20 Apr 2018 07:00
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
KZT in millions, except key ratios,per share data and changes | Jan-Mar 2018 | Jan-Mar 2017 | Chg (%) | Jan-Dec 2017 |
Revenue | 36,386 | 35,632 | 2.1 | 147,475 |
of which service revenue | 32,267 | 32,797 | -1.6 | 135,407 |
EBITDA, excl. non-recurring items | 13,456 | 13,260 | 1.5 | 57,647 |
Margin (%) | 37.0 | 37.2 |
| 39.1 |
Operating income | 7,246 | 7,630 | -5.0 | 31,827 |
Operating income, excl. non-recurring items | 7,246 | 7,630 | -5.0 | 34,500 |
Net income attributable to owners of the parent company | 3,752 | 3,951 | -5.0 | 13,786 |
Earnings per share (KZT) | 18.8 | 19.8 | -5.0 | 68.9 |
CAPEX-to-sales (%) | 7.6 | 16.6 |
| 14.7 |
Free cash flow | 1,503 | 1,748 | -14.0 | 10,899 |
In this report, comparative figures are provided in parentheses following the operational and financial results and refer to the same item in the first quarter of 2017, unless otherwise stated.
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.
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:
UK Toll Free: Standard International Dial-in: Russia Toll Free: Russia Local Call number: | 0800 358 6377 +44 330 336 9105 8 800 500 9283 +7 495 213 1767 |
USA Toll Free: | 800 263 0877 |
USA Dial-In:
Conference ID | +1 646 828 8143
5157769 |
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:
Kcell |
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Investor Relations |
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Irina Shol | Tel: +7 727 2582755 ext. 1002 Investor_relations@kcell.kz |
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Media Natalya Eskova |
Tel: +7 727 2582755 Pressa@kcell.kz |
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International Media |
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Instinctif Partners | Tel: +44 207 457 2020 |
Kay Larsen / Galyna Kulachek / Adrian Duffield |
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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).
KZT in millions, except percentages | Jan-Mar 2018 | % of total | Jan-Mar 2017 | % of total |
Voice services | 18,520 | 50.9 | 19,563 | 54.9 |
Data services | 11,514 | 31.6 | 10,849 | 30.4 |
Value added services | 2,215 | 6.1 | 2,384 | 6.7 |
Other revenues | 4,137 | 11.4 | 2,836 | 8.0 |
Total revenues | 36,386 | 100.0 | 35,632 | 100.0 |
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.
The information was submitted for publication at 09:00 ALMT on 20 April 2018.
| Financial Information
Interim Report January-June 2018 20 July 2018 Interim Report January-September 2018 19 October 2018
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Questions regarding the reports: Kcell JSC Investor Relations Timiryazev str. 2g 050013 Almaty Tel. +7 727 2582755 ext.1002 www.investors.kcell.kz
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| Definitions
EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization. Equals operating income before depreciation, amortization and impairment losses and before income from associated companies.
CAPEX: Capital expenditures and advances paid for property, plant and equipment as well as software and licenses including investments in tangible and intangible non-current assets, but excluding goodwill and fair value adjustments recognized in acquisitions, and excluding the recording of assets retirement obligations.
ARMB: Average revenue per MB. |
Condensed Consolidated Statement of Comprehensive Income
KZT in millions, except per share data, number of shares and changes | Jan-Mar 2018 | Jan-Mar 2017 | Chg (%) | Jan-Dec 2017 |
Revenues | 36,386 | 35,632 | 2.1 | 147,475 |
Cost of sales | -22,994 | -22,579 | 1.8 | -90,107 |
Gross profit | 13,392 | 13,052 | 2.6 | 57,367 |
Selling and marketing expenses | -2,364 | -2,609 | -9.4 | -10,388 |
General and administrative expenses | -4,108 | -2,985 | 37.6 | -15,561 |
Other operating income and expenses, net | 325 | 172 | 89.0 | 410 |
Operating income | 7,246 | 7,630 | -5.0 | 31,827 |
Finance costs and other financial items, net | -2,315 | -2,683 | -13.7 | -9,419 |
Income after financial items | 4,931 | 4,947 | -0.3 | 22,408 |
Income taxes | -1,178 | -996 | 18.3 | -8,622 |
Net income | 3,752 | 3,951 | -5.0 | 13,786 |
Other comprehensive income |
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Total comprehensive income |
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Total comprehensive income attributable to owners of the parent | 3,752 | 3,951 | -5.0 | 13,786 |
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Earnings per share (KZT), basic and diluted | 18.8 | 19.8 | -5.0 | 68.9 |
Number of shares (thousands) |
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Outstanding at period-end | 200,000 | 200,000 |
| 200,000 |
Weighted average, basic and diluted | 200,000 | 200,000 |
| 200,000 |
EBITDA |
13,456 |
13,260 | 1.5 | 54,974 |
EBITDA excl. non-recurring items | 13,456 | 13,260 | 1.5 | 57,647 |
Depreciation, amortization and impairment losses |
-6,210 |
-5,630 | 10.3 | -23,147 |
Operating income excl. non-recurring items | 7,246 | 7,630 | -5.0 | 34,500 |
Condensed Consolidated Statement of Financial Position
KZT in millions | 31 Mar 2018 | 31 Dec 2017 |
Assets |
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Intangible assets | 42,063 | 43,061 |
Property, plant and equipment | 91,177 | 93,680 |
Other non-current assets | 344 | 260 |
Long-term receivables | 2,050 | 1,617 |
Total non-current assets | 135,635 | 138,618 |
Inventories | 4,896 | 3,425 |
Trade and other receivables | 26,707 | 26,191 |
Cash and cash equivalents | 13,429 | 12,660 |
Total current assets | 45,033 | 42,276 |
Total assets | 180,668 | 180,894 |
Equity and liabilities |
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Share capital | 33,800 | 33,800 |
Retained earnings | 45,584 | 41,832 |
Total equity attributable to owners of the parent | 79,384 | 75,632 |
Long-term borrowings | 43,350 | 12,000 |
Deferred tax liabilities | 4,164 | 4,667 |
Other long-term liabilities | 1,362 | 1,355 |
Total non-current liabilities | 48,876 | 18,022 |
Short-term borrowings | 26,948 | 58,418 |
Trade payables and other current liabilities | 25,460 | 28,822 |
Total current liabilities | 52,408 | 87,240 |
Total equity and liabilities | 180,668 | 180,894 |
Condensed Consolidated Statement of Cash Flows
KZT in millions | Jan-Mar 2018 | Jan-Mar 2017 | Jan-Dec 2017 |
Cash flow before change in working capital | 12,329 | 10,009 | 51,680 |
Change in working capital | -6,743 | -3,412 | -18,197 |
Cash flow from operating activities | 5,586 | 6,597 | 33,483 |
Cash CAPEX | -4,083 | -4,849 | -22,584 |
Free cash flow | 1,503 | 1,748 | 10,899 |
Cash flow from financing activities | -630 | - | -6,678 |
Cash flow for the period | 873 | 1,748 | 4,221 |
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Cash and cash equivalents, opening balance | 12,659 | 8,477 | 8,477 |
Cash flow for the period | 873 | 1,748 | 4,221 |
Exchange rate difference | -103 | -181 | -38 |
Cash and cash equivalents, closing balance | 13,430 | 10,044 | 12,660 |
Condensed Consolidated Statement of Changes in Equity
| Jan-Mar 2018 | Jan-Mar 2017 | ||||
KZT in millions | Share capital | Retained earnings | Total equity | Share capital | Retained earnings | Total equity |
Opening balance | 33,800 | 41,832 | 75,632 | 33,800 | 39,724 | 73,524 |
Dividends | - | - | - | - | - | - |
Total comprehensive income | - | 3,752 | 3,752 | - | 3,950 | 3,950 |
Closing balance | 33,800 | 45,584 | 79,384 | 33,800 | 43,674 | 77,474 |
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
KZT in millions | Jan-Mar 2018 | Jan-Mar 2017 | Jan-Dec 2017 |
Within EBITDA |
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Restructuring charges, synergy implementation costs, etc. | - | - | 2,673 |
Total | - | - | 2,673 |
Investments
KZT in millions | Jan-Mar 2018 | Jan-Mar 2017 | Jan-Dec 2017 |
CAPEX |
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Intangible assets | 109 | 206 | 5,981 |
Property, plant and equipment | 2,651 | 5,722 | 15,667 |
Total | 2,760 | 5,928 | 21,648 |
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
KZT in millions | 31 Mar 2018 | 31 Dec 2017 |
Long-term and short-term borrowings | 70,298 | 70,418 |
Less short-term investments, cash and bank | -13,429 | -12,660 |
Net debt | 56,869 | 57,758 |
Financial key ratios
| 31 Mar 2018 | 31 Dec 2017 |
Return on equity (%, rolling 12 months) | 17.5 | 18.2 |
Return on capital employed (%, rolling 12 months) | 17.5 | 23.9 |
Equity/assets ratio (%) | 43.9 | 41.8 |
Net debt/equity ratio (%) | 71.6 | 76.4 |
Net debt/EBITDA rate (multiple, rolling 12 months) | 1.03 | 1.05 |
Owners' equity per share (KZT) | 396.9 | 378.2 |
Operational data
| Jan-Mar 2018 | Jan-Mar 2017 | Chg (%) | Jan-Dec 2017 |
Subscribers, period-end (thousands) | 9,958 | 9,979 | -0.2 | 10,009 |
Of which prepaid | 9,060 | 9,029 | 0.3 | 9,100 |
MOU (min/month) | 206 | 220 | -6.4 | 226 |
ARPU (KZT) | 1,090 | 1,114 | -2.2 | 1,146 |
Churn rate (%) | 34.7 | 43.4 | -20.0 | 56.1 |
Employees, period-end | 1,883 | 1,831 | 2.8 | 1,921 |
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.