1st Quarter Results

Kcell JSC

Results for January - March 2018

Almaty, 20 April 2018 - Kcell Joint Stock Company ("Kcell" or the "Company") (LSE, KASE: KCEL), the leading provider of mobile telecommunications services in Kazakhstan by market share in terms of revenue and subscribers, announces its interim results for January - March 2018.

First quarter

· Net sales increased by 2.1 percent to KZT 36,386 million (35,632). Service revenue down 1.6 percent to KZT 32,267 million (32,797).

· EBITDA, excluding non-recurring items, increased by 1.5 percent to KZT 13,456 million (13,260). The EBITDA margin was stable at 37.0 percent (37.2).

· Operating income, excluding non-recurring items, down 5.0 percent to KZT 7,246 million (7,630).

· Net finance cost and other financial items decreased to KZT 2,315 million (2,683).

· Net income decreased by 5.0 percent to KZT 3,752 million (3,951).

· CAPEX-to-sales ratio of 7.6 percent (16.6).

· Free cash flow decreased to KZT 1,503 million (1,748).

· During the quarter, the subscriber base remained stable at 9,958 thousand (9,979).

Financial highlights

Comments by Arti Ots, CEO

"During the first quarter of 2018, we have continued to see momentum in the business and have maintained our leading market position. This year has started with substantial price increases by all operators, together with decreasing data and off-net allowances for bundles. We have seen growth in revenue for the period, driven by buoyant handset sales. The enterprise segment has also continued to deliver strong growth, with robust sales of business solutions.

Kcell's Board of Directors has recommended an annual dividend for 2017 at the 2016 level, amounting to KZT 11,678 million, or KZT 58.39 per ordinary share. This represents 87 percent of the Company's net income for 2017, in line with Kcell's dividend policy.

Our bond placing in January has expanded and diversified Kcell's funding sources, whilst increasing the average term of our financial liabilities and decreasing our funding costs.

We are continuing to focus on rolling out 4G/LTE services and on boosting the quality of our technology and services. We now have 4G coverage across 50% of the country. At the same time, our Net Promoter score (NPS), a key measure of customer satisfaction, has increased by almost 10 percentage points, thanks to improved perceptions of the quality of Kcell's network and products.

Overall, our ongoing digital transformation initiatives are bringing greater efficiency and effectiveness to the Company, as we continue to focus on delivering value to our customers and our shareholders."

Almaty, 20 April 2018

Conference call

Kcell will host an analyst conference call on 20 April 2018 at 9:30 London time / 14:30 Almaty / 11:30 Moscow. The conference call will be held in English, audio webcast will be available at

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=5537

Dial in details are as follows:

A presentation will be available on the Company website shortly before the conference call on www.investors.kcell.kz./en 

A replay will be available at: http://kcell200418-live.audio-webcast.com 

Enquiries:

Review of the first quarter 2018

Net sales

Net sales increased by 2.1 percent to KZT 36,386 million (35,632). Service revenue decreased by 1.6 percent to KZT 32,267 million (32,797).

Revenue from voice services decreased by 5.3 percent to KZT 18,520 million (19,563). Data revenue increased by 6.1 percent to KZT 11,514 million (10,849). Revenue from value-added services was down 7.1 percent to KZT 2,215 million (2,384). Other revenue grew by 45.9 percent to KZT 4,137 million (2,836).

Voice service revenue

Revenue from voice services decreased by 5.3 percent to KZT 18,520 million (19,563). Voice traffic was down 7.6 percent to 5,125 million minutes (5,545), while ARMU decrease to KZT 2.1 (2.2).

Interconnect revenue increased by 1.2 percent to KZT 5,313 million (5,252).

Data service revenue 

Data revenue increased by 6.1 percent to KZT 11,514 million (10,849). Data traffic increased by 37.8 percent to 58,311,057 GB (42,320,845). Growth in data traffic was offset by offering bundled packages with lower tariffs per MB, which led to a decrease in average revenue per MB (ARMB) to KZT 0.2 (0.3).

Value-added service revenue

Revenue from value-added services was down 7.1 percent to KZT 2,215 million (2,384).

Other revenue 

Other revenue grew by 45.9 percent to KZT 4,137 million (2,836), mainly driven by higher handsets sales.

EXPENSES

Cost of sales

Cost of sales rose by 1.8 percent to KZT 22,994 million (22,579), mainly due to higher sales of devices, which, in turn, were offset by improvement in interconnect expenses.

Selling and marketing expenses

Selling and marketing expenses decreased by 9.4 percent to KZT 2,364 million (2,609). This was primarily driven by a decrease in staff cost.

General and administrative expenses

General and administrative expenses increased by 37.6 percent to KZT 4,108million (2,985), mainly due to bad-debt expenses.

EARNINGS, FINANCIAL POSITION AND CASH FLOW

EBITDA, excluding non-recurring items, increased by 1.5 percent to KZT 13,456 million (13,260). The EBITDA margin was 37.0 percent (37.2).

Net finance cost and other financial items decreased to KZT 2,315 million (2,683).

Income tax expense increased by 18.3 percent to KZT 1,178 million (996).

Net income attributable to owners of the parent company was down 5.0 percent to KZT 3,752 million (3,951) and earnings per share decreased to KZT 18.8 (19.8).

CAPEX decreased to KZT 2,760 million (5,928) with the CAPEX-to-sales ratio of 7.6 percent (16.6).

Free cash flow decreased to KZT 1,503 million (1,748).

KEY MILESTONES FOR THE FIRST QUARTER OF 2018

January

· Kcell placed its KZT 4.95 billion bonds on the Kazakhstan Stock Exchange (KASE) at a yield of 11.5%. This was the first placement in the programme Kcell announced in December 2017, aimed at expanding and diversifying the Company's funding sources, increasing the average term of Kcell's financial liabilities and decreasing its funding costs.

February

· Kcell received a unilateral termination notice of a Memorandum of Understanding (MoU) dated 26 August 2012 from Sonera Holding B.V. (Sonera). According to the MoU, Sonera granted Kcell the right to buy all of Sonera's participatory interests in Rodnik Inc LLP, the controlling shareholder of KazTransCom Joint Stock Company (details are available on page 57 «Acquisition and Investments» section of the Kcell Prospectus). As provided by the MoU, such notice terminates the MoU and with it Kcell's obligation to acquire all of Sonera's participatory interests in Rodnik Inc LLP.

SIGNIFICANT EVENTS FOLLOWING THE END OF THE REPORTING PERIOD

April

· Kcell's Board of Directors recommended an annual dividend for 2017 at the 2016 level, amounting to KZT 11,678 million, or KZT 58.39 per ordinary share. This represents 87 percent of the Company's net income for 2017, in line with Kcell's dividend policy.

ADMINISTARTIVE AND LEGAL UPDATE

In July 2017, the Kazakhstan tax authority completed its comprehensive tax audit for the period from 2012 and 2015. Following the audit, the tax authority made a total claim of KZT 9.0 billion, of which KZT 5.8 billion is for unpaid taxes and KZT 3.2 billion represents fines and penalties for the late payment. The Company considers it unlikely that the full amount of the claim will become payable following the appeal process.

Kcell submitted administrative appeals to the highest level of Kazakhstan's government and to the Ministry of Finance. In January 2018, Kcell filed an appeal with the Court of First Instance, the claim was dismissed. This ruling, however, has not been enforced yet; the Company will appeal it to the court of higher instance (the Court of Appeal).

The January - March 2018 financial statements are being reviewed by the external auditors, and their report is expected to be available on the Kcell website starting from 15 May 2018.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Cash Flows

Condensed Consolidated Statement of Changes in Equity

Basis of preparation

Following the introduction of IFRS 15 for the purposes of the consolidated financial statements for the period ended 31 March 2018, the Company has reviewed the recognition of revenues and has changed its accounting policy. The Company applied IFRS 15 retrospectively using the practical expedient of the standard, under which the date of initial recognition is 1 January 2017. The following report presented with revised figures. The details and quantitative impact of changes in accounting standards will be disclosed in audited financial statements for the period ended 31 March 2018. All amounts in this report are presented in KZT millions, unless otherwise stated. Rounding differences may occur.

Non-recurring items

Investments

Related party transactions

In the first quarter ended 31 March 2018, Kcell purchased services for KZT 874 million and sold services for a value of KZT 134 million. Related parties in these transactions were mainly Telia Company and its group entities, Turkcell and Fintur Holding B.V.

Net debt

Financial key ratios

Operational data

Forward-looking statements

This report contains statements concerning, among other things, Kcell's financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent Kcell's future expectations. Kcell believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions; however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include, but may not be limited to: Kcell's market position; growth in the telecommunications industry; and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of Kcell and the telecommunications industry in general. Forward-looking statements speak only as of the date they were made, and, other than as required by applicable law, Kcell undertakes no obligation to update any of them in light of new information or future events.