23 Apr 2014 07:00
Kcell JSC
Results for January - March 2014
Almaty, April 23, 2014- 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 2014.
First quarter
· Revenue increased by 2.4 percent to KZT 44,107 million (43,053).
· EBITDA increased by 8.2 percent to KZT 25,673 million (23,728). The EBITDA margin increased to 58.2 percent (55.1).
· Operating income grew by 10.6 percent to KZT 19,855 million (17,956).
· Net finance cost decreased to KZT 280 million (612).
· Net income increased by 14.5 percent to KZT 15,635 million (13,656).
· Free cash flow rose to KZT 17,988 million (11,026).
· The Company has made subscriber base clean up with the net effect -789 thousand.
Financial highlights
KZT in millions, except key ratios,per share data and changes | Jan-Mar 2014 | Jan-Mar 2013 | Chg (%) | Jan-Dec 2013 |
Revenue | 44,107 | 43,053 | 2.4 | 187,599 |
EBITDA | 25,673 | 23,728 | 8.2 | 104,727 |
Margin (%) | 58.2 | 55.1 | 55.8 | |
Operating income | 19,855 | 17,956 | 10.6 | 81,600 |
Net income attributable to owners of the parent company | 15,635 | 13,656 | 14.5 | 63,392 |
Earnings per share (KZT) | 78.18 | 68.28 | 14.5 | 316.96 |
CAPEX-to-sales (%) | 5.4 | 12.3 | 12.2 | |
Free cash flow | 17,988 | 11,026 | 80,743 |
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 2013, unless otherwise stated.
Comments by Ali Agan, CEO
"I am delighted to report a strong set of results for the first quarter of 2014. During the period, we delivered further revenue growth, with demand for data services continuing to increase as we make further progress in the rollout of the 3G network. A decline in voice revenue, in line with global industry trends, was offset by a significant increase in data revenue during the quarter.
We have again delivered strong profitability in a challenging operating environment. The Company has maintained its industry leading EBITDA margin in the face of strong pricing pressure, owing to our continued focus on cost discipline.
We are pleased that the recent court case regarding Daytime Unlimited tariff plan has now resulted in Kcell facing a substantially lower fine than had initially been proposed.
Throughout the current financial year, we will focus on further developing our product and service offering to meet the needs of our customers and drive revenue and subscriber growth."
Conference call
Kcell will host an analyst conference call on 23 April 2014 at 10:30 UK time / 15:30 Almaty / 13:30 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=2242
Dial in details are as follows:
UK Free Call Dial In: Standard International Dial-in: Russia Local Call number: USA Free Call Dial-in: | 0800 358 5263 +44 207 190 1596 +7 495 662 57 93 +1 877 941 6013 |
USA Dial-In:
Conference ID | +1 480 629 9822
4679741 |
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://kcell230414-live.audio-webcast.com
Enquiries:
Kcell | |
Investor Relations | |
Irina Shol | Tel: +7 727 2582755 ext. 1205 Investor_relations@kcell.kz |
Media Natalya Eskova |
Tel: +7 727 2582755 Pressa@kcell.kz |
International Media | |
Instinctif Partners | Tel: +44 207 457 2020 |
Leonid Fink, Tony Friend, Kay Larsen, Galyna Kulachek |
Review of the first quarter 2014
Revenue
Revenue increased by 2.4 percent to KZT 44,107 million (43,053).
Revenue from voice services decreased by 5.8 percent to KZT 31,366 million (33,289). Data revenue grew by 46.8 percent to KZT 8,326 million (5,673), revenue from value-added services increased by 8.9 percent to KZT 4,274 million (3,923). Other revenue decreased by 15.9 percent to KZT 141 million (168).
KZT in millions, except percentages | Jan-Mar 2014 | % of total | Jan-Mar 2013 | % of total |
Voice services | 31,366 | 71.1 | 33,289 | 77.3 |
Data services | 8,326 | 18.9 | 5,673 | 13.2 |
Value added services | 4,274 | 9.7 | 3,923 | 9.1 |
Other revenues | 141 | 0.3 | 168 | 0.4 |
Total revenues | 44,107 | 100 | 43,053 | 100 |
Voice service revenue
Revenue from voice services decreased by 5.8 percent to KZT 31,366 million (33,289). Voice traffic increased by 0.9 percent to 5,576 million minutes (5,524). However, growth in traffic was offset by a decrease in tariffs, which caused ARMU to decrease to KZT 4.3 (4.7).
Outgoing voice revenue decreased by 7.1 percent to KZT 23,963 million (25,807).
Interconnect revenue decreased by 4.5 percent to KZT 5,969 million (6,250). The decrease was driven by a 15 percent reduction of mobile termination rate.
Data service revenue
Data revenue increased by 46.8 percent to KZT 8,326 million (5,673). Data traffic more than doubled to 6,477,665 GB (3,104,833). Growth in data traffic was partially offset by offering of packages with lower tariffs per MB, which led to a decrease in average revenue per MB (ARMB) to KZT 1.3 (1.9).
Value-added service revenue
Revenue from value-added services increased by 8.9 percent to KZT 4,274 million (3,923). The increase was primarily due to an increase in revenue from the provision of content services, such as mobile credit, ring back tones and other information and entertainment services.
Other revenue
Other revenue decreased by 15.9 percent to KZT 141 million (168). The decrease was primarily attributable to the decrease in sales of handsets and USB modems.
EXPENSES
Cost of sales
Cost of sales declined by 0.9 percent to KZT 18,468 million (18,627) primarily due to a decrease in interconnect fees and expenses. This decrease was partially offset by an increase in maintenance expenses caused by increase in the number of base stations.
Selling and marketing expenses
Selling and marketing expenses decreased by 24.4 percent to KZT 2,943 million (3,896). The decline was primarily driven by a decrease in commission for cash collection.
General and administrative expenses
General and administrative expenses decreased by 9.0 percent to KZT 2,402million (2,641) primarily due to a decrease in depreciation and amortization expenses.
EARNINGS, FINANCIAL POSITION AND CASH FLOW
EBITDA increased by 8.2 percent to KZT 25,673 million (23,728). The EBITDA margin increased to 58.2 percent (55.1).
Net finance cost decreased to KZT 280 million (612), which is related to net interest expenses.
Income tax expenseincreased by 6.8 percent to KZT 3,940 million (3,688).
Net income attributable to owners of the parent companyincreased by 14.5 percent to KZT 15,635 million (13,656) and earnings per share increased to KZT 78.2 (68.3).
CAPEX decreased to KZT 2,373 million (5,274) and the CAPEX-to-sales ratio is 5.4 percent (12.3).
Free cash flow increased to KZT 17,988 million (11,026).
Key Milestones 2014
January
· On January 30, 2014, the Company obtained a State Licence to engage in the sale of facilities for cryptographic protection of information. This licence allows selling smartphones and other devices with encrypting functions.
· According to the Memorandum signed by Kcell, KaR-Tel (Vimpelcom) and Mobile Telecom-Service (Tele2) in January 2014, mobile termination rate (MTR) were reduced from KZT 13.02 (excl. VAT) per minute to KZT 11.1 (excl. VAT) per minute.
February
On February 11, 2014, the National Bank of Kazakhstan announced that it would only be supporting the national currency at a new exchange rate of KZT185/USD +/- KZT3. The previous official exchange rate was KZT155.6/USD.
April 23, 2014
Ali Agan
Chief Executive Officer
LEGAL PROCEEDINGS
The Company is party to certain legal proceedings arising in the ordinary course of business.
"Daytime Unlimited" investigation into alleged violations
In September 2013, the ACP initiated investigations into alleged violations by the Company of the anti-monopoly law with respect to the "Daytime Unlimited" service under the Activ brand. In January 2014, the Company received notification of the conclusion of the investigation, in which the ACP claims abuse of the Company's dominant position leading to a violation of customers' rights with a potential fine on the Company of KZT 16 billion. The key findings are based on incorrect charges being applied for the "Daytime Unlimited" service and non-interruption of services when a customer's balance reaches zero.
The Company does not agree with the allegations and applied to Specialized Interdistrict Administrative Court of Almaty (SMAS) to limit the fine to be based on the Code of Administrative Offence Article 147 (part 3). On March 7, 2014 SMAS supported ACP claim against the Company.
On March 18, 2014 the ACP sent the Company an Order on cessation and elimination of consequences of violation of the competition laws, pursuant to which it ordered that the Company shall have on or before April 21, 2014: 1) to stop collection of the subscription fee under the tariff plan "Daytime Unlimited" in case of insufficiency of funds on the account; 2) to ensure interruption of connection (radiotelephone conversation or the service of access to the Internet) when the funds on the accounts of subscribers run out; 3) to ensure refund of funds to subscribers, received as a result of failure to interrupt the connection (radiotelephone conversation or the service of access to the Internet) when the funds on the accounts of subscribers run out. The Company intends to challenge this order.
On 28 March 2014 Kcell appealed against the ruling of SMAS regarding the 'Daytime Unlimited' service and failure to disconnect calls on the Kcell network in the Almaty City Court. On 15 April 2014 the Board of Appeals of the Almaty City Court (Board of Appeals) announced its determination. The court has determined to partially grant the complaint, alter the decision of SMAS and, pursuant to Part 3 of art. 147 of Code of Administrative Offence, impose a fine on Kcell in the amount of KZT 325.9 million. However, as at the date of issue of this report the official notification from the Board of Appeals has not yet been received.
"Always Available" investigation into alleged violations
In 2013, certain subscribers of the Company complained on charging for voicemail services provided by the Company but they had not signed for. The Agency of Competition Protection (ACP) made an investigation and the Company can be fined for KZT10.9 billion by the Administrative Court. The Company considered that the amount of fine was excessive as it was calculated from total voice revenues, rather than from specific revenue in question and therefore, the Company filed a petition to the court, which required ACP to reconsider the amount of the fine. The Company provided information on revenues from "Always Available" services for 2012 and 2013 to ACP.
On March 19, 2014, first instance court granted the Company's petition and required ACP to provide more detailed information on claimed violation. The Company expects to receive a new order from ACP with the revised amount of fine. However, due to lack of clarity in the legislation, the amount of the potential fine is subject to varying interpretations by ACP, including the methodology of calculation and wide range of time period application. Accordingly, management believes that due to this uncertainty, it is not possible to reliably estimate the amount of potential fine.
In addition, on November 27, 2013, ACP issued an order prescribing to eliminate violations of the competition law. According to this order, Kcell is to, by December 27, 2013, cease to provide the Always Available service if no consent of the subscriber has been obtained. On December 26, 2013, Kcell filed an application with Specialized Interdistrict Economic Court of Astana seeking cancellation of the said order. The Company disagrees with the alleged violation and will challenge the position of ACP in court. On March 12, 2014, the Specialized Interdistrict Economic Court of Astana has dismissed the Company's petition. The Company intends to appeal the decision of the Specialized Interdistrict Economic Court of Astana.
This report has not been subject to review by auditors.
The information was submitted for publication at 09:00 ALMT on April 23, 2014.
| Financial Information
Interim Report January-June 2014 July 17, 2014 Interim Report January-September 2014 October 17, 2014 Year-end Report January-December 2014 January 29, 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 2014 | Jan-Mar 2013 | Chg (%) | Jan-Dec 2013 |
Revenues | 44,107 | 43,053 | 2.4 | 187,599 |
Cost of sales | -18,468 | -18,627 | -0.9 | -79,469 |
Gross profit | 25,639 | 24,427 | 5.0 | 108,130 |
Selling and marketing expenses | -2,943 | -3,896 | -24.4 | -16,614 |
General and administrative expenses | -2,402 | -2,641 | -9.0 | -10,017 |
Other operating income and expenses, net | -439 | 66 | 101 | |
Operating income | 19,855 | 17,956 | 10.6 | 81,600 |
Finance costs and other financial items, net | -280 | -612 | -2,119 | |
Income after financial items | 19,575 | 17,344 | 12.9 | 79,481 |
Income taxes | -3,940 | -3,688 | 6.8 | -16,089 |
Net income | 15,635 | 13,656 | 14.5 | 63,392 |
Other comprehensive income | ||||
Total comprehensive income | ||||
Total comprehensive income attributable to owners of the parent | 15,635 | 13,656 | 14.5 | 63,392 |
Earnings per share (KZT), basic and diluted | 78.18 | 68.28 | 14.5 | 316.96 |
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 | 25,673 | 23,728 | 8.2 | 104,727 |
Depreciation, amortization and impairment losses | -5,817 | -5,773 | 0.8 | -23,127 |
Operating income | 19,855 | 17,956 | 10.6 | 81,600 |
Condensed Consolidated Statements of Financial Position
KZT in millions | Mar 31, 2014 | Dec 31, 2013 |
Assets | ||
Intangible assets | 13,076 | 13,955 |
Property, plant and equipment | 109,537 | 112,369 |
Other non-current assets | 3,422 | 3,131 |
Total non-current assets | 126,035 | 129,455 |
Inventories | 354 | 499 |
Trade and other receivables | 12,698 | 10,410 |
Cash and cash equivalents | 35,954 | 18,916 |
Total current assets | 49,006 | 29,825 |
Total assets | 175,041 | 159,280 |
Equity and liabilities | ||
Share capital | 33,800 | 33,800 |
Retained earnings | 79,028 | 63,393 |
Total equity attributable to owners of the parent | 112,828 | 97,193 |
Deferred tax liabilities | 5,262 | 5,232 |
Other long-term liabilities | 1,388 | 1,426 |
Total non-current liabilities | 6,650 | 6,658 |
Short-term borrowings | 23,526 | 24,721 |
Trade payables, and other current liabilities | 32,037 | 30,708 |
Total current liabilities | 55,563 | 55,429 |
Total equity and liabilities | 175,041 | 159,280 |
Condensed Consolidated Statements of Cash Flows
KZT in millions | Jan-Mar 2014 | Jan-Mar 2013 | Jan-Dec 2013 |
Cash flow before change in working capital | 20,849 | 20,216 | 90,639 |
Change in working capital | -313 | -3,927 | 7,417 |
Cash flow from operating activities | 20,536 | 16,289 | 98,056 |
Cash CAPEX | -2,548 | -5,263 | -17,313 |
Free cash flow | 17,988 | 11,026 | 80,743 |
Total cash flow from investing activities | -2,548 | -5,263 | -17,313 |
Cash flow from financing activities | -950 | -11,950 | -64,902 |
Cash flow for the period | 17,038 | -924 | 15,841 |
Cash and cash equivalents, opening balance | 18,916 | 3,075 | 3,075 |
Cash flow for the period | 17,038 | -924 | 15,841 |
Cash and cash equivalents, closing balance | 35,954 | 2,151 | 18,916 |
Condensed Consolidated Statements of Changes in Equity
Jan-Mar 2014 | Jan-Mar 2013 | |||||
KZT in millions | Share capital | Retained earnings | Total equity | Share capital | Retained earnings | Total equity |
Opening balance | 33,800 | 63,393 | 97,193 | 33,800 | 32,403 | 66,203 |
Dividends | - | - | - | - | - | - |
Total comprehensive income | - | 15,635 | 15,635 | - | 13,656 | 13,656 |
Closing balance | 33,800 | 79,028 | 112,828 | 33,800 | 46,059 | 79,859 |
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") under the historical cost convention as modified by the initial recognition of financial instruments based on fair value. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. Actual results could differ from those estimates.
Investments
KZT in millions | Jan-Mar 2014 | Jan-Mar 2013 | Jan-Dec 2013 |
CAPEX | |||
Intangible assets | - | 312 | 1,517 |
Property, plant and equipment | 2,373 | 4,962 | 21,332 |
Total | 2,373 | 5,274 | 22,849 |
Related party transactions
For the first quarter ended March 31, 2014, Kcell purchased services for KZT 370 million and sold services for a value of KZT 293 million. Related parties in these transactions were mainly TeliaSonera and its group entities.
Net debt
KZT in millions | Mar 31, 2014 | Dec 31, 2013 |
Long-term and short-term borrowings | 23,526 | 24,721 |
Less short-term investments, cash and bank | -35,954 | -18,916 |
Net debt | -12,428 | 5,805 |
Financial key ratios
Mar 31, 2014 | Dec 31, 2013 | |
Return on equity (%, rolling 12 months) | 57.9 | 65.2 |
Return on capital employed (%, rolling 12 months) | 68.4 | 76.5 |
Equity/assets ratio (%) | 64.5 | 61.0 |
Net debt/equity ratio (%) | -11.0 | 6.0 |
Net debt/EBITDA rate (multiple, rolling 12 months) | -0.12 | 0.06 |
Owners' equity per share (KZT) | 564.1 | 486.0 |
Operational data | Jan-Mar 2014 | Jan-Mar 2013 | Chg (%) | Jan-Dec 2013 |
Subscribers, period-end (thousands) | 13,492 | 13,773 | -2.0 | 14,307 |
Of which prepaid | 11,804 | 12,067 | -2.2 | 12,593 |
MOU (min/month) | 147 | 149 | -0.7 | 152 |
ARPU (KZT) | 1,057 | 1,043 | 1.3 | 1,106 |
Churn rate* (%) | 56.0 | 23.1 | 31.2 | |
Employees, period-end | 1,499 | 1,638 | -8.5 | 1,488 |
*Churn rate excluding one -off cleansing of data base is 33.3%.
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.