120 thousand Tenge (31 December 2012: Tenge 27,007,160 (31 December 44,824,120 Tenge). thousand thousand approximately was use, in still and depreciated fully been has which equipment, and plant property, of value carrying gross 2013, the 31At December
Balances and transactions with related parties continued parties related with transactions and Balances Property, plant and equipment
amount amount amount
at at at
1,993,267 1,939,630 2,074,747 1,993,267 1,939,630 2,074,747 Freehold 53,637 81,480 land – – – – – – – – – 22,756,800 22,477,722 19,119,762 22,646,420 27,291,320 (5,364,994) 28,121,794 (3,526,658) (4,813,598) (1,050,722) 107441) (1,087,4 2,815,602 1,631,609 Buildings 888,397 483,921 (38,529) (5,799) Switches 68,228,770 148,284,982 51,300,430 transmission 61,080,559 163,873,471 123,271,626 (87,204,423) (95,644,701) (15,709,054) (14,576,172) (71,971,196) 20,384,874 17,236,323 4,016,987 5,674,721 (45,560) (53,779) devices
and 1,2, 45) (17,926,4 (14,965,816) 25,200,837 8,692,560 23,658,376 (12,759,716) 5,956,212 7,274,392 18,715,928 (2,753,316) (3,185,217) 4,576,588 1,397,685 ,1,64 1,110,56 243,932 (19,348) (52,708) Other Kcell Annual Report 2013 Report Annual Kcell Construction 16,092,694 22,055,614 12,034,136 (23,414,168) 16,092,694 (17,964,176) 13,905,738 22,055,614 12,034,136 progress in 17,451,248 (120) – – – – – – 112,368,845 100,371,648 110,336,802 (106,983,837) (118,936,140) 231,304,985 188,629,218 217,320,639 (88,257,570) (19,549,811) 28,914,062 21,660,901 (18,812,111) (136,797) (79,046) Total 55 – –
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
9 Intangible assets Computer GSM software and network software Other license and license telecom In thousands of Kazakhstani Tenge rights rights licenses Other Total Cost at 31 December 2011 14,462,162 15,739,232 3,317,778 3,998 33,523,170 Accumulated amortisation (7,162,028) (6,835,396) (1,090,759) (1,296) (15,089,479)
Carrying amount at 31 December 2011 7,300,134 8,903,836 2,227,019 2,702 18,433,691
Additions 102,417 1,572,280 – – 1,674,697 Transfers – – – – – Disposals (net) – – – – – Amortisation charge (1,068,358) (2,568,371) (331,778) (127) (3,968,634)
Cost at 31 December 2012 14,564,579 17,311,512 3,317,778 3,998 35,197,867 Accumulated amortisation (8,230,386) (9,403,767) (1,422,537) (1,423) (19,058,113)
Carrying amount at 31 December 2012 6,334,193 7,907,745 1,895,241 2,575 16,139,754
Additions – 1,392,237 – 66 1,392,303 Transfers – – – – – Disposals (net) – – – – – Amortisation charge (1,134,867) (2,109,507) (331,778) (1,360) (3,577,512)
Cost at 31 December 2013 14,564,579 18,703,749 3,317,778 4,064 36,59 0,170 Accumulated amortisation (9,365,253) (11,513,274) (1,754,315) (2,783) (22,635,625)
Carrying amount at 31 December 2013 5,199,326 7,190,475 1,563,463 1,281 13,954,545
The original GSM network license (GSM-900) was provided by the State Committee of Telecommunications and Information of the Republic of Kazakhstan for a fee in amount of 5.5 billion Tenge and is valid for 15 years, commencing June 1998. On 28 August 2008, the Group obtained a radio frequency band of 5 MHz spectrum (receipt/transit) in the range of 1800 MHz under the existing GSM network license (Note 1) for the amount of 2.6 billion Tenge. The acquired frequencies were capitalised as intangible assets within “GSM network license and rights” category.
The Group acquired two dormant local entities AR-Telecom LLP (“AR-Telecom”) in 2007 and KT-Telecom LLP (“KT Telecom”) in 2008. The purpose of these acquisitions was to obtain non-term WLL licenses and other related telecom licenses held by AR-Telecom and KT-Telecom that provide a right to organise wireless radio-access networks and data transfer services on the territory of Kazakhstan. The acquisitions of these entities were accounted for as acquisitions of groups of assets (licenses) rather than businesses. The acquired licenses were included in category “other telecom licenses” within intangible assets. Management estimated their economic useful life at 10 years.
On 25 December 2010, the Group received a right to operate 3G network by utilising a radio frequency band of 20 MHz (receipt/transit) in the range of 1920-1980 MHz and 2110-2170 MHz. The radio frequencies were provided in the form of addendum to the existing GSM license. The acquisition cost was 5 billion Tenge.
56 Kcell Annual Report 2013 Other receivables Other expenses Deferred Prepaid other taxes VAT recoverable (net) Trade for receivables interconnect services Trade from subscribers receivables Trade andare otherdenominated receivables in as follows: currencies services. from traderoaming receivables fromtrade subscribers, anddistributors, receivables operators for trade receivables and interconnect dealers from receivables other and trade classes: four into receivable accounts its classifies Group The receivables other and Total trade Advances to suppliers Advances assets Total financial for provision Less: impairment of trade receivables Trade from roaming receivables operators Trade and other from dealers and receivables distributors TengeIn thousandsof Kazakhstani 11 assets Total financial US dollar Tenge TengeIn thousandsof Kazakhstani cash Restricted TengeIn thousandsof Kazakhstani 10 Total assets Total financial Prepayments forPrepayments intangibles plant forPrepayments and property, equipment
Trade and other receivables Other non-current assets non-current Other
other
non-current
assets
Kcell Annual Report 2013 Report Annual Kcell 31 31 31 (1,710,085) 2,880,643 9,268,357 5,905,771 5,905,771 3,380,474 1,229,785 2,501,779 3,130,944 5,541,916 2,641,742
December December December 363,855 363,855 540,769 124,727 188,701 131,337 125,574 125,574 2013 2013 2013 –
31 December 31 December 31 December 14,364,046 11,269,608 11,269,608 10,711,122 2,396,607 1,884,047 3,046,416 7,406,783 1,067,051 3,121,627 (976,315) 483,509 558,486 558,486 162,068 514,644 867,166 75,211 75,211 2012 2012 2012 57 –
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
11 Trade and other receivables continued Provision for impairment of trade receivables relates to trade receivables from subscribers and distributors. The ageing analysis of trade receivables is as follows: 31 December 31 December In thousands of Kazakhstani Tenge 2013 2012 Total neither past due nor impaired 5,084,255 10,110,622 Past due but not impaired due for 1 month 154,689 269,526 due for 2 months 77,284 134,853 due for 3 months 63,188 184,394 due for 4 to 6 months 102,166 148,045 due for more than 6 months 424,189 422,168 Total past due but not impaired 821,516 1,158,986
Impaired 30 to 60 days 4,064 6,440 60 to 90 days 7,021 15,133 90 to 120 days 7,570 21,254 120 to 150 days 10,459 16,719 150 to 200 days 760,122 32,698 over 200 days 920,849 884,071 Total impaired 1,710,085 976,315
Provision for impairment of trade receivables (1,710,085) (976,315) Total financial assets 5,905,771 11,269,608
The main factors which the Group takes into account when considering the issue on impairment of receivables are their past due status and collectability. As a result, the Group presented the above aging analysis of receivables. Impairment of receivables was assessed based on past due status of such receivables.
Neither past due nor impaired receivables represent receivables from companies and subscribers with no credit ratings assigned but their reliability is determined by the Company on the basis of long-term cooperation representing those companies which have a good credit history. The Company’s management believes that neither past due nor impaired receivables in the amount of Tenge 5,084,255 thousand will be fully repaid in 2014.
Reconciliation of movements in the financial assets impairment provisions:
In thousands of Kazakhstani Tenge At 31 December 2011 669,224 Charge for the year 440,768 Receivables written off during the year as uncollectible (133,677) At 31 December 2012 976,315
Charge for the year 733,770 At 31 December 2013 1,710,085
58 Kcell Annual Report 2013 period attributable to owners of the Group by the number of common shares approved by the Company’s participants. participants. Company’s the by approved shares common of number the by Group the of owners to attributable the period for profit net dividing by calculated is share per earnings statements, financial consolidated these of purpose the For capital. share Company’s the of percent 25 representing shares including shares, million 50 of by TeliaSonera asale of consisted offering The Exchange. Stock Kazakhstan on shares common and Exchange Stock London the on Receipts Depositary Global of offering its completed successfully has 2012, Company the 13On December shares. treasury have not did Company The vote. one carries share ordinary Each paid. fully are shares ordinary issued All share. Tenge 169 of per value apar with shares thousand 200,000 is shares ordinary of number authorised total The Conversion. of date the on 34 IAS with accordance in prepared statements financial consolidated interim per as equity atotal as formed was Tenge, which thousand 2012 33,800,000 is 31 at December capital share issued Company’s the of amount registered nominal The Company’s (Note to the percentage to their ownership 1). proportionally participants transferred shares common 200,000,000 with Company Stock aJoint to Partnership Liability Limited a from Company the of aconversion approved Kazakhstan GSM of Participants of Meeting 2012 General 1July On Public Fund Pension Accumulative Grantum JSC JSC Central Securities Depositary Securities Central JSC Sonera Sonera Fintur 2013 31 at December payable Dividends paid during the year Dividends declared during the year Dividends 2012 31 at December payable Dividends paid during the year Dividends declared during the year Dividends 2011 31 at December payable Dividends TengeIn thousandsof Kazakhstani shareholders to equity forthe attributable Profit period TengeIn thousandsof Kazakhstani Share capital of the Group at 31 December 2013 2012 follows: as and is 31 at December Group the of capital Share 12 Dividends declared and paid during the years 2013 and 2012 were as follows: 2013 as 2012 and were years the during paid and declared Dividends Tenge), diluted and basic (Kazakhstani share per Earnings Number of common shares
Share capital
23.35 0.95 0.70 Shareholders 24 51
percent percent percent percent percent 2013 31 December
102,000,000 48,000,000 46,709,056 1,900,000 1,390,944 shares of Number
Kcell Annual Report 2013 Report Annual Kcell 22.56 percent 22.56 0.95 percent 1.49 percent 200,000,000 Shareholders Shareholders 31 24 percent 63,391,890 51 percent
December 31 December 2012 31 December 316.96 2013 200,000,000 1787439) (107,877,4 102,000,000 1,7, 39 115,877,4 (40,402,000) 31 December 48,000,000 32,402,000 8,000,000 61,828,033 45,113,528 1,900,000 2,986,472 of shares Number Number 309.14 2012 59 – –
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
13 Trade and other payables 31 December 31 December In thousands of Kazakhstani Tenge 2013 2012 Trade payables 18,636,939 10,664,606 Dividends payable – 8,000,000 Total financial liabilities 18,636,939 18,664,606
Accrued salaries and bonuses to employees 2,634,219 2,499,081 Other payables 219,658 93,249 Total trade and other payables 21,490,816 21,256,936
Trade and other payables are denominated in currencies as follows:
31 December 31 December In thousands of Kazakhstani Tenge 2013 2012 Tenge 17,141,552 17,252,327 US dollar 1,487,285 1,351,326 Euro 2,942 48,438 Other 5,160 12,515 Total financial liabilities 18,636,939 18,664,606
14 Borrowings 31 December 31 December In thousands of Kazakhstani Tenge 2013 2012 Bank loans from: – ATF Bank JSC 3,953,783 3,950,000 – HSBC Kazakhstan JSC 6,007,583 – – Syndicated loans from Citibank Kazakhstan JSC and RBS Kazakhstan JSC 14,759,812 45,040,985 Total borrowings 24,721,178 48,990,985
The Group’s bank loans mature within one year and are denominated in Kazakhstani Tenge. The Group does not apply hedge accounting and has not entered into any hedging arrangements in respect of interest rate exposures.
The carrying amount of borrowings approximates their fair value.
Maturity Loan Effective Outstanding Total Bank name Date of issue date currency interest rate balance borrowings Syndicated loan from Citibank Kazakhstan JSC and RBS Kazakhstan JSC 26.09.2013 26.09.2014 KZT 7.70% 14,759,812 14,759,812 HSBC Kazakhstan 25.09.2013 25.09.2014 KZT 6.64% 6,007,583 6,007,583 ATFBank JSC 27.12.2013 27.01.2014 KZT 6.30% 2,752,599 2,752,634 ATFBank JSC 27.12.2013 26.03.2014 KZT 6.10% 1,201,184 1,201,149 Total 24,721,178 24,721,178
On 25 September 2013, the Company signed a credit line agreement with JSC Halyk Savings Bank for a credit line up to 30 billion Tenge with 24 months access period with an interest rate from 5.3 percent to 7.3 percent per annum for 1 month to 12 months tranches, accordingly. At 31 December 2013 the Company has not utilised this credit line.
60 Kcell Annual Report 2013
Total plant ofDepreciation and of property, equipmentintangible assets and amortization
16 Others Staff costs expenses and advertising to and commissions dealers Sales distributors handsets and sales package start card, scratch card, SIM of Cost income on than other taxes and charges usage Frequency Transmission rent maintenance expenses Network fees andInterconnect expenses TengeIn thousandsof Kazakhstani expenses”. Total by nature by wereadministrative as expenses distributed follows. function and “General and expenses” marketing and “Selling sales”, of “Cost functions the on based a classification are expenses on presented ofOperating or the face and profit of loss incomeusing comprehensive other the statements 17 Voice service TengeIn thousandsof Kazakhstani Total revenueDeferred from pre-paid subscribers subscribers revenueDeferred from paid-in-advance TengeIn thousandsof Kazakhstani 15 2014, correspondingly. March 2014 26 and January 27 on maturing tranches two obtaining by them utilized fully Group 2013 the December 26 on Tenge and 1.2 Tenge billion and 2.75 billion of amounts the for JSC ATFbank with agreements line credit signed Group 2013, the August 2013 23 21 and On June 2013. 24 September from months twelve of annum per amaturity and percent 6.65 of rate interest afixed with extended was Kazakhstan RBS SB JSC and Kazakhstan Citibank JSC Kazakhstan signed on 26 September 2012. RBS SB loan balance of JSC 14.5 outstanding and The billion Tenge Agreement with under the Loan Facility Kazakhstan Citibank JSC with Agreement Facility Loan the under Kazakhstan RBS SB JSC and Kazakhstan Citibank JSC to Tenge loan billion 30 of Tenge part 15.5 billion repaid Group 2013, the September 26 On 2012. 17 on October signed Kazakhstan RBS SB JSC and Kazakhstan Citibank JSC with Agreement Facility Loan the under Tenge loan 15 billion repaid fully Group 2013, the September 26 On percent. 6.5 of rate interest afixed with period access 12 months Tenge with 6 billion to up line acredit for Kazakhstan HSBC SB JSC with agreement line acredit signed Group 2013, the September 25 On 14
Value added services service Data Total revenues Other
Borrowings Revenues Expenses by nature Expenses Deferred revenue Deferred
expenses deferred revenues
revenue continued
Kcell Annual Report 2013 Report Annual Kcell
106,100,355 143,731,059 187,599,216 31 13,300,557 26,231,953 28,590,150 11,699,940 17,426,252 23,127,323 8,592,273 6,358,532 7,346,686 1,728,035 7,581,784 3,195,171 5,121,761
4,151,515 December 209,952 2013 2013 2013
146,668,854 182,003,503 104,491,026 31 December 12,365,505 10,868,188 15,195,389 18,754,610 22,780,745 27,633,746 1,384,650 5,649,838 2,597,334 2,871,563 ,44,685 9,14 3,139,459 5,797,805 6,011,022 7,653,180 2012 2012 2012
61
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
17 Expenses by nature continued Amortisation and depreciation by function were as follows.
In thousands of Kazakhstani Tenge 2013 2012 Cost of sales 20,628,905 19,787,578 General and administrative expenses 2,498,418 2,993,167 Total depreciation of property, plant and equipment and amortisation of intangible assets 23,127,323 22,780,745
18 Taxes Income taxes Income tax expense comprises the following:
In thousands of Kazakhstani Tenge 2013 2012 Current income tax 15,961,763 14,444,580 Deferred income tax 127,230 1,113,283 Total income tax expense 16,088,993 15,557,863
Reconciliation between the expected and the actual taxation charge is provided below:
In thousands of Kazakhstani Tenge 2013 2012 IFRS profit before income tax 79,480,883 77,385,896
Theoretical tax charge at statutory rate of 20 percent (2012: 20 percent) 15,896,178 15,47 7,179 Non-deductible expenses 192,815 80,684
Income tax expense 16,088,993 15,557,863
The Group paid income tax in amount of 15,199,960 thousands Tenge for the year ended 31 December 2013 (2012: 16,066,945 thousands Tenge).
Differences between IFRS and Kazakhstani statutory taxation regulations give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rates which are expected to be applied to the periods when the temporary difference will reverse.
Charged/ 31 December (credited) to 31 December In thousands of Kazakhstani Tenge 2012 profit or loss 2013 Tax effects of deductible temporary differences Deferred revenue 647,891 232,109 880,000 Other 479,087 (202,010) 227,077
Gross deferred tax asset 1,126,978 30,099 1,157,077
Tax effect of taxable temporary differences Property, plant and equipment 6,245,993 201,759 6,4 47,752 Intangible assets (14,798) (44,429) (59,227)
Gross deferred tax liability 6,231,195 157,330 6,388,525 Less offsetting with deferred tax assets (1,126,978) (30,099) (1,157,077)
Recognised deferred tax liability, net 5,104,217 127,231 5,231,448
62 Kcell Annual Report 2013 Less offsetting with deferred tax assets tax deferred with offsetting Less liability tax deferred Gross assets Intangible plant and equipment Property, differences temporary taxable of Tax effect thousand Tenge,thousand respectively). 1,246,239 Tenge and 2012: thousand 862,919 (31 12 December months next within recovered be to expected Tenge are 1,106,900 of thousand liability tax deferred Tenge and thousand 1,049,038 of asset tax 2013 deferred 31At December Recognised asset tax deferred Gross Other tax liabilities has been recorded (2012: nil). recorded been has liabilities tax potential for 2013 provision no 31 at December Accordingly, sustained. be will positions customs and legislation currency Group’sThe of the management is relevant legislation and interpretation appropriate believes that the its Group’s tax, years. five for authorities tax the by review retroactive to open remain Tax periods interest. and penalties taxes, additional assessed be may Group the and authorities tax by challenged be may transactions a result, As management. of that with coincide not may Group the of activities and transactions the to applied as authorities andinterpretations frequent changes, varying which may to be retroactive. Further, legislation by of the tax subject interpretation tax is therefore and development continuous of astate in is practice and legislation tax Kazakhstani Taxation statements. financial consolidated any,these if on impact, the quantify nor difficulties, of anthat are emerging market. characteristic Management is unable anddifficulties to of duration the predict extent the economic economic continued by affected adversely be may Group the of operations future and condition financial The political are which developments, and beyond the Group’s control. regulatory legal, with together government, the by undertaken measures economic of effectiveness the are largely dependent upon in Kazakhstan for economic future stability prospects The developments in Kazakhstan. regulatory and fiscal legislative, political, by impacted is Kazakhstan in sector telecommunication the Additionally, markets. the in securities equity and debt of liquidity of level alow and the of country outside convertible freely not is that acurrency of existence to, the limited not are but include, characteristics These market. emerging an of characteristics some display to continues Kazakhstan of Republic the in economy The Political and economic conditions in Kazakhstan 19 assets Intangible revenueDeferred Tax TengeIn thousandsof Kazakhstani below: 2012 detailed is 31 December ended year for movements Comparative continued taxes Income 18 Taxes
Contingencies, commitments and operating risks operating and commitments Contingencies, effects continued
of
deferred
deductible
tax
liability, temporary
net
differences
31 3,990,934 1,225,864 5,216,798 (1,225,864)
5,033,096 December 346,237 879,627 183,702 2011 – Kcell Annual Report 2013 Report Annual Kcell
to (credited) loss or profit 1,029,195 1,113,283 1,212,897 Charged/ (84,088) (183,702) (231,736) 132,850 84,088 14,798 31 6,245,993 5,104,217
1,141,776 6,245,993 December (1,141,776) 479,087 647,891 14,798
2012
63 –
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
19 Contingencies, commitments and operating risks continued Capital expenditure commitments At 31 December 2013, the Group has contractual capital expenditure commitments in respect of property, plant and equipment totalling 5,808,515 thousand Tenge (2012: 4,285,230 thousand Tenge), mostly related to purchase of telecommunications equipment from Ericsson.
Non-cancellable lease commitments Where the Group is the lessee, the future minimum lease payments under non-cancellable operating leases are as follows:
In thousands of Kazakhstani Tenge 2013 2012 Not later than 1 year 4,840,000 4,800,000 From 1 to 2 years 4,780,000 4,840,000 From 2 to 3 years 480,000 4,780,000 Later than 3 years 280,000 760,000 Total non-cancellable lease commitments 10,380,000 15,180,000
Non-cancellable lease agreement is represented by Telecommunication Services Agreement on lease of transparent communication channels and IP VPN network with Kazakhtelecom and the five-year fibre optics lease agreement with KazTransCom JSC.
Acquisitions and investments (i) Memorandum of understanding with Sonera On 26 August 2012, Sonera and the Company entered into a memorandum of understanding (the “Buy and Sell MoU”), under which the Company has the right to require Sonera to sell to it, and Sonera has the right to require the Company to acquire from it, all participatory interests owned by Sonera in KazNet Media LLP (“KazNet”) together with all rights and obligations of Sonera under a framework agreement to buy all the participatory interests in the charter capital of KazNet (refer to “WIMAX Business Acquisition by Sonera” below) and all the participatory interests owned by Sonera in Rodnik Inc LLP (“Rodnik”) together with all rights and obligations of Sonera under the agreements to buy participatory interests in the charter capital of Rodnik (refer to “Investment in Rodnik Inc LLP by Sonera”).
Subject to satisfaction of the applicable conditions, each of Sonera and the Company is entitled to exercise its option at any time starting from nine months after the date of the offering of global depositary receipts and listing on local stock exchange, 13 December 2012. The purchase price that the Company will pay to Sonera for the acquisition resulting from the exercise of the option will be the amount of net cost incurred by Sonera in connection with the corresponding investments and acquisition transactions plus interest accrued on such amount.
Sonera has the right to terminate the Buy and Sell MoU at any time by serving a written notice to the Company.
Unless otherwise agreed by Sonera and the Company, exercise of these options is conditional upon Fintur having consented to, authorised or voted in favour of the acquisition to be made by the Company as a result of the exercise of such right. In addition, completion of the acquisition contemplated by the exercise of options is subject to law, regulation and any requisite approvals. Sonera has the option to sell (the “Put Option”) and the Company has the option to buy (the “Call Option”) the participatory interest. Strike price of both the options equals net costs incurred by Sonera, annually compounded using the interest rate (interest accruals begins when the costs are incurred or the receipts are cashed and ends when the participatory interest are transferred).
Neither the Put Option nor the Call Option can be exercised without the authorisation of Fintur. In addition there is an uncertainty in timing of requires changes in 4G/LTE regulation. Accordingly, there is an uncertainty in valuation of the derivative. The Company measured the derivative at original cost, which is zero.
The value of the Call Option to acquire the assets is nil as Sonera has the option to cancel it by issuing a written notification in this respect.
64 Kcell Annual Report 2013 has been recorded as of 31 December 2013. 31 of as December recorded been has No provision applies to SupremeManagement Court. believes that the Company ifthe Ministry would position defend its Court. Supreme to appeal further to right a has Ministry The SIEC. of decision the confirmed 2014 15 January dated decision 2013 Cassation and August 28 dated decision Appeal Subsequently requirements. and Order the cancelled June in (SIEC), which city Astana of Court Economic Inter-District Specialized in requirements and therequirements, The Orderthe Company hadthe of on challenged beenrequirements. issued the violation fulfilling Order fulfill to refused Company When plans. tariff maximum the lowering required Ministry 2013 the January In Telecommunication regulation retrospectively. it do 2013 cannot in and Company the of tariffs interconnection change not did Ministry The unregulated. remain would Register State the in included been not have that operators of mobile other tariffs interconnection while tariffs, Company’s the reduce can interconnection Ministry The “Ministry”). (the Communication and Transport of Ministry the by regulation to subject is Company 2013 the June from Starting Board however inof November the 2013 Supreme Court, the Company’s Supervisory had application been cancelled. the in Register State the in inclusion against appeal to continued Company The Cases. Administrative and Civil for Panel Judicial Appellate of decision April the cancelled court Astana of Board 2013 Cassation June in However, Order. the cancelled Court Astana of Cases Administrative and Civil for Panel Judicial Appellate 2013 the April In by Company The inclusion Register. challenged the in Company, its the State including services. interconnection provided services of in respect certain Register”) (the “State of the Republic of Entities and Kazakhstan Monopolistic Dominant of Register State the in Company the of inclusion mandating order an 2011, issued 18On October Agency the Anti-monopoly legislation Group. the of position financial the on effect adverse material a have will disposition, final upon that, outstanding claims other or proceedings legal current no are management, of there opinion the In business. of course ordinary the in arising proceedings legal certain to party is Group The Legal proceedings 2013. 14 on January completed was Rodnik of capital charter the in interests participatory the of 25% of acquisition The Rodnik. in interest participatory the of value market fair on based calculated be will price exercise option call the agreement, option call that of terms the to Pursuant Rodnik. in interest 75% participatory another acquire to option acall has Sonera which under party athird with agreement option acall in entered 2012, Sonera 13On August completed. is acquisition the time the at KTC and Rodnik of debt net of amount the on based made be to adjustments to subject million, US$20 is acquisition for price purchase The (“KTC”). JSC KazTransCom of capital share total the of 79.92% owns Rodnik capital Rodnik. of charter the in interests participatory the of 25% acquire to party athird with agreement an negotiated Sonera Sonera by Rodnik in Investment (iii) Kazakhstan. in business aWIMAX operate and own will group KazNet The Kazakhstan. in business aWIMAX of operation the for deployed being of capable are that permits frequency radio certain holds each Instaphone and Aksoran (“Instaphone”). LLP (“Aksoran”) and LLP Instaphone Aksoran namely in Kazakhstan, partnerships limited liability two acquired KazNet KazNet, in interests participatory the of purchase Sonera’s to precedent acondition As 14 2013. January on completed was acquisition The US$170 million. of consideration atotal for KazNet of capital charter the in interests participatory the all buy to party athird with agreement aframework into entered 2012, Sonera 13On August Sonera by Acquisition Business (ii) WIMAX continued and investments Acquisitions 19 Contingencies, commitments and operating risks continued risks operating and commitments Contingencies,
Kcell Annual Report 2013 Report Annual Kcell
65
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
19 Contingencies, commitments and operating risks continued “Always Available” investigation on alleged violation In 2013, certain subscribers of the Company complained on charging for voicemail services provided by the Company but they had not signed for. The Agency of Competition Protection (ACP) made an investigation and the Company can be fined for 10,906,022 thousand KZT by Administrative Court. The amount of fine was considered to be excessive by the Company as it was calculated from total voice revenues, rather than from specific revenue in question and therefore, the Company filed a petition to the court, which required ACP to reconsider the amount of the fine. The Company provided information on revenues from “Always Available” services for 2012 and 2013 to ACP.
On 19 March 2014, first instance court granted the Company’s petition and required ACP to provide more detailed information on claimed violation. The Company expects to receive a new order from ACP with the revised amount of fine. However, due to lack of clarity in the legislation, the amount of potential fine is subject to varying interpretations by ACP, including methodology of calculation and wide range of time period application. Therefore, management believes that due to this uncertainty, it is not possible to estimate reliably the amount of potential fine.
Besides, on 27 November 2013, ACP issued an order prescribing to eliminate violations of the competition law. According to this order, Kcell JSC is to, by 27 December 2013, cease to provide the Always Available service if no consent of the subscriber has been obtained. On 26 December 2013, Kcell JSC filed an application with Specialized Interdistrict Economic Court of Astana seeking cancellation of the said order. The Company disagrees with the alleged violation and will challenge the position of ACP in court. On 12 March 2014, the Specialized Interdistrict Economic Court of Astana has dismissed the Company’s petition. The Company intends to challenge the decision of the Specialized Interdistrict Economic Court of Astana. No provision has been recorded as of 31 December 2013.
“Daytime Unlimited” investigation on alleged violation In September 2013 ACP initiated investigations on alleged violation by the Company of the anti-monopoly law in respect to “Daytime Unlimited” tariff plan. In January 2014, ACP finished the investigation and claimed abuse of market dominant position by the Company which led to violation of customers rights, and the Company received investigation findings with proposed penalty in the amount of 16,053,502 thousands Tenge based on the total voice revenue.
The Company does not agree with the allegations and applied to Specialized Interdistrict Administrative Court of Almaty (SMAS) to limit the fine to be based on the Code of Administrative Offence Article 147 (part 3). On 7 March 2014 SMAS supported ACP claim against the Company.
On 18 March 2014 the ACP addressed to the Company an Order on cessation and elimination of consequences of violation of the competition laws, pursuant to which it ordered that the Company shall have on or before 21 April 2014: 1) to stop collection of the subscription fee under the tariff plan “Daytime Unlimited” in case of insufficiency of funds on the account; 2) to ensure interruption of connection (radiotelephone conversation or the service of access to the Internet) when the funds on the accounts of subscribers come to an end; 3) to ensure refund of funds to subscribers, received as a result of failure to interrupt the connection (radiotelephone conversation or the service of access to the Internet) when the funds on the accounts of subscribers come to an end. The Company intends to challenge this order.
On 28 March 2014 Kcell JSC appealed against the ruling of SMAS regarding the ‘Daytime Unlimited’ service and failure to disconnect calls on Kcell network in the Almaty City Court. On 15 April 2014 the Board of Appeals of the Almaty City Court (Board of Appeals) announced its determination. The court has determined to partially grant the complaint, alter the decision of SMAS and, pursuant to Part 3 of art. 147 of RK Code of Administrative Offence, impose a fine on Kcell JSC in the amount of 325,850 thousand Tenge. However, on these financial statements’ issuance date the official notification from the Board of Appeals has not been received yet.
Due to different interpretations of the potential fine calculation methodology and wide range of time scope ACP may use for calculations, management believes that the outcome and amount of fine is uncertain. Therefore, no provision has been recorded as at 31 December 2013.
66 Kcell Annual Report 2013 denominated cash and cash equivalents in 2013. in equivalents cash and cash denominated Dollar US of amount increased the of 2012 because 31 at 2013 December than 31 at December rates exchange Dollar in Tenge/US movement to sensitive less is Profit payables. and receivables balances, bank denominated Dollar US (2012: 42,517 Tenge thousand lower/higher), mainly as a of result foreign exchange of on translation gains/losses for profit year ended after-tax held constant, 201331December would havebeen26,776 thousand Tenge lower/higher variables other all Tenge with against percent 10% by weakened/strengthened had Dollar US the 2013, if 31At December the management does not hedge the Group’s foreign exchange risk. Kazakhstan, in instruments financial for market undeveloped the to Tenge. Due the against Dollar US the of movement the from arises risk exchange foreign of concentration major the Hence, Dollars. US in denominated are roaming as such of the Group’s majority The plant and of purchases services equipment property, and as inventories, well as certain risk exchange Foreign period. reporting the of end the at deposits term and equivalents cash and cash its placed Group the where banks are the to inherent country also the to inherent risks certain market emerging an of characteristics some display to continues Kazakhstan of Republic the As exposure. risk credit decrease to periodically banks those of ratings credit reviews Group The ratings. credit highest have that Kazakhstan in banks those only accepts Group The default. of risk minimal have to deposit of time at considered are which banks, of anumber with relationships established has Group The recorded. already provisions the beyond Group the to risk loss of significant no is there that believes management factors, economic by influenced be could receivables of collection Although companies. and individuals both customers, of number large a among diversified is portfolio the since customers risk credit of concentrations significant no has Group The risk. credit to exposed receivables trade of amount amount of receivable, accounts net of carrying The for provision impairment of the represents maximum receivables, 11. Note in risk credit about information other and ageing provides Management paid. is debt the until are disconnected provided services mobile for liabilities their settle to fail that Customers balances. due past on up follows and position, and Group’s The other experience factors. past financial tradereceivables management ageing of reviews analysis outstanding its account into taking customer the of quality credit the assesses control risk rating, independent no is with an appropriate are credit history. customers Ifindependently rated, corporate if there ratings these are used. Otherwise, distributors and customers to made are services and products of sales that ensure to place in policies has Group The risk credit to exposure Total maximum cash Restricted Due from related parties Trade receivables Cash and cash equivalents TengeIn thousandsof Kazakhstani follows: as is assets of class by risk credit to exposure maximum Group’s The to rise financialassets. giving counterparties on with terms and credit other transactions sales Group’s the of aresult as arises risk credit to Exposure obligation. an discharge to failing by party other the for loss financial a cause will instrument afinancial to party one that risk the is which risk, credit to exposure on takes Group The Credit risk risk. credit and risk rate interest risk, exchange foreign as such areas, specific covering policies for principles overall management, risk as well as written written provides management committee outbyRisk management is management carried under approved policies by The the management committee. torisk hedgeexposures. financial instruments derivative use not does Group The performance. financial Group’s the on effects adverse potential minimise to seeks and markets financial of unpredictability the on focuses programme management risk overall Group’s The risk. credit risk and liquidity risk), exchange foreign (including risk market risks: financial of avariety to it expose activities Group’s The Financial risk factors 20
Financial risk management
Note 10 11 7 Kcell Annual Report 2013 Report Annual Kcell 31 25,254,465 18,916,258 5,905,771
December 306,862 125,574
2013 31 December 14,449,503 11,269,608 3,075,138
29,546 75,211
2012
67
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
20 Financial risk management continued Cash flow and fair value interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group does not have floating interest bearing assets and liabilities as of 31 December 2013.
Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash. Due to the dynamic nature of the underlying businesses, the Group’s treasury aims to maintain flexibility in funding by keeping sufficient cash available.
The table below shows financial liabilities at 31 December 2013 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows. When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the reporting date.
The maturity analysis of financial liabilities at 31 December 2013 is as follows:
Demand and less than From 1 to From 3 to In thousands of Kazakhstani Tenge 1 month 3 months 12 months Total Liabilities Borrowings 2,752,599 1,201,184 20,767,395 24,721,178 Trade payables 18,636,939 – – 18,636,939 Due to related parties 502,045 – – 502,045 Total future payments 21,891,583 1,201,184 20,767,395 43,860,162
Comparative maturity analysis of financial liabilities at 31 December 2012 is detailed below:
Demand and less than From 1 to From 3 to In thousands of Kazakhstani Tenge 1 month 3 months 12 months Total Liabilities Borrowings 2,750,000 1,200,000 45,040,985 48,990,985 Trade payables 10,664,606 – – 10,664,606 Dividends payable – – 8,000,000 8,000,000 Due to related parties 318,187 – – 318,187 Total future payments 13,732,793 1,200,000 53,040,985 67,973,778
Management believes that the payments of the borrowings, the remaining of the dividends and other financial liabilities will be financed by cash flows from operating activities and that the Group will be able to meet its obligations as they fall due. The Company can extend borrowings up to an additional twelve month, subject to consent of the lenders (Note 14).
68 Kcell Annual Report 2013
arrangement netting master offsetting, to Total roaming services for Trade payables services interconnect for Trade payables Liabilities arrangement netting master offsetting, to subject Total assets roaming services Trade from receivables services interconnect Trade from receivables Assets 2013: 31at December are as follows and arrangements similar netting master enforceable to offsetting, subject instruments Financial debt. reduce to assets sell and capital new issue owners, to capital return owners, to paid dividends of amount the adjust may Group the structure, capital the adjust or maintain to order In capital. of cost the reduce to structure capital optimal an maintain to and stakeholders other to benefits and owners for returns provide to order in concern agoing as continue to ability Group’s the safeguard to are capital managing when objectives Group’s The Capital management 20
Financial risk management continued
liabilities
and and
similar similar
subject
the offsetting 5,190,800 3,597,160 of
2,536,862 1,060,298 3,766,647 statement 1,424,153
amounts financial position before Gross (a)
in
(3,597,160) (3,597,160) (1,060,298) (2,536,862) (2,536,862) (1,060,298) of statement
amounts financial position off set Gross the in (b)
the in offsetting (c) =(a) –(b) 1,593,640 of
statement 1,229,785
363,855 financial position amount after
Net – – –
the in off set not arrangements statement master to subject Amounts instruments Financial similar and netting
of (d) – –
– – – – Kcell Annual Report 2013 Report Annual Kcell financial
Cash
collateral received
position
(e) – – – – – –
(c) –(d) –(e) exposure of 1,593,640 amount Net 1,229,785
363,855
69 – – –
Additional information Financial statements Governance Strategic report Notes to the consolidated financial statements continued
20 Financial risk management continued Capital management continued Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2012: Gross Gross Net Amounts subject to master amounts amounts amount netting and similar before set off after arrangements not set off in the offsetting in in the offsetting in statement of financial position the statement statement the statement Net of financial of financial of financial Financial Cash collateral amount position position position instruments received of exposure (a) (b) (c) = (a) – (b) (d) (e) (c) – (d) – (e) Assets Trade receivables from interconnect services 4,918,803 (3,034,756) 1,884,047 – – 1,884,047 Trade receivables from roaming services 1,289,700 (731,214) 558,486 – – 558,486 Total assets subject to offsetting, master netting and similar arrangement 6,208,503 (3,765,970) 2,442,533 – – 2,442,533
Liabilities Trade payables for interconnect services 3,034,756 (3,034,756) – – – – Trade payables for roaming services 731,214 (731,214) – – – – Total liabilities subject to offsetting, master netting and similar arrangement 3,765,970 (3,765,970) – – – –
The amount set off in the statement of financial position reported in column (b) is the lower of (i) the gross amount before offsetting reported in column (a) and (ii) the amount of the related instrument that is eligible for offsetting. Similarly, the amounts in columns (d) and (e) are limited to the exposure reported in column (c) for each individual instrument in order not to understate the ultimate net exposure.
The Group has master netting arrangements with telecom operators, which are enforceable in case of default. In addition, applicable legislation allows an entity to unilaterally set off trade receivables and payables that are due for payment, denominated in the same currency and outstanding with the same counterparty. These fall in the scope of the disclosure as they were set off in the statement of financial position.
70 Kcell Annual Report 2013 statements for issue. At 31 December 2013, the exchange rate of USD 1 was 153.61 Tenge. 1was USD of rate exchange 2013, the 31 At December issue. for statements financial these of authorisation to Tenge 2014 in prior million 530 of loss exchange aforeign recognised Group the and Dollar 1US for 185 tenge to Tenge of depreciated rate exchange the aresult, As interventions. currency decreased and rate Tenge exchange the supporting stop to decided Kazakhstan of Republic the of Bank 2014 National 11On February Tenge devaluation 22 maturities. term short their to due values fair approximate parties related to due and payable dividends payables, trade of amounts Carrying maturity. remaining and risk credit similar with instruments new for rates interest current at discounted flows cash expected on based estimated was not is available, price market quoted a which for maturity, stated with instruments rate interest fixed of value fair estimated The Financial liabilities carried at cost amortised and approximatedue from fair related values parties due receivables to maturities. their short-term trade equivalents, cash and cash of amounts Carrying counterparty. the of risk credit on depend rates used Discount maturity. remaining and risk credit similar with instruments new for rates interest current at received discounted be to expected flows cash future estimated on based is instruments rate interest fixed of value fair estimated The Financial assets carried at cost amortised value. fair their at position financial of statement consolidated the in carried are derivatives Financial Financial instruments carried at fair value instruments. financial of value fair the estimating in information market available all used has Management instruments. financial of values fair represent not therefore and transactions sale distress reflect or outdated be may quotations Market markets. financial the in activity of volume the limit to continue conditions economic and market of emerging an characteristics some display to continues Kazakhstan of Republic The value. fair estimated the determine to data and where appropriate it exists, valuation methodologies. However, required judgement istoinformation, necessarily interpret market market available using Group the by determined been have instruments financial of values fair estimated The price. market quoted active an by evidenced best is and liquidation, or sale aforced in than other parties, willing between transaction current in a exchanged be could instrument afinancial which at amount the is value Fair 21
Subsequent events Subsequent Fair value of financial instruments financial of value Fair
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Additional information Financial statements Governance Strategic report Corporate information
This annual report provides information on Kcell JSC. Register Comparative information about Kcell’s competitors and JSC The Integrated Securities Register other organisations, and the macroeconomic overview, 141 Abylai Khan Prospect Almaty 050000, was gathered from publicly available sources (statistics, Republic of Kazakhstan research, international agencies, company reports). Tel: +7 (727) 272-47-60 Fax: +7 (727) 272-47-66 Contact information www.tisr.kz Kcell Joint Stock Company (Kcell JSC) Registered office: Building 100, Samal-2, Almaty, 050051, Auditor Republic of Kazakhstan PricewaterhouseCoopers LLP Mailing address: 2G, Timiryazev Street, Almaty, 050013, 34/A Al-Farabi Avenue Almaty 050059, Republic of Kazakhstan Republic of Kazakhstan Tel: +7 (727) 258 2755 Tel: +7 (727) 330 3200 Fax: +7 (727) 258 2768 Fax: +7 (727) 244 6868 www.kcell.kz www.pwc.com/kz
Investor Relations Irina Shol Tel: +7 (727) 2582755, ext. 1205 Email: [email protected] [email protected]
Disclaimer This annual report is drawn up using information which is relevant as of date of drawing up the report. Some statements in this report may have an estimating nature and relate to various risks and uncertainties. Some of these statements may include the usage of estimating terms such as ‘estimates’, ‘supposes’, ‘expects’, ‘may’, ‘according to estimations’, ‘intends to’, ‘will’, ‘will continue to’, ‘must’, ‘would’, ‘is planning to’, ‘roughly’ or other similar statements or their negative forms, derivatives or other similar terms. Such estimations include information which is not historical fact. They are to be found in several sections of this annual report and include statements referring to intentions, estimations or current expectations of the Company with regard to the results of its activities, financial standing, liquidity, prospective development, growth, Company strategies as well as the industry in which it operates. Owing to their nature, such estimations are connected with risks and uncertainties since they refer to events and depend of circumstances which may or may not occur in future. Estimations do not guarantee future performance indicators, and actual performance results, financial standing, liquidity of the Company and the changes to the industry, in which the Company operates, may be significantly different from the ones specified in the estimations contained in this claim. At the same time, even if performance results, financial standing, liquidity of the Company or the changes to the industry, in which the Company operates, correspond to the estimations, contained in this annual report, such results or changes may not serve as evidence of certain results or changes in subsequent periods. Significant factors that may cause such differences may include, among other things, general economic conditions and the market condition, including prices of goods and the demand for the Company services; circumstances connected with competition in sectors, where the Company and its clients compete; changes to state regulations and state policies with regard to the maintenance of the telecommunications sector in Kazakhstan; changes to the requirements of the tax laws, including changes to the tax rates, new tax laws and changes to the interpretation of the tax laws; fluctuations of the interest rates and other capital market conditions; fluctuations of the exchange rates; economic and political conditions on international markets, including changes to the government, as well as time factors, consequences and other uncertainties of future actions. Estimates concerning the Company’s development are current only on the date when they are made. Except in cases where it is required by law, Kcell is under no obligation to update them in the light of new information or future events. The Company accordingly does not assume any liability for losses that may be incurred by persons or entities acting based on estimates in this annual report. Such estimates should not be regarded as the most probable outcomes, since they represent only one of many scenarios.
72 Kcell Annual Report 2013 WIMAX WCDMA VAS-services UMTS Subscribers SMS MVNO MOU MMS LTE TDD LTE IVR HSPA GSM GPRS EPSI Rating EDGE Call centre 4G 3G terms of industry-specific Explanation leverage Operating EBITDA CAPEX ARMB U ARP U ARM figures and terms key of financial Explanation MNP MHz MB GHZ JSC report annual the in used abbreviations of List Glossary a capacity of up to 75 bits per second. second. per 75 bits to up of a capacity with and km 80 to up radius with signal radio 802.16 IEEE standard an with network any describe to used term ageneral is it Wi-Fi; to successor the is Access Microwave for Interoperability Worldwide access. multiple code division Wideband Value-added services. mobile telecommunicationsUniversal system. rule. activity 6months’ on based calculated are subscribers of number The centre. service message ashort through devices mobile between characters 160 to up messages alphanumeric share to users allows that system communication amobile is service message Short brand. own its under services sells but operator another of infrastructure existing uses that operator a cellular is operator network virtual Mobile acaller. by services voice of use of Minutes time. non-real in clips, video and audio images, as such content, multimedia with messages receive and send to users allows that terminals wireless advanced for astandard is service messaging Multimedia technology. duplexing time-division Advanced Project). (3rd Partnership Generation 3GPP by developed technologies transfer data mobile improving for Astandard Term Evolution. Long centre. call the within calls route that messages voice pre-recorded of asystem is response voice Interactive Evolved high-speed packet (high-speed access packet data transfer). bands. frequency 1800) DCS as to referred also 1800, (GSM MHz 1800 and 900) (GSM MHz 900 the in primarily operate systems GSM communications. mobile for system global The instant atand ten almost speeds connections, permanent timeshigher than GSM. virtually with capability access data better services communications mobile of users provides GPRS networks. fixed to traffic mobile connect to used typically systems switching the bypassing to of thethus is direct connections theinternet, base provides stations packetGeneral radio service Index. for research Satisfaction Customer the that Pan-European conducts independent organisation An GRPS. than faster times four to three are that rates at throughput enables and GPRS of evolution an is It rates. data enhanced with evolution GSM calls. forCentre servicing of generation standards. cellular wireless fourth The such video, applications as multimedia conferencing full-motion and video access. Internet supporting and transmissions data providing high-speed thirdofThe generation standards cellular wireless costs. variable and fixed of acombination incurs acompany which to degree the of A measurement depreciation and beforeEarnings amortisation. interest,taxes, retirement obligations. assets of recording the excluding and acquisitions, in recognised adjustments value fair and goodwill butexcludingand licences assets, in and includingtangible non-current intangible investments software as well as equipment and plant property, for paid advances and expenditure Capital Average revenue per MB. Average revenue per user. Average revenue per minute. numbermobile portability megahertz megabyte gigahertz company stock joint
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