21 Apr 2015 07:00
Kcell JSC
Results for January - March 2015.
Almaty, 21 April 2015 - 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 2015.
First quarter
· Revenue decreased by 2.3 percent to KZT 43,085 million (44,107).
· EBITDA, excluding non-recurring items, decreased by 7.2 percent to KZT 23,817 million (25,673). The EBITDA margin was 55.3 percent (58.2).
· Operating income, excluding non-recurring items, down by 10.8 percent to KZT 17,701 million (19,855).
· Net finance cost increased to KZT 586 million (280).
· Net income decreased by 15.4 percent to KZT 13,234 million (15,635).
· Free cash flow decreased to KZT 3,189 million (17,985).
· During the quarter the subscriber base decreased by 363,000 to 10,829 thousand* subscriptions.
Financial highlights
KZT in millions, except key ratios,per share data and changes | Jan-Mar 2015 | Jan-Mar 2014 | Chg (%) | Jan-Dec 2014 |
Revenue | 43,085 | 44,107 | -2.3 | 187,581 |
EBITDA, excl. non-recurring items | 23,817 | 25,673 | -7.2 | 105,321 |
Margin (%) | 55.3 | 58.2 | 56.1 | |
Operating income | 17,374 | 19,855 | -12.5 | 75,250 |
Operating income, excl. non-recurring items | 17,701 | 19,855 | -10.8 | 80,132 |
Net income attributable to owners of the parent company | 13,234 | 15,635 | -15.4 | 58,271 |
Earnings per share (KZT) | 66.2 | 78.2 | -15.4 | 291.4 |
CAPEX-to-sales (%) | 4.9 | 5.4 | 11.2 | |
Free cash flow | 3,189 | 17,985 | 63,744 |
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 2014, unless otherwise stated.
\* The definition of number of mobile prepaid subscriptions has been changed. Prepaid subscriptions are counted if the subscriber has been active during the last three months. Prior periods have been restated for comparability.
Comments by Arti Ots, CEO
"In the first quarter of 2015 we have seen continued growth in data services and increased revenue from handset sales driven by demand for smartphones. Voice revenues have declined in the face of intensifying competitive pressure.
We have focused our strategy on leveraging market opportunities that offer long term growth potential, against a backdrop of high mobile penetration in Kazakhstan. These areas of focus include the provision of high quality data capabilities, bundled offers and affordable internet services.
In addition, we launched a new retail strategy during the period, with the opening of our first flagship store in Almaty dedicated to the provision of personal service, offering hands-on experience of our products to customers. At the same time, we are developing new revenue streams from content such as music, video and mobile financial services.
Alongside these consumer-facing initiatives, throughout 2015 we aim to continue to be more attractive to our customers and to drive growth in our business-to-business operations, whilst investing to maintain the quality of our network and ensure the long term sustainability of our business."
Almaty, 21 April 2015
Review of the first quarter 2015
Revenue
Revenue decreased by 2.3 percentto KZT 43,085 million (44,107).
Revenue from voice services decreased by 15.1 percent to KZT 26,631 million (31,366). Data revenue grew by 15.1 percent to KZT 9,580 million (8,326), revenue from value-added services decreased by 17.1 percent to KZT 3,541 million (4,274). Other revenue increased to KZT 3,333 million (141).
KZT in millions, except percentages | Jan-Mar 2015 | % of total | Jan-Mar 2014 | % of total |
Voice services | 26,631 | 61.8 | 31,366 | 71.1 |
Data services | 9,580 | 22.2 | 8,326 | 18.9 |
Value added services | 3,541 | 8.2 | 4,274 | 9.7 |
Other revenues | 3,333 | 7.8 | 141 | 0.3 |
Total revenues | 43,085 | 100 | 44,107 | 100 |
Voice service revenue
Revenue from voice services decreased by 15.1 percent to KZT 26,631 million (31,366). Voice traffic increased by 1.9 percent to 5,683 million minutes (5,576). However, growth in traffic was offset by a decrease in tariffs, which caused ARMU to decrease to KZT 3.5 (4.3).
Outgoing voice revenue decreased by 16.9 percent to KZT 19,920 million (23,963).
Interconnect revenue decreased by 15.7 percent to KZT 5,033 million (5,969). The decrease was mainly driven by a reduction of mobile termination rate.
Data service revenue
Data revenue increased by 15.1 percent to KZT 9,580 million (8,326). Data traffic increased by 63.3 percent to 10,579,282 GB (6,477,665). Growth in data traffic was partly offset by offering packages with lower tariffs per MB, which ledto a decrease in average revenue per MB (ARMB) to KZT 0.9 (1.3).
Value-added service revenue
Revenue from value-added services decreased by 17.1 percent to KZT 3,541 million (4,274), largely as a result of declining SMS and MMS revenue. Removing third party unlicensed content to comply with copyright policies was also a contributing factor.
Other revenue
Other revenue rose to KZT 3,333 million (141). This was attributable to higher sales of iPhone, Samsung and Lenovo handsets.
EXPENSES
Cost of sales
Cost of sales grew by 14.4 percent to KZT 21,122 million (18,468) primarily due to an increase in cost of goods sold attributable to the cost of handsets.
Selling and marketing expenses
Selling and marketing expenses decreased by 27.2 percent to KZT 2,143 million (2,943). The decline was primarily driven by a decrease in commission for cash collection.
General and administrative expenses
General and administrative expenses increased by 22.9 percent to KZT 2,951million (2,402) primarily due to an increase in staff cost and depreciation and amortization expenses.
EARNINGS, FINANCIAL POSITION AND CASH FLOW
EBITDA, excluding non-recurring items, decreased by 7.2 percent to KZT 23,817 million (25,673). The EBITDA margin was 55.3 percent (58.2).
Net finance cost increased to KZT 586 million (280), which is related to net interest expenses.
Income tax expense decreased by 9.8 percent to KZT 3,554 million (3,940).
Net income attributable to owners of the parent company decreased by 15.4 percent to KZT 13,234 million (15,635) and earnings per share decreased to KZT 66.2 (78.2).
CAPEXdecreased to KZT 2,090 million (2,373) and the CAPEX-to-sales ratio was 4.9 percent (5.4).
Free cash flowdecreased to KZT 3,189 million (17,985).
Key Milestones 2015
January
· Kcell's Board of Directors approved the Relationship Agreement and Services Agreement between Kcell and Telia Sonera AB (TS). These agreements are designed to regulate the provision of certain corporate services by TS to Kcell, so that Kcell will benefit from TS's strategic guidance whilst maintaining corporate independence. Kcell and TS confirmed that agreements and transactions with any member of the TS Group shall be undertaken on arm's length terms and on a normal commercial basis.
· Mr. Trond Moe was appointed the Company's Finance Director, subject to receiving relevant regulatory authorisation.
February
· Kcell informed about progress in its internal investigation. The investigation has concluded that Kcell has formal grounds to file a report with the General Prosecutor's office of the Republic of Kazakhstan requesting it to commence an investigation into the activities of a number of former employees who allegedly failed to follow the Company's internal policies and procedures. The Board has filed the matter to the relevant criminal authorities. The employees allegedly responsible for these failures are no longer employed by the Company. There remains no indication that any of the matters under investigation will have any material effect on the Company's balance sheet or on the results of its operations.
· The EGM approved an increase in the number of Board members from six to seven. Mr. Douglas Lubbe, a representative of the shareholder Fintur Holdings B.V, has been elected as the seventh member to Kcell's Board of Directors.
March
· Kcell announced the opening of its first Kcell branded Store in Almaty. The Company has changed its retail business model and is setting a new trend in the telecoms market by combining a shop and club to deliver a superior customer experience. The new store concept provides customers with an opportunity to seek advice on different gadgets and various mobile applications from Kcell's store consultants, as well as the ability to test all smartphone features prior to making a purchase. The Company plans to open Kcell Stores in other major cities of Kazakhstan.
· The Board of Directors recommended paying an annual dividend ("Annual Dividend") of 70 percent of the Company's net income for the twelve months ending 31 December 2014 ("the Period"). Additionally, the Board of Directors has recommended the payment of a special dividend ("Special Dividend", together with the Annual Dividend - "the Dividends"), representing 30 percent of the Company's net income for the Period. This recommendation was approved by the AGM on 17 April 2015.
In total, the proposed Dividends amount to KZT 58,260 million, or KZT 291.30 per share, representing 100 percent of the Company's net income for the full year of 2014.The record date of Shareholders entitled to receive the dividends is 20 April 2015, (01:00 Almaty time). The proposed Annual Dividend will be paid not later than 15 May 2015 and the proposed Special Dividend will be paid not later than 30 October 2015.
April
· Kcell has completed the drawdown of a KZT 22 billion tranche of the approved credit line with Halyk Bank of Kazakhstan JSC. This tranche was obtained under the bank loan agreement signed between Kcell and Halyk Bank of Kazakhstan JSC for KZT 30 billion for working capital financing.
21 April 2015
Arti Ots
Chief Executive Officer
LEGAL PROCEEDINGS
"Daytime Unlimited" service
On 5 September 2014, the Order of the Agency of the Republic of Kazakhstan for Competition Protection (ACP) came into force obliging Kcell:
1) to stop collecting subscription fees under the "Daytime Unlimited" service when there are insufficient funds on the account (executed by the Company);
2) to ensure interruption of connection when subscribers' balance reaches zero;
3) to ensure refund to subscribers for charges made in view of non-interruption of their connection when their balance reached zero.
Compliance with the Order requires major technical changes to the billing system; Kcell has, therefore, filed requests to postpone the execution of this Order, but both the ACP and the court have denied the Company's request.
Kcell will, therefore, incur additional expenses. The exact amount is subject to clarification of the ACP order. The Order was not immediately executed. This led to administrative proceedings being brought against Kcell, which resulted in a KZT 3.1 million fine in the court of the first instance. The decision has not come into force, as Kcell has challenged it in the upper court and recently the appellate court reversed.
The January-March 2015 financial statements have been reviewed by the Kcell external auditors, and their report will be available on the Kcell website from 30 April 2015.
The information was submitted for publication at 09:00 ALMT on 21 April 2015.
| Financial Information
Interim Report January-June 2015 17 July 2015 Interim Report January-September 2015 20 October 2015
|
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 Statements of Comprehensive Income
KZT in millions, except per share data, number of shares and changes | Jan-Mar 2015 | Jan-Mar 2014 | Chg (%) | Jan-Dec 2014 |
Revenues | 43,085 | 44,107 | -2.3 | 187,581 |
Cost of sales | -21,122 | -18,468 | 14.4 | -84,221 |
Gross profit | 21,963 | 25,639 | -14.3 | 103,360 |
Selling and marketing expenses | -2,143 | -2,943 | -27.2 | -11,549 |
General and administrative expenses | -2,951 | -2,402 | 22.9 | -10,666 |
Other operating income and expenses, net | 506 | -439 | -5,895 | |
Operating income | 17,374 | 19,855 | -12.5 | 75,250 |
Finance costs and other financial items, net | -586 | -280 | -1,106 | |
Income after financial items | 16,788 | 19,575 | -14.2 | 74,145 |
Income taxes | -3,554 | -3,940 | -9.8 | -15,874 |
Net income | 13,234 | 15,635 | -15.4 | 58,271 |
Other comprehensive income | ||||
Total comprehensive income | ||||
Total comprehensive income attributable to owners of the parent | 13,234 | 15,635 | -15.4 | 58,271 |
Earnings per share (KZT), basic and diluted | 66.2 | 78.2 | -15.4 | 291.4 |
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 | 23,490 | 25,673 | -8.5 | 100,440 |
EBITDA excl. non-recurring items | 23,817 | 25,673 | -7.2 | 105,321 |
Depreciation, amortization and impairment losses | -6,116 | -5,817 | 5.1 | -25,189 |
Operating income excl. non-recurring items | 17,701 | 19,855 | -10.8 | 80,132 |
Condensed Consolidated Statements of Financial Position
KZT in millions | 31 Mar 2015 | 31 Dec 2014 |
Assets | ||
Intangible assets | 12,108 | 12,494 |
Property, plant and equipment | 102,900 | 108,405 |
Other non-current assets | 2,583 | 695 |
Total non-current assets | 117,591 | 121,594 |
Inventories | 3,822 | 2,336 |
Trade and other receivables | 18,276 | 14,543 |
Cash and cash equivalents | 22,972 | 19,520 |
Total current assets | 45,070 | 36,399 |
Total assets | 162,661 | 157,993 |
Equity and liabilities | ||
Share capital | 33,800 | 33,800 |
Retained earnings | 71,508 | 58,274 |
Total equity attributable to owners of the parent company | 105,308 | 92,074 |
Deferred tax liabilities | 4,432 | 4,442 |
Other long-term liabilities | 1,350 | 1,376 |
Total non-current liabilities | 5,782 | 5,818 |
Short-term borrowings | 24,727 | 25,020 |
Trade payables, and other current liabilities | 26,844 | 35,081 |
Total current liabilities | 51,571 | 60,101 |
Total equity and liabilities | 162,661 | 157,993 |
Condensed Consolidated Statements of Cash Flows
KZT in millions | Jan-Mar 2015 | Jan-Mar 2014 | Jan-Dec 2014 |
Cash flow before change in working capital | 19,062 | 20,709 | 88,251 |
Change in working capital | -7,307 | -176 | -4,692 |
Cash flow from operating activities | 11,755 | 20,533 | 83,559 |
Cash CAPEX | -8,566 | -2,548 | -19,815 |
Free cash flow | 3,189 | 17,985 | 63,744 |
Total cash flow from investing activities | -8,566 | -2,548 | -19,815 |
Cash flow before financing activities | 3,189 | 17,985 | 63,744 |
Cash flow from financing activities | - | -950 | -63,140 |
Cash flow for the period | 3,189 | 17,035 | 604 |
Cash and cash equivalents, opening balance | 19,520 | 18,916 | 18,916 |
Cash flow for the period | 3,189 | 17,035 | 604 |
Exchange rate difference | 263 | 3 | - |
Cash and cash equivalents, closing balance | 22,972 | 35,954 | 19,520 |
Condensed Consolidated Statements of Changes in Equity
Jan-Mar 2015 | Jan-Mar 2014 | |||||
KZT in millions | Share capital | Retained earnings | Total equity | Share capital | Retained earnings | Total equity |
Opening balance | 33,800 | 58,274 | 92,074 | 33,800 | 63,393 | 97,193 |
Dividends | - | - | - | - | - | - |
Total comprehensive income | - | 13,234 | 13,234 | - | 15,635 | 15,635 |
Closing balance | 33,800 | 71,508 | 105,308 | 33,800 | 79,028 | 112,828 |
Basis of preparation
As in the annual accounts for 2014, Kcell's consolidated financial statements of and for the three-month period ended 31 March 2015, 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 2015 | Jan-Mar 2014 | Jan-Dec 2014 |
Within EBITDA | |||
Restructuring charges, synergy implementation costs, etc. | 327 | - | 4,881 |
Total | 327 | - | 4,881 |
Investments
KZT in millions | Jan-Mar 2015 | Jan-Mar 2014 | Jan-Dec 2014 |
CAPEX | |||
Intangible assets | 333 | - | 1,832 |
Property, plant and equipment | 1,757 | 2,373 | 19,177 |
Total | 2,090 | 2,373 | 21,009 |
Related party transactions
For the first quarter ended 31 March 2015, Kcell purchased services for KZT 1,012 million and sold services for a value of KZT 409 million. Related parties in these transactions were mainly TS and its group entities.
Net debt
KZT in millions | 31 Mar 2015 | 31 Dec 2014 |
Long-term and short-term borrowings | 24,727 | 25,020 |
Less short-term investments, cash and bank | -22,972 | -19,520 |
Net debt | 1,755 | 5,500 |
Financial key ratios
31 Mar 2015 | 31 Dec 2014 | |
Return on equity (%, rolling 12 months) | 56.6 | 63.3 |
Return on capital employed (%, rolling 12 months) | 64.2 | 75.7 |
Equity/assets ratio (%) | 64.7 | 58.3 |
Net debt/equity ratio (%) | 1.7 | 6.0 |
Net debt/EBITDA rate (multiple, rolling 12 months) | 0.02 | 0.05 |
Owners' equity per share (KZT) | 526.5 | 460.4 |
Operational data
Jan-Mar 2015 | Jan-Mar 2014 | Chg (%) | Jan-Dec 2014 | |
Subscribers, period-end (thousands) | 10,829 | 11,236 | -3.6 | 11,192 |
Of which prepaid* | 9,478 | 9,548 | -0.7 | 9,711 |
MOU (min/month) | 187 | 176 | 6.3 | 188 |
ARPU (KZT) | 1,182 | 1,259 | -6.1 | 1,315 |
Churn rate (%) | 47.4 | 66.4 | -28.6 | 49.5 |
Employees, period-end | 1,740 | 1,499 | 16.1 | 1,736 |
\* The definition of number of mobile prepaid subscriptions has been changed. Prepaid subscriptions are counted if the subscriber has been active during the last three months. Prior periods have been restated for comparability.
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.