20 Apr 2016 07:00
Kcell JSC
Results for January - March 2016
Almaty, 20 April 2016 - 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 2016.
First quarter
· Net sales decreased by 17.7 percent to KZT 35,470 million (43,085). Service revenue down 15.7 percent to KZT 33,514 million (39,756).
· EBITDA, excluding non-recurring items, decreased by 36.6 percent to KZT 14,928 million (23,554). The EBITDA margin was at 42.1 percent (54.7).
· Operating income, excluding non-recurring items, down 46.0 percent to KZT 9,415 million (17,438).
· Net finance cost increased to KZT 750 million (323).
· Net income decreased by 49.9 percent to KZT 6,625 million (13,234).
· Free cash flow changed to KZT -13,494 million (3,189).
· CAPEX-to-sales ratio was 82.2 percent (4.9). CAPEX-to-sales ratio, excluding KZT 26 billion for new frequencies, was 8.9 percent (4.9).
· During the quarter, the subscriber base decreased by 502 thousand to 9,855 thousand (10,357).
Financial highlights
KZT in millions, except key ratios,per share data and changes | Jan-Mar 2016 | Jan-Mar 2015 | Chg (%) | Jan-Dec 2015 |
Revenue | 35,470 | 43,085 | -17.7 | 168,424 |
of which service revenue | 33,514 | 39,756 | -15.7 | 157,288 |
EBITDA, excl. non-recurring items | 14,928 | 23,554 | -36.6 | 81,787 |
Margin (%) | 42.1 | 54.7 | 48.6 | |
Operating income | 9,058 | 17,111 | -47.1 | 52,601 |
Operating income, excl. non-recurring items | 9,415 | 17,438 | -46.0 | 57,213 |
Net income attributable to owners of the parent company | 6,625 | 13,234 | -49.9 | 46,632 |
Earnings per share (KZT) | 33.1 | 66.2 | -49.9 | 233.2 |
CAPEX-to-sales (%) | 82.2 | 4.9 | 11.0 | |
Free cash flow | -13,494 | 3,189 | 32,400 |
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 2015, unless otherwise stated.
Comments by Arti Ots, CEO
"As expected the first quarter of the current year has been challenging as a result of the tough competitive environment and continued macroeconomic uncertainty. We are not seeing any significant signs of a market recovery, but there have been some indications that the intense downward pressure on pricing we have experienced in recent years is starting to ease.
I am pleased to report that we have launched our first pilot LTE standard zones across Kazakhstan. This will enable us to exploit the growing demand for more data at faster speeds. We have now paid KZT 14 billion for the first tranche of LTE radio frequencies. The remaining amount of KZT 12 billion should be paid by the end of the year.
In light of our medium-term investment plans for the development of the LTE infrastructure and our cash flow projections, the Board decided to curtail the dividend payment for 2015 to 50 per cent of the net income to KZT 116.58 per ordinary share.
We will continue to invest in improving the quality and reach of our network and in product innovation in order to provide attractive tariffs and services and maintain our market leading position."
Almaty, 20 April 2016
Conference call
Kcell will host an analyst conference call on 20 April 2016 at 10:00 UK time / 15:00 Almaty / 12:00 Moscow. The conference will be held in English, audio webcast will be available at
http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=3563
Dial in details are as follows:
UK Toll Free: Standard International Dial-in: Russia Toll Free: Russia Local Call number: | 0800 279 5736 +44 20 3427 1901 8 800 500 9312 +7 495 213 0977 |
USA Toll Free: | 1877 280 2342 |
USA Dial-In:
Conference ID | +1 646 254 3364
7348606 |
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://kcell200416-live.audio-webcast.com
Enquiries:
Kcell | |
Investor Relations | |
Irina Shol | Tel: +7 727 2582755 ext. 1002 Investor_relations@kcell.kz |
Media Natalya Eskova |
Tel: +7 727 2582755 Pressa@kcell.kz |
International Media | |
Instinctif Partners | Tel: +44 207 457 2020 |
Kay Larsen / Galyna Kulachek / Adrian Duffield |
Review of the first quarter 2016
Net sales
Net sales decreased by 17.7 percent to KZT 35,470 million (43,085). Service revenue fell by 15.7 percent to KZT 33,514 million (39,756).
Revenue from voice services decreased by 18.5 percent to KZT 21,703 million (26,631). Data revenue declined by 1.0 percent to KZT 9,488 million (9,580). Revenue from value-added services decreased by 34.4 percent to KZT 2,324 million (3,541). Other revenue decreased to KZT 1,955 million (3,333).
KZT in millions, except percentages | Jan-Mar 2016 | % of total | Jan-Mar 2015 | % of total |
Voice services | 21,703 | 61.2 | 26,631 | 61.8 |
Data services | 9,488 | 26.8 | 9,580 | 22.2 |
Value added services | 2,324 | 6.5 | 3,541 | 8.2 |
Other revenues | 1,955 | 5.5 | 3,333 | 7.8 |
Total revenues | 35,470 | 100 | 43,085 | 100 |
Voice service revenue
Revenue from voice services decreased by 18.5 percent to KZT 21,703 million (26,631). Voice traffic decreased by 2.5 percent to 5,539 million minutes (5,683), ARMU decrease to KZT 2.7 (3.5).
Interconnect revenue decreased by 6.1 percent to KZT 4,727 million (5,033). The decrease was mainly driven by a reduction of mobile termination rate.
Data service revenue
Data revenue declined by 1.0 percent to KZT 9,488 million (9,580). Data traffic more than doubled year-on-year to 25,275,756 GB (1 0,579,282). Growth in data traffic was offset by offering of bundled packages with lower tariffs per MB, which led to a decrease in average revenue per MB (ARMB) to KZT 0.4 (0.9).
Value-added service revenue
Revenue from value-added services decreased by 34.4 percent to KZT 2,324 million (3,541), largely as a result of declining SMS revenue.
Other revenue
Other revenue decreased to KZT 1,955 million (3,333). This was attributable to lower handsets sales.
EXPENSES
Cost of sales
Cost of sales decreased by 1.9 percent to KZT 20,728 million (21,122), primarily due to a decrease in cost of goods sold attributable to the cost of handsets, which, in turn, was offset by an increase in interconnect cost to KZT 5,205 million (4,176).
Selling and marketing expenses
Selling and marketing expenses increased by 17.2 percent to KZT 2,513 million (2,143). This increase was primarily driven by an increase in staff cost.
General and administrative expenses
General and administrative expenses were up 5.8 percent to KZT 3,122million (2,951), largely due to an increase in mobile tax rate.
EARNINGS, FINANCIAL POSITION AND CASH FLOW
EBITDA, excluding non-recurring items, decreased by 36.6 percent to KZT 14,928 million (23,554). The EBITDA margin was at 42.1 percent (54.7).
Net finance cost increased to KZT 750 million (323), and was related to net interest expenses.
Income tax expense decreased by 52.7 percent to KZT 1,683 million (3,554).
Net income attributable to owners of the parent company was down 49.9 percent to KZT 6,625 million (13,234) and earnings per share decreased to KZT 33.1 (66.2).
CAPEX increased to KZT 29,157 million (2,090) and the CAPEX-to-sales ratio was 82.2 percent (4.9). This increase is attributable to the acquisition of new frequencies that will enable the Company to rollout LTE services. CAPEX-to-sales ratio, excluding KZT 26 billion for new frequencies, was 8.9 percent (4.9).
Free cash flow changed to KZT -13,494 million (3,189).
Key milestones for the first quarter of 2016
January 2016
· The Ministry for Investments and Development ("the Ministry") announced that it will allocate radio frequencies to enable all existing mobile operators in the Kazakh market to rollout LTE services.
The Ministry will allocate to Kcell access to 10+10 MHz radio frequency within the 700/800 MHz band on payment of a one-off fee of KZT 22 billion, to be made in two tranches of KZT 10 billion by 1 March 2016 and KZT 12 billion by 1 December 2016.
The Ministry will also allocate to Kcell access to 10+10 MHz radio frequency within the 1700/1800 MHz band, on payment of a one-off fee of KZT 4 billion by 1 February 2016.
In addition, the Ministry will permit all existing mobile operators to use the radio frequencies allocated to them in the GSM, DCS-1800 (GSM-1800) UMTS/WCDMA (3G) standards for the provision of LTE (4G) and LTE Advanced services subject to obtaining the respective radio frequency permits in the prescribed manner.
The Ministry will issue these radio frequency permits to mobile operators in the Kazakh market on condition that they guarantee mobile coverage in communities with 500-plus inhabitants and along the highways and railways of national and regional importance by 31 December 2020.
· Kcell announced the results of its Extraordinary General Meeting of Shareholders ("EGM") held on 6 January 2016.
The EGM approved the election of Mr. Peter Lav, representative of the shareholder Sonera Holding B.V., as the member of the Board of Directors of Kcell JSC in place of retired Mr. Kenneth Berndt Karlberg; and the election of Mr. Emil Nilsson, representative of shareholder Fintur Holdings B.V., as the member of the Board of Directors of Kcell JSC in place of retired Mr. Erik Hallberg.
February
· Kcell paid KZT 14 billion as the first tranche for LTE radio frequencies.
· Kcell launched its pilot LTE standard (4G) mobile zones in the biggest shopping malls of Astana, Almaty, Shymkent and Aktobe.
April
· The Board of Directors approved a decision to convene the Annual General Meeting of shareholders ("AGM") on 18 May 2016. The Board recommended the annual dividend ("Dividend") in the amount of KZT 23,316 million, or KZT 116.58 per ordinary share. This represents 50 percent of the Company's net income for the 12 months ending 31 December 2015 ("the Period").
The Company's dividend policy aims for the distribution of at least 70 percent of the Company's net income for the previous reporting year. When recommending the payment of a dividend at the AGM, the Board of Directors has to take into consideration the amount of cash the Company has in hand, its cash flow projections and its investment plans in the medium-term perspective, as well as capital market conditions.
Given the Company's medium-term investment plans for the development of LTE infrastructure and cash flow projections, the Board decided to curtail the dividend payment for 2015 to 50 percent of the net income.
The proposed record date of Shareholders entitled to receive the dividends is 19 May 2016 (01:00 Almaty time). If approved at the AGM on 18 May 2016, the proposed Dividend will be paid starting from 1 August 2016.
20 April 2016
Arti Ots
Chief Executive Officer
LEGAL PROCEEDINGS
The "Daytime Unlimited" and failure to disconnect calls on Kcell network
During 2013, an investigation was initiated by the Agency for Competition Protection of the Republic of Kazakhstan (the "ACP"), in relation to the "Daytime Unlimited" service under the Activ brand and non-interruption of services when a customer's balance reaches zero under the Kcell brand.
The ACP ordered that the Company should comply with the following on or before 21 April 2014:
1. to stop collection of subscription fees under the tariff plan "Daytime Unlimited" in case of insufficiency of funds on a subscriber's account;
2. to ensure interruption of connection (voice or Internet access) when a subscriber's balance reaches zero;
3. to ensure a refund to subscribers, any fees received as a result of failure to interrupt the connection when a subscriber's balance reaches zero.
The Company complied with point 1; however, due to technical limitations of the billing system, the Company is currently unable to implement point 2. However, the Company is in the process of introducing a new billing system that will enable the interruption of the connection.
The Company has challenged the ACP findings and decision through courts system in Kazakhstan, culminating in an appeal to the Supreme Court. On 30 June 2015, the Supreme Court of the Republic of Kazakhstan dismissed the Company's supervisory appeal. On 15 June 2015, ACP filed a claim with court seeking for enforcement of the order. On 9 July 2015, the court issued a resolution on satisfying ACP claim to enforce the order, and as a result the Company must now enforce points 2 and 3 in the above ACP order.
In December 2014, the Company accrued a provision in the amount of KZT 1.6 billion covering the refund to subscribers for the period from January 2012 to September 2013.
In compliance with the Order, on 22 July 2015, the Company started refunding its Kcell brand subscribers for the period from January 2012 to September 2013.
In accordance with an agreement reached with the ACP, the Company has started refunding its subscribers for the subsequent period.
Since the Kcell brand subscribers are being refunded for the services rendered, the Company's tax liabilities will be reduced.
As of 1 April 2016, Kcell has returned KZT 2,387 million to its customers. Subsequently, the Company will be refunding its prepaid subscribers for non-interrupted calls and Internet connections until the transition (migration) to Amdocs convergent billing system is completed.
Recovery of lost profits of Paylink LLP
On 29 March 2016, the Specialised Inter-District Economic Court of Almaty approved a partial satisfaction of Paylink LLP's claim in the amount of KZT 94 million.
Paylink LLP claimed a compensation for the recovery of lost profits in the amount of KZT 196.9 million. The compensation is related to the contract for payment receipts concluded in 2008, which early termination was invalidated by the court in 2014 with resumption of its activities for a period of 57 calendar days. In addition, according to the court decision in 2014, Paylink LLP is obligated to refund KZT 189.6 million to Kcell JSC.
Kcell JSC plans to appeal against this decision to Almaty City Court and file complaints against the actions of the judge during the court case to the Prosecutor's Office of Almaty, the Almaty City Court and the judicial panel.
The January - March 2016 financial statements have been reviewed by the external auditors, their report will be available on the Kcell website starting from 15 May 2016.
The information was submitted for publication at 09:00 ALMT on 20 April 2016.
| Financial Information
Interim Report January-June 2016 20 July 2016 Interim Report January-September 2016 21 October 2016
|
Questions regarding the reports: Kcell JSC Investor Relations Timiryazev str. 2g 050013 Almaty Tel. +7 727 2582755 ext.1205 www.investors.kcell.kz
|
| 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 2016 | Jan-Mar 2015 | Chg (%) | Jan-Dec 2015 |
Revenues | 35,470 | 43,085 | -17.7 | 168,424 |
Cost of sales | -20,728 | -21,122 | -1.9 | -89,932 |
Gross profit | 14,741 | 21,963 | -32.9 | 78,492 |
Selling and marketing expenses | -2,513 | -2,143 | 17.2 | -9,221 |
General and administrative expenses | -3,122 | -2,951 | 5.8 | -12,381 |
Other operating income and expenses, net | -49 | 243 | -120.1 | -4,289 |
Operating income | 9,058 | 17,111 | -47.1 | 52,601 |
Finance costs and other financial items, net | -750 | -323 | 132.0 | 7,811 |
Income after financial items | 8,308 | 16,788 | -50.5 | 60,412 |
Income taxes | -1,683 | -3,554 | -52.7 | -13,780 |
Net income | 6,625 | 13,234 | -49.9 | 46,632 |
Other comprehensive income | ||||
Total comprehensive income | ||||
Total comprehensive income attributable to owners of the parent | 6,625 | 13,234 | -49.9 | 46,632 |
Earnings per share (KZT), basic and diluted | 33.1 | 66.2 | -49.9 | 233.2 |
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 | 14,571 | 23,227 | -37.3 | 77,175 |
EBITDA excl. non-recurring items | 14,928 | 23,554 | -36.6 | 81,787 |
Depreciation, amortization and impairment losses | -5,513 | -6,116 | -9.9 | -24,574 |
Operating income excl. non-recurring items | 9,415 | 17,438 | -46.0 | 57,213 |
Condensed Consolidated Statement of Financial Position
KZT in millions | 31 Mar 2016 | 31 Dec 2015 |
Assets | ||
Intangible assets | 42,051 | 16,956 |
Property, plant and equipment | 93,041 | 94,502 |
Other non-current assets | 86 | 145 |
Financial aid | 300 | 300 |
Long-term receivables | 771 | 397 |
Total non-current assets | 136,249 | 112,301 |
Inventories | 3,162 | 2,802 |
Trade and other receivables | 23,366 | 19,336 |
Cash and cash equivalents | 19,143 | 31,589 |
Total current assets | 45,671 | 53,726 |
Total assets | 181,920 | 166,027 |
Equity and liabilities | ||
Share capital | 33,800 | 33,800 |
Retained earnings | 53,271 | 46,646 |
Total equity attributable to owners of the parent | 87,071 | 80,446 |
Deferred tax liabilities | 4,695 | 5,037 |
Other long-term liabilities | 1,285 | 1,286 |
Total non-current liabilities | 5,980 | 6,323 |
Short-term borrowings | 50,219 | 50,201 |
Trade payables, and other current liabilities | 38,650 | 29,057 |
Total current liabilities | 88,869 | 79,258 |
Total equity and liabilities | 181,920 | 166,027 |
Condensed Consolidated Statement of Cash Flows
KZT in millions | Jan-Mar 2016 | Jan-Mar 2015 | Jan-Dec 2015 |
Cash flow before change in working capital | 10,698 | 19,062 | 65,572 |
Change in working capital | -4,341 | -7,307 | -9,858 |
Cash flow from operating activities | 6,357 | 11,755 | 55,714 |
Cash CAPEX | -19,851 | -8,566 | -23,314 |
Free cash flow | -13,494 | 3,189 | 32,400 |
Total cash flow from investing activities | -19,851 | -8,566 | -23,314 |
Cash flow before financing activities | -13,494 | 3,189 | 32,400 |
Cash flow from financing activities | - | - | -33,260 |
Cash flow for the period | -13,494 | 3,189 | -860 |
Cash and cash equivalents, opening balance | 31,589 | 19,520 | 19,520 |
Cash flow for the period | -13, 494 | 3,189 | -860 |
Exchange rate difference | 1,047 | 263 | 12,929 |
Cash and cash equivalents, closing balance | 19,143 | 22,972 | 31,589 |
Condensed Consolidated Statement of Changes in Equity
Jan-Mar 2016 | Jan-Mar 2015 | |||||
KZT in millions | Share capital | Retained earnings | Total equity | Share capital | Retained earnings | Total equity |
Opening balance | 33,800 | 46,646 | 80,446 | 33,800 | 58,274 | 92,074 |
Dividends | - | - | - | - | - | - |
Total comprehensive income | - | 6,625 | 6,625 | - | 13,234 | 13,234 |
Closing balance | 33,800 | 53,271 | 87,071 | 33,800 | 71,508 | 105,308 |
Basis of preparation
As in the annual accounts for 2015, Kcell's consolidated financial statements of and for the three-month period ended 31 March 2016, have been prepared in accordance with International Financial Reporting Standards (IFRSs). This report has been prepared in accordance with IAS 34 Interim Financial Reporting. The accounting policies adopted are consistent with those of the previous financial year. 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 2016 | Jan-Mar 2015 | Jan-Dec 2015 |
Within EBITDA | |||
Restructuring charges, synergy implementation costs, etc. | 357 | 327 | 4,612 |
Total | 357 | 327 | 4,612 |
Investments
KZT in millions | Jan-Mar 2016 | Jan-Mar 2015 | Jan-Dec 2015 |
CAPEX | |||
Intangible assets | 26,230 | 333 | 7,329 |
Property, plant and equipment | 2,927 | 1,757 | 11,202 |
Total | 29,157 | 2,090 | 18,531 |
Related party transactions
For the first quarter ended 31 March 2016, Kcell purchased services for KZT 1,143 million and sold services for a value of KZT 403 million. Related parties in these transactions were mainly TeliaSonera and its group entities, Turkcell and Fintur Holding B.V.
Net debt
KZT in millions | 31 Mar 2016 | 31 Dec 2015 |
Long-term and short-term borrowings | 50,219 | 50,201 |
Less short-term investments, cash and bank | -19,143 | -31,589 |
Net debt | 31,076 | 18,612 |
Financial key ratios
31 Mar 2016 | 31 Dec 2015 | |
Return on equity (%, rolling 12 months) | 47.8 | 54.1 |
Return on capital employed (%, rolling 12 months) | 55.8 | 69.6 |
Equity/assets ratio (%) | 47.9 | 48.5 |
Net debt/equity ratio (%) | 35.7 | 23.1 |
Net debt/EBITDA rate (multiple, rolling 12 months) | 0.45 | 0.24 |
Owners' equity per share (KZT) | 435.4 | 402.2 |
Operational data
Jan-Mar 2016 | Jan-Mar 2015 | Chg (%) | Jan-Dec 2015 | |
Subscribers, period-end (thousands) | 9,855 | 10,829 | -9.0 | 10,357 |
Of which prepaid | 8,594 | 9,478 | -9.3 | 9,075 |
MOU (min/month) | 212 | 187 | 13.4 | 212 |
ARPU (KZT) | 1,104 | 1,186 | -7.0 | 1,206 |
Churn rate (%) | 49.0 | 45.8 | 45.1 | |
Employees, period-end | 1,809 | 1,740 | 4.0 | 1,830 |
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.