Financial Review

Key Highlights

Full Year

  • Revenue increased 1.8% to KZT 182,004 million in 2012 (KZT 178,786 million - hereinafter in this section value of the index for the year 2011 to be indicated in brackets).
  • EBITDA, excluding non-recurring items, decreased 4.1% to KZT 101,426 million in 2012 (105,794). EBITDA margin decreased to 55.7% (59.2).
  • Operating income, excluding non-recurring items, decreased 5.1% to KZT 78,645 million (82,898), and net income decreased 7.5% to KZT 61,828 million (66,858).
  • Free cash flow increased to KZT 61,155 million (54,108).
  • Subscriber base increased by 2,612,737 to 13.5 million.

Financial Highlights

KZT in millions, except key ratios, per share data and changes 2012   2011   Chg (%)
Revenue 182,004 178,786 1.8
EBITDA excl. non-recurring items 101,426 105,794 -4.1
Margin (%) 55.7 59.2  
Operating income 77,902 82,898 -6.0
Operating income excl. non-recurring items 78,645 82,898 -5.1
Net income attributable to owners of the parent 61,828 66,858 -7.5
Earnings per share (KZT) 309.14 334.29 -7.5
CAPEX-to-sales (%) 14.7 15.0  
Free cash flow 61,203 54,108  

Revenue

Revenue increased 1.8% to KZT 182,004 million in 2012 (178,786). Revenue, excluding a one-off phone campaign in 2011 increased 3.7% to KZT 181,551 million (175,019).

The revenue increase was primarily due to the 33.4% increase in revenue from data services. Revenue from voice services and from value-added services increased slightly.

Revenue Breakdown 2011-2012

KZT in millions, except percentages 2012 % of total 2011 % of total
Voice services 146,669 80.6 146,077 81.7
Data services 18,755 10.3 14,064 7.9
Value added services 15,195 8.3 14,532 8.1
Other revenues 1,385 0.8 4,114 2.3
Total revenues 182,004 100.0 178,786 100.0

Voice Services

Voice services revenue increased 0.4% to KZT 146,669 million in 2012 (146,077). Voice traffic increased 70% to 21,901 million minutes (12,891) as a result of an increase in the subscriber base to 13.5 million (10.9) as well as an increase in MOU to 168 (122). However, growth in traffic and in the number of subscribers was offset by price competition, which caused ARMU to decrease to KZT 5.2 (9.5) as Kcell decreased its tariffs primarily in response to government regulation and competitors’ aggressive tariff reductions.

Outgoing voice revenue decreased 3.1% to KZT 114,747 million in 2012 (118,370).

Interconnect revenue increased 20.2% to KZT 26,945 million in 2012 (22,415).This increase resulted from growth in the volume of incoming calls from the subscribers of other mobile operators, which was in turn due to the increase in the number of subscribers in Kazakhstan and the price competition.

Data Services

Data services revenue increased by 33.4% to KZT 18,755 million (14,064). Data traffic increased 471.1% to 7,589,056 Gb (1,631,947). Growth in data traffic was partially offset by lower tariffs, which led to a decrease in ARMB to KZT 2.4 (11.1). A variety of attractively priced data packages such as bundled packages with reduced prices per Mb of data transferred were offered to subscribers with the objective of increasing usage of data services.

Value-added Services Revenue

Value-added services revenue increased 4.6% to KZT 15,195 million (14,532). The increase was primarily due to an increase in revenue from the provision of content services, such as ring back tones and other information and entertainment services.

Other Revenue

Other revenue decreased 66.3% to KZT 1,385 million in 2012 (4,114). The decrease was attributable to the one-off phone campaign in 2011.

Expenses

Cost of Sales

Cost of sales increased 9.1% to KZT 76,291 million (69,955). The increase was primarily attributable to an increase in interconnect fees and expenses to KZT 24,604 million (17,012) as well as an increase in site rental and energy expenses.

This increase was partially offset by a decrease in cost of handsets to KZT 493 million (3,727) following a one-off phone campaign in 2011.

Selling and Marketing Expenses

Selling and marketing expenses increased 9.1% to KZT 17,195 million (15,763). The increase is primarily attributable to the increase of commissions for cash collection to KZT 3,922 million (2,723) due to subscribers increasingly using electronic payment terminals instead of scratch cards to top up their account balances and an increase in advertising and sales promotion expenses to KZT 13,273 million (13,039).

General and Administrative Expenses

General and administrative expenses increased 10.7% to KZT 11,005 million (9,943) primarily due to an increase in consulting expenses primarily related to the Offering to KZT 894 million (39), and an increase in staff cost to KZT 2,227 million (2,069).

Earnings, Financial Position and Cash Flow

EBITDA, excluding non-recurring items, decreased 4.1% to KZT 101,426 million (105,794). The EBITDA margin decreased to 55.7% (59.2). The EBITDA margin, excluding interconnect revenue and cost is 65.4% (66.3).

Non-recurring items affecting operating income totaled KZT 743 million, mainly consulting costs related to the Offering.

Income tax expense decreased by 7.2% to KZT 15,558 million (16,765). The decrease in the income tax expense was primarily attributable to a decrease in taxable income.

Net income attributable to owners of the parent company decreased by 7.5% to KZT 61,828 million (66,858) and earnings per share decreased by 7.5% to KZT 309.14 (334.29).

Capital expenditures (CAPEX) in 2012 decreased by KZT 0.1 billion to KZT 26,7 billion. The ratio of capital expenditure and revenue decreased from 15% in 2011 to 14.7% in 2012.


As in previous periods, much of Kcell’s capital expenditure was used to finance investments in radio equipment, which amounted to KZT 15.4 billion. In addition, investments are made to purchase telecommunications licenses and licenses and rights to software. The Company is developing a capital expenditure budget which takes into account marketing plans, subscriber base growth forecasts, launch of new services and coverage expansion plans.

Financial items totaled KZT -516 million (725) mainly related to net interest expenses and net interest income.

Free cash flow increased to KZT 61,203 million (54,108).

Net cash flow from operating activities increased by KZT 4.8 billion from KZT 81.4 billion in 2011 to KZT 86.2 billion in 2012. The increase was primarily attributable to a to positive changes in working capital.

In addition, trade and other payables increased by KZT 9.5 billion in 2012 and were primarily represented by advance payments received from dealers and distributors for payment cards and cell phones. Trade receivables from distributors increased from KZT 5.3 billion in 2011 to KZT 7.4 billion in 2012.

Net cash used in investing activities decreased from KZT 27.3 billion in the previous year to KZT 25.0 billion in 2012. This decrease was primarily due to a cost growth on tangible and intangible assets. Net cash used in financing activities increased by KZT 1.5 billion from KZT 58 billion to KZT 59.5 billion in 2012, which was due to dividends paid by the Company.

Net debt/equity ratio was 74.0%. The Company did not have any net debt in 2011; a loan facility was entered into 2012.

The equity/assets ratio was 44.2% (82.9). The drop is explained by dividends paid in 2012.

Condensed Consolidated Statements of Comprehensive Income

KZT in millions, except per share data, number of shares and changes 2012 2011 Chg (%)
Revenues 182,004 178,786 2
Cost of sales -76,291 -69,955 9
Gross profit 105,712 108,831 -3
Selling and marketing expenses -17,195 -15,763 9
General and administrative expenses -11,005 -9,943 11
Other operating income and expenses, net 389 -227  
Operating income 77,902 82,898 -6
Finance costs and other financial items, net -516 725  
Income after financial items 77.386 83,624 -8
Income taxes -15,558 -16,765 -7
Net income 61,828 66,858 -8
       
EBITDA 100,683 105,794 -5
EBITDA excl. non-recurring items 101,426 105,794 -4
Depreciation, amortization and impairment losses -22,781 -22,896 -1
Operating income excl. non-recurring items 78,645 82,898 -5

Condensed Consolidated Statements of Financial Position

KZT in millions 31 Dec, 2012 31 Dec, 2011
Assets    
Intangible assets 16,140 18,434
Property, plant and equipment 110,337 100,372
Other non-current assets 3,121 6,759
Total non-current assets 129,598 125,565
Inventories 978 1,836
Trade and other receivables 15,990 16,229
Cash and cash equivalents 3,075 1,353
Total current assets 20,043 19,418
Total assets 149,641 144,983
     
Equity and liabilities    
Share capital 33,800 3,915
Retained earnings 32,403 116,338
Total equity attributable to owners of the parent 66,203 120,252
Deferred tax liabilities 5,104 3,991
Other long-term liabilities 988 495
Total non-current liabilities 6,092 4,486
Short-term borrowings 48,991 -
Trade payables, and other current liabilities 28,355 20,245
Total current liabilities 77,346 20,245
Total equity and liabilities 149,641 144,983

Condensed Consolidated Statements of Cash Flows

KZT in millions 2012 2011
Cash flow before change in working capital 85,324 89,071
Change in working capital 863 -7,658
Cash flow from operating activities 86,187 81,413
Cash CAPEX -24,984 -27,305
Free cash flow 61,203 54,108
Total cash flow from investing activities -24,984 -27,305
Cash flow before financing activities 61,203 54,108
Cash flow from financing activities -59,481 -58,000
Cash flow for the period 1,722 -3,892
     
Cash and cash equivalents, opening balance 1,353 5,245
Cash flow for the period 1,722 -3,892
Cash and cash equivalents, closing balance 3,075 1,353

Non-recurring Items

KZT in millions 2012 2011
Within EBITDA    
Restructuring charges, synergy implementation costs, etc. 743 -
Total 743 -

Investments

KZT in millions 2012 2011
CAPEX    
Intangible assets 2,325 2,711
Property, plant and equipment 24.405 24,090
Total 26,730 26,801

Net Debt

KZT in millions Dec 31, 2012 Dec 31, 2011
Long-term and short-term borrowings 48,991 -
Less short-term investments, cash and bank 3,075 1,353
Net debt 45,916 -1,353

Loan Financing

Prudent liquidity risk management assumes maintaining sufficient supply of cash. Due to the dynamic nature of its underlying businesses, the Company seeks to maintain flexibility in financing by keeping sufficient cash available.

Kcell’s bank loans are obtained in KZT and mature within one year. As of December 31, 2012, total loans amount to KZT 49 billion.

On September 26, 2012, a term loan facility agreement with JSC Citibank Kazakhstan and JSC SB RBS Kazakhstan was signed for a loan in the amount of KZT 30 billion with a fixed interest rate of 4.6% per annum, a one-off transaction fee of 1% of the loan amount and a maturity of twelve months, with a possible extension of up to an additional twelve months.

On October 17, 2012, additional loan facility agreement with JSC Citibank Kazakhstan and JSC SB RBS Kazakhstan was signed for a loan in the amount of KZT 15 billion with a fixed interest rate of 3.9% per annum, a one-off transaction fee of 1% of the loan amount and a maturity date of September 26, 2013, with a possible extension of up to an additional twelve months. The KZT 15 billion facility is guaranteed by TeliaSonera AB. The Company is subject to the payment of an annual fee in the amount of up to KZT 112.5 million per annum to TeliaSonera AB for its provision of the guarantee in respect of the KZT 15 billion facility.