Addresses of the Management

Dear shareholders,

2012 was a turning point for the Company in many respects. This is the first annual report for Kcell and I am pleased to welcome the Kazakhstani and international investors who joined our company in the past few months. We started 2012 as a limited liability company with only two shareholders; today Kcell is a company with many shareholders around the world.

Successful Listing on Stock Exchanges

The most important event in 2012 was our entrance into international capital markets following the change in our ownership structure. We had our initial public offering on the London and Kazakhstan Stock Exchanges in December of 2012, and it brought in U.S.$ 525 million. 25% of shares are in free float. We are pleased that Kcell securities attracted great interest from both Kazakhstani and foreign investors during the IPO. Today, our common shares are listed on the Kazakhstan Stock Exchange, and our GDRs on the London Stock Exchange. I am confident that the success of the last public offering will also further strengthen our corporate brand.

The Market Situation

I am pleased to report that, despite the difficulties we faced in 2012, Kcell remains a confident leader in the Kazakhstani telecommunications market. Our position allows us maintain a high level of profitability, generate strong cash flow, and protect our market share at the same time. The number of Kcell subscribers increased to 13.5 million by the end of 2012. In 2012, the EBITDA margin exceeded 55%, thanks to ongoing cost optimization efforts. Profitability and cash flow generation remain high. Our increase in profitability is affected by rapid growth in the data services segment, which we expect to continue in the current year. The company is investing heavily in network development, which allows it to maintain a cash conversion rate over 70%. Capital expenditure in 2012 amounted to KZT 26.7 billion.

2012 was a year of hard work for Kcell in the increasingly competitive Kazakhstani mobile telecommunications market. While becoming more competitive in the market, we were able to make significant achievements on several fronts. We have a strong position in the corporate sector, where average revenue per user is higher than in the mass market segment. Our performance for 2012 was also affected by such changes like a reduction in interconnect rates and changes in government regulation during 2011, including establishment of maximum tariffs for on-net and off-net calls and Internet access, and also a change in billing counters.

Our Consumers

The central focus of our operations are interests of our consumers. Kcell seeks to provide consumers with a wide range of services in a cost efficient manner. In 2012, we have thus optimized and greatly expanded our range of tailored regional tariff plans for subscribers who live in particular regions. These subscribers can make on-net calls at the rate of KZT 1/min or even KZT 0/min starting from the second minute of conversation, and are offered special tariffs for of-net calls and calls to popular international destinations. In addition, with nationwide unlimited calling, subscribers do not need to limit their conversations. Our subscribers value these efforts, as evidenced by a 70% increase in voice traffic on the Kcell network and a 2.6 million subscriber increase in the Kcell client base in 2012. Research on the communications market in Kazakhstan also shows a high level of customer loyalty and customer satisfaction with the quality of service offered by Kcell.

Corporate Governance

One of the pillars of sustainable development in the long term is a system of corporate governance built on the basis of best international practices. The first General Shareholders’ Meeting of Kcell was held in 2012, whereon a number of important corporate decisions were made. It elected a Board of Directors and approved the Kcell Corporate Governance Code. The Board of Directors was joined by independent directors who have the valuable expertise and experience required for effective strategic management of the Company.

In addition, the Board of Directors created four committees: Internal Audit, Human Resources and Remuneration, Strategic Planning and Social Issues. All these measures are aimed at protecting the interests of our shareholders and increasing operational efficiency.

Social responsibility is a part of Kcell’s corporate philosophy. Sponsorship of various projects in the fields of culture, education and sport are essential areas of social activity for the Company. Kcell complies fully with its social obligations to its employees: decent wages, various social programs and nonmaterial forms of compensation.


Kcell is well positioned to benefit from the potential growth of the Kazakhstani mobile data market in 2013. Revenue from provision of these services is increasing rapidly thanks to an expansion of 3G network, adoption of packages and growing number of smartphones. A developed 3G network with high density coverage in Kazakhstan is our strategic competitive advantage in this segment of the market. We have deployed a 3G network in all of the country’s major regional centers and are continuing to develop it by creating additional base stations. We recently completed the second phase of deployment, and 45% of our cell sites are now running on the 3G system. In addition, most of 3G base stations are easily upgradable to LTE. We conduct tests of LTE technology to be ready for future rollout. Kcell seeks to maintain its leading market position in terms of revenue and number of subscribers, raising the value of its brands and increasing cash flow. Increased wealth for Kcell shareholders is our key strategic objective. However, we consider the opportunities we create for our customers and for society in general to be just as important. Voice communications and mobile data open up new horizons for the personal growth of every individual and for the development of the economy as a whole, because they are reliable tools of communication. Investment in infrastructure and the provision of quality telecommunications services at affordable prices for the overwhelming majority of the population is Kcell’s contribution.

Veysel Aral,
Chief Executive Officer, Kcell