Kcell JSC
Annual Report 2021

Plain-text annual report

REDUCING THE DIGITAL INEQUALITY 2021 ANNUAL REPORT Contents Introduction 2021 Highlights Company Overview Statement of the Chairman of the Board of Directors STRATEGIC REPORT Statement of the Chairman of the Management Board, Chief Executive Officer Key Events of 2021 Business Model Strategy Market Review Performance Review Financial Review Innovation and Investment Projects SUSTAINABILITY REPORT Sustainable Development Management Strategy for Sustainable Development Social Aspects of Sustainable Development Personnel Management Occupational Health and Safety Environmental Aspects of Sustainable Development CORPORATE GOVERNANCE REPORT Corporate Governance System Board of Directors Management Board Internal Control and Audit Risk Management FINANCIAL STATEMENTS Independent Auditor’s Report Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 1 3 4 12 14 16 18 20 22 24 26 29 30 34 36 37 39 40 43 44 46 48 50 58 60 61 64 66 74 76 77 78 80 2021 Our Company is one of the leading provider of mobile telecommunications services in Kazakhstan, including internet access within the ecosystem and mobile applications, as well as convergent IT solutions in the field of Internet of Things (IoT). The Company is represented in the Kazakhstan market by two brands: Kcell, the target audience of which is corporate clients, including government agencies, and Activ, which is aimed at mass-market subscribers. Kcell JSC makes a significant contribution to economic growth and improves the quality of life of tens of millions of citizens within Kazakhstan by providing innovative services and solutions. Kcell’s extensive high-quality mobile communication network covers almost the entire territory of the republic, focusing on products and services in the field of data transmission that are of high value to digital users. REDUCING THE DIGITAL INEQUALITY Scan the QR code to get a link to additional information 01020304We provide high quality and achieve high results! Our business model is built on a solid foundation that moves with the times, offering innovative modern solutions. The Company maintains the highest standards of service and maintains attractive rates for all consumers of digital content. 2021 Highlights The Company is growing by double digits, a significant achievement that we are proud of. Customer Net Promoter Score (cNPS) 35% Employee Net Promoter Score (eNPS) 25.7% Total Revenue +12.3 % 196,189 million KZT in comparison with 2020 – KZT 174,684 million Sales of Devices +12.7 % TO 39,026 million KZT in comparison with 2020  – KZT 34,634 million Free Cash Flow +48.6 % 42,895 million KZT in comparison with 2020  – KZT 28,865 million Service Revenue Net Revenue Total subscribers +10.7 % TO 155,054 million KZT in comparison with 2020 – KZT 140,049 million EBITDA* +14.1 % TO 82,340 million KZT in comparison with 2020 – KZT 72,147 million +84.9 % 32,506 million KZT in comparison with 2020  – KZT 17,578 million ARPU* +10.8 % 1.614 for a subscriber in comparison with 2020 г. – 1,457 KZT *excluding non-recurring expenses *average revenue per user 7,961 thousand users in comparison with 2020 – 8,055 thousand users The subscriber churn rate decreased due to measures that enhanced the quality of the subscriber base, specifically the introduction of new technologies and the general efforts of the Company’s employees geared toward improving the services offered and the quality of service. 3 We provide high quality and achieve high results!We provide high quality and achieve high results!COMPANY OVERVIEW We have all possibilities to ensure the Company’s efficient operation and stable growth! KZT 35.6 billion was invested in the network in 2021 Products and Services Kcell provides the full spectrum of mobile telecommunication products and services to both individuals and organisations. Alongside voice, SMS, and data transmission services, the Company offers mobile access to the internet and other related services, including mobile content, various OTT services Points of growth in 2021 Integration of Networks with the Kazakhtelecom Group of Companies under the Mobi brand (TV, Music, Kino, Press, Bookmate) and By the end of 2021, as part of the network integration project unique mobile financial services (OGO Finance). Paying more with the Kazakhtelecom Group of companies, 2,204 sites were attention to smartphone sales provides the Company with the merged in 37 cities across Kazakhstan. We are successfully opportunity to expand the range of services offered and to developing our joint projects with our majority shareholder better meet the needs of its customers. Kazakhtelecom JSC, thanks to efficient operational synergies, significant improvement in data transfer speed, and network The Company operates one of the most modern, technologically coverage compared to competitors. advanced, and extensive mobile networks in the Republic of Kazakhstan and holds perpetual licenses to operate on 2G, 3G, and 4G/LTE frequencies. The coverage area of 4G/LTE network already covers 67.5% of the population of the country and provides a high quality of services. It is the high quality of Implementation of the National Project 250+ In confirmation of the words of the head of state on the need our 4G/LTE network that helps Kcell to maintain its leadership to eliminate the digital inequality in Kazakhstan, the main stage in the mobile communications market in Kazakhstan. of work on the implementation of Project 250+ to provide rural The Company occupies a leading position in the B2B market broadband mobile internet has been completed through the through the development and implementation of vertical joint efforts of mobile operators. During the two years of the infrastructure solutions and innovative technologies. national project implementation, Kcell connected 1,423 rural settlements with a population of 250 people and more with Our Brands settlements with a population of 250 people or more to mobile broadband internet, of which 433 settlements were connected under the program. The villagers received access to broadband The Kcell and Activ brands have proven themselves in the mobile internet, thanks to which the residents can use the highly competitive telecommunications markets due to their online services of government agencies, banking services, quality of customer service. The clear multi-brand architecture online education services, medical services, etc. Thus, the of Kcell improves business efficiency in the B2C segment boundaries of the digital divide between the city and the through optimal pricing for packaged services, customer base countryside are being erased. Project 250+ will become one profitability management, and network quality. of the drivers for the development of the country’s economy. We 5G Launch in Turkestan In December 2021, Kcell launched a new-generation 5G network in the city of Turkestan. Eight outdoor stations were installed in strategically important locations and touristic sites, including city administration buildings, the congress hall, the Turkestan Arena stadium, the central bus station, the Farab central library, and the Youth Palace. This is the first launch of a new-generation network in Kazakhstan covering the entire area of the city. ∎ develop and offer unique ∎ have launched business solutions for corporate clients! the next-generation technology: 5G! 4 5 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTWe all have the opportunity to ensure the Company’s ef-ficient operation and stable growth!We all have the opportunity to ensure the Company’s efficient operation and stable growth!Coverage Map Kcell is a national Kazakhstan operator for the provision Kcell is the leading operator in Kazakhstan for the provision of of digital telecommunications services: mobile smartphone and tariff services. communications and convergent services of fixed communications (FMC), data transmission and internet access, financial services, digital services and mobile applications, IT solutions in the field of system integration, machine-to-machine interaction, and collection and processing of big data and cloud computing. 2G 3G 4G 5G Uralsk Aksai Inderborsky stl Makhambet village Ganyushkino village Dossor Atyrau Kulsary + TARIFF PLAN Petropavlovsk 3G coverage 85 % Kostanay Rudnyi Lisakovsk Kokshetau Shchuchinsk Atbasar Stepnogorsk Nur-Sultan Pavlodar Aksu Ekibastus Aktobe Khromtau Alga Kandyagash Shubarkuduk Arkalyk Temirtau Abai Karaganda Karkaralinsk Semey Ust-Kamenogorsk New Bukhtarma stl Ayagoz Zaisan Fort Shevchenko Beyneu village Aktau Munaishy stl Zhanaozen Shalkar Satpaev Zhezkazgan Aralsk Kazalinsk Kyzylorda Aktogay Balkhash Beskol village Dostyk Tekeli Usharal Kapchagay Chilik Chundzha village 2G 3G 4G 5G 5G Today, Kcell is the largest digital ecosystem in Kazakhstan with a clear competitive advantage. It also provides mobile financial services, mobile TV, online movies, music, books, and magazines, as well as the development of unique business solutions for corporate clients. Population coverage with 4G/LTE standard 67.5 % Alga village Otar Zhanatas Turkestan Karatau Taraz Arys Shymkent Saryagash Zhetysu Almaty Kegen village LTE traffic from total mobile traffic 76.9 % Salea of Devices Super App Kcell/Activ Despite global smartphone shortages and supply constraints, In 2021, Kcell launched a super application that linked the the Company achieved a strong revenue growth of 12.7% in telecom, fintech, e-commerce, and entertainment services of 2021. The contract phone sales service with the new release the operator into a single ecosystem. Super app users have payment for travel in public transport; access to: » » » » » » payment of utility services; opening an OGO-card; online-store; personal account; and other services. of the iPhone 13 broke all records and became the most successful service of all time. In addition, the introduction of the trade-in service allowed Apple device owners to return their old devices and buy new ones on even more favorable terms, since the cost of redeeming old devices counted as an advance payment toward buying a new one. Net Promoter Score The customer Net Promoter Score (cNPS) increased to 35%. The Company has also embarked on a course of positive changes and continues to improve the quality of life of its employees. In 2021, Kcell increased the level of the employee Net Promoter Score (eNPS) by 15 percentage points. Each member of the Kcell team demonstrates professionalism and commitment to the tasks set by the Company. This allows us to provide society with the latest technologies and quality services. OGO Finance Product Line OGO Finance was launched by Kcell in partnership with the partner bank and international payment system Mastercard. The product line consists of a digital co-branded card (OGO Card), a bank deposit system (OGO Deposit), and unsecured loan credit (OGO Credit). Using a mobile application, Kcell subscribers can instantly open a full-fledged debit multi-currency card online, top up the card from their mobile phone balance for free, and also participate in the OGO Bonus loyalty program—with a reward for non-cash payments up to 10% of the amount of purchases. In just one year, the Company managed to catch up with a five-year gap from competitors in this market segment. During this time, the first full-fledged Neobank was launched in Kazakhstan. And in 2021, a record indicator for the volume of payments in the entire history of the development of the MFS since 2016 was reached. In December 2021, the Kcell Super App entered the top of the AppStore and GooglePlay in terms of number of downloads, exceeding 4,000,000 installations 8 9 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTThe date of establishment of Kcell in the form of GSM (GSM) Kazakhstan Limited Liability Partnership of Kazakhtelecom JSC as a mobile operator in the Republic of Kazakhstan. » Kcell became the first mobile operator in the Republic of Kazakhstan with internet access from mobile devices. » Launch of multimedia messaging (MMS). In December 2010, the Company received the right to operate a 3G network and began to provide 3G services in Nur-Sultan and Almaty cities. » » Kcell became the first official iPhone distributor in Kazakhstan by signing a contract with Apple and launched sales throughout the country. In September 2014, the Company started a large- scale rebranding of the Activ trademark. » The Company purchased radio frequencies for the organisation of mobile communications of the LTE standard, which resulted in the launch of a LTE/4G network. » In December 2018, Telia and Fintur sold a 75% stake in Kcell to Kazakhtelecom JSC. June 1, 1998 MMS 2003 3G 2010 2014 LTE 4G 2016 OUR 75% 2018 2021 In partnership with the international payment system Mastercard and the partner bank, the OGO Finance product line was launched. 1 2 3 4 5 6 7 8 9 10 11 12 13 GPRS 2005 » In September 2005, Kcell became the first cellular operator in Kazakhstan to provide GPRS roaming services. 1999 Obtaining a license to provide communication services of GSM standard. » Official launch of a mobile communications network under the Kcell trademark. » In September 1999, another brand was also introduced: Activ. 2012 » » » The Company was re- registered as Kcell Joint Stock Company. Successful completion of the initial public offering of global depositary receipts (GDRs) on the London Stock Exchange and ordinary shares on the Kazakhstan Stock Exchange. In February 2012, Kazakhtelecom JSC sold 49% of its shares in Kcell to SoneraHolding B.V., a subsidiary of TeliaSonera. 2015 » In March 2015, the first Kcell-branded store opened in Almaty, with a unique innovative concept that allowed for a significant improvement in the quality of customer service. 2017 » The international rating agency Fitch has assigned the Company a long-term issuer default rating of “BB” with a stable outlook. 2019 » Election of a new composition of the Kcell board of directors with a predominance of independent members, which determined a new strategic development plan and appointed the management responsible for its implementation. 10 11 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT STATEMENT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Sustained Growth in Unstable Times Dear Shareholders! offering new OTT products and mobile financial services, the happiness of “three pillars”: customers, employees, and Sustainable Development Goals. An example of such a project Today we are summing up the results of 2021, which has convenience of using the Company’s services, as well as the launching updated mobile applications and websites for the shareholders. is the implementation of Project 250+. In 2021, 213 settlements across the country with a population of over 250 people were become a test of our ability to adapt and respond to changes use of rich packages by subscribers, including a range of For example, through the introduction of digital tools for covered, of which 110 were in excess of obligations. Villagers in the external environment, which were unprecedented in the additional services. past year. customer experience and investments in the network, the received access to broadband mobile internet, allowing them customer Net Promoter Score (cNPS) will increase. Through to use the online services of government agencies, banking In addition, the penetration of bundle offers is growing due to the recruiting the best employees, engineering-to-IT retraining services, online education, medical services, etc. I can state that thanks to stress resistance, ability to mobilize, active promotion through the main channels of communication programs, and lucrative salary offers, Kcell aims to increase and quickly solve problems, Kcell managed to maintain not and a focus on meeting specific consumer needs. In the field the employee Net Promoter Score (eNPS) and build the We see great opportunities in the field of sustainable only its industry position, but also positive development of mobile financial services, in the third quarter we launched a strongest team in the market. The result of these efforts should development, environmental protection, and combating dynamics even during the tragic events of January 2022, which profitable product family of OGO Finance, which includes OGO result in additional revenue, which will affect the amount of climate change through energy-saving projects. In 2021, we we experienced together with the whole country. Bonus, OGO Card, and OGO Deposit. The new financial product dividend payments to shareholders. And in all three areas in developed a plan that includes activities and initiatives on was launched jointly with the partner bank and international 2021, we have already achieved significant success. The cNPS energy efficiency, waste management, and the formation of The memory of these events will remain in each of us for a payment system Mastercard and is designed to improve our increased by 35% and the eNPS by 15 percentage points. As environmental awareness among employees. In addition, long time. The subscriber service center and offices of our services in a qualitative manner and provide more profitable for dividends, the board of directors recommended paying we have installed a unique base station in the area of Charyn Company were attacked. However, we have done everything services to our subscribers. dividends to shareholders in the total amount of KZT 21.5 Canyon. This is the first site powered by wind and solar possible so that our subscribers have the opportunity to stay billion (66% of net profit), which is 4.5 billion more than last electricity. in touch with relatives and friends. Since the introduction of the In the enterprise segment (B2B), we continue to implement year. Earnings per share is KZT 107.5, which is 22% higher than state of emergency, the Kcell team has been working around bold infrastructure projects. Kcell became the first mobile in 2020. The rest of the profit will be directed to investments The January events showed that it is necessary to strengthen the clock to promptly respond and provide communication to operator in the country to build a private LTE network, and the in the network, large-scale work to improve the quality of ourselves in the field of implementing the principles of our subscribers. We quickly restored all our infrastructure and obtained results showed that the Company is moving in the right communication, and the development of new products and sustainable development in all business processes. Therefore, services and provided significant support to our customers direction, as subscribers have appreciated the advantages digitalisation. during this difficult period. Throughout all of this, our main of LTE technology. Within the framework of interaction in the Kcell’s activities will continue to take into account the basic principles of responsible business conduct and development focus was on team investment and building the right culture, group of companies of National Wealth Fund Samruk-Kazyna The latter aspect is especially important in terms of Kcell’s of innovative potential, which opens up new opportunities for because it’s through a solid foundation that we can withstand JSC, joint projects have already been launched on private LTE contribution to the sustainable development of not only the economic and environmental growth and the social well-being even the most insuperable circumstances. networks and telemetry in the energy sector. Company itself but the entire country of Kazakhstan. The of all stakeholders. It is safe to say that 2021 has been a very successful year for This result is an excellent foundation for further strengthening ensuring equal access to information for various, sometimes Kcell. Most of our plans became a reality, and the Company of our position in the market and achieving the goals set vulnerable, social groups. Improving society’s digital literacy ended the year with a 12.3% increase in total revenue to KZT in the Company’s five-year development strategy, which is an integral part of Kcell’s strategic vision in the field of Kind regards, Alexey Buyanov 196,189 million. The main drivers of growth were a smart aims to make Kcell a fully digital operator with a diversified sustainable development and a tool for achieving the UN Chairman of the Board of Directors approach to promoting additional services to our subscribers, portfolio of products and services. Kcell’s strategy hinges on most important social aspect of digitalisation is, of course, 12 13 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT11 STRATEGIC STRATEGIC REVIEW REVIEW STATEMENT OF THE CHAIRMAN OF THE MANAGEMENT BOARD, CHIEF EXECUTIVE OFFICER KEY EVENTS OF 2021 BUSINESS MODEL STRATEGY 16 18 20 22 MARKET REVIEW PERFORMANCE REVIEW FINANCIAL REVIEW INNOVATION AND INVESTMENT PROJECTS 24 26 28 30 11Reducing digital inequality 2022 STATEMENT OF THE CHAIRMAN OF THE MANAGEMENT BOARD, CHIEF EXECUTIVE OFFICER Successful Transformation Based on the Right Priorities Dear Shareholders, Customers, and Partners! Despite the global shortage of smartphones and supply chain We also improved the conditions of our debt portfolio in 2021 the country. I believe that this project will make a significant constraints, we achieved a strong device revenue growth by entering into a general loan agreement with First Heartland contribution to the development of the country’s economy. The In 2021, we started with a project to transform the Company of 12.7% in 2021. We want to become something more than Jusan Bank JSC for a total credit limit of KZT 60,500 million. successful implementation of Project 250+ became possible and implement a new five-year strategy. The high financial just a telecom operator for our customers. Now we hold the thanks to the support of the state, as well as Kazakhtelecom. and operational performance achieved in 2021 confirms the lead in the number of sold devices in the market, but this is One of the most significant events for the Company was In 2020 and 2021, Kcell provided mobile broadband internet correctness of the chosen direction of development and not the limit! Sales of contract phones have been opened up to the successful launch of the first full-fledged 5G network access to 671 rural settlements in Kazakhstan with a population strategic priorities. Year-on-year, the growth of total revenue everyone, not just Kcell subscribers. in Turkestan, which covers the entire city. This is truly of over 250 people. amounted to 12.3%, and service revenue to 10.7%. unprecedented for Kazakhstan, especially considering that it Due to strong revenue growth, and coupled with our ongoing has occurred against the backdrop of a constant increase in We continue working on the implementation of the new strategy, Twenty twenty-one also became the year of an “evolutionary cost optimisation efforts, EBITDA excluding non-recurring the number of subscribers using 5G-enabled devices. which focuses on Kcell maintaining its leadership position in all revolution” for the Mobile Financial Services (MFS) business line. In the 4th quarter, we launched the first full-fledged Neobank in Kazakhstan and reached a record high in terms of items increased by 14.1% during the year. The free cash flow business areas in the market and using all synergy opportunities for 2021 increased by 48.6% and amounted to KZT 42,895 In 2021, as part of the national Project 250+, Kcell did a within the group of Kazakhtelecom JSC. We see strong million. The generated cash flow will be used to finance our great job of expanding the coverage of mobile broadband financial and operational opportunities in further initiatives payments in the entire history of the development of the MFS capital-intensive projects, investments in infrastructure, and internet access and improving the quality of communication of network and infrastructure using. We will continue to take since 2016. The OGO Bonus program was embraced by more technological improvement. in remote rural areas of the Republic of Kazakhstan. We advantage of the synergy with Kazakhtelecom JSC, drawing than 80,000 active subscribers, and we managed to catch up are especially proud of this project, as we believe that it will in the market knowledge and best practices of our controlling with a five-year gap from competitors in this market segment In April 2021, we took further steps to improve our operational forever change the lives of Kazakhstanis and become a driver shareholder, which is the largest telecommunications operator in just one year. efficiency. The Company entered into an agreement with Nexign for powerful economic growth. This is an important social in Kazakhstan. Last year, the Company launched its own super app, and by billing platform. This will allow us to implement a unified billing of Kazakhstan. In addition, this project is in line with our five- the end of that year it became the top app in the AppStore and system, optimize operating costs, speed up the launch of the year development strategy to become a fully digital operator. Kind regards, Yuriy Kharlamov Google Play in terms of the number of downloads, surpassing Company’s products to the market, and provide opportunities That’s why we worked with full dedication and exceeded our Chairman of the Management Board, four million installations and overtaking some messengers and for monetisation of new products and services. obligations to install base stations in remote villages across Chief Executive Officer JSC on the Nexign Converged Business Support System project implemented in the interests of the rural population social networks. 16 17 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTKey Events of 2021 » The principal debt and coupon » Termination of the global depositary take a leading position in Kazakhstan’s The EGM was held with the agenda The Company’s board of directors Naizabekov Timur Kurmangaziyevich, interest were paid to bondholders receipts (GDR) program and voluntary telecommunications market. The on amending the Kcell JSC charter approved the attraction of external an independent director of Kcell JSC’s (ISIN KZ2C00004208). As of the delisting on the London Stock Exchange Company will be able to optimize and the formation of the counting financing and entering to a major board of directors, and Ramazanov register fixation date (January 15, (LSE) and Astana International Exchange operating costs for the operation commission. Changes in the transaction with First Heartland Jusan Yermek Turzhigitovich were elected 2021), 21,754 thousand bonds were (AIX). The Company’s common shares of several billing systems, as well composition of the Kcell JSC board Bank JSC for a total credit limit of KZT members of the board. Also, the placed with a nominal value of KZT continue to be traded on the Kazakhstan as accelerate the introduction of of directors also occurred: Makhat 60.5 billion. The credit line will allow board of directors decided to elect 1 thousand, with a coupon rate of Stock Exchange (KASE). 11.5%. The total amount of payment products to the market and expand the opportunities for monetisation of Rashit Mukaramovich and Popov the refinancing existing loans and will Nurpeissova Dina Kozhakhmetovna, Vladimir Gennadiyevich, independent support the implementation of the chief financial officer, to Kcell JSC’s on the principal debt amounted » An agreement on the implementation new types of services. Modernisation members of the board of directors, five-year development strategy of the management board. to KZT 21,754 million. The total of the Nexign Converged BSS billing and consolidation of the systems will were notified of their resignation by mobile operator. coupon payment amounted to KZT platform was signed with Nexign JSC. also expand the capabilities of self- the members of board on September 1,251 million. The transition to a unified billing system service services by 20-30%, which will 21, 2021. » The Company fully repaid the for servicing subscribers will allow Kcell reduce the load on contact centers and to become a fully digital operator and subscriber offices. » The Company declared on the conclusion of an additional agreement with SB “Bank of China in Kazakhstan” JSC to increase the amount of the credit line from KZT 11 billion to KZT 13 billion until 2024. principal debt and accrued interest in the amount of KZT 12 billion on loans from Halyk Bank of Kazakhstan JSC and SB Alfa-Bank JSC. The amount of the loan to the Eurasian Development Bank, KZT 6.5 billion, was also fully repaid. January February April May June August September October November December » Kcell JSC’s board of directors » At the annual general meeting of A meeting of the Company’s board of decided to appoint Yuriy Kharlamov shareholders (AGM), a decision directors was held with the agenda on as chairman of the Company’s management board and chief executive officer. was made to pay dividends for the change in the composition of the 2020 in the amount of 100% of the management board of Kcell JSC. consolidated net income of KZT 17,578 million or KZT 87.89 per » An extraordinary general meeting share. (EGM) of the Company’s shareholders was held with the agenda for the election of members of the board of directors. Saudabayev Serik Bolatovich and Khudayberdiev Timur Telmanovich, representatives of the shareholder of Kazakhtelecom JSC, were elected to the current board of directors of Kcell JSC. The Company provided information on the change in the composition of the shareholders. The composition of the shareholders owning 5% or more of shares of Kcell JSC: 1) Kazakhtelecom JSC – 51% of shares; 2) Pioneer Technologies S.A.R.L. – 14.87% of shares; 3) First Heartland Jusan Bank JSC – 9.08% of shares; 4) Unified Accumulative Pension Fund JSC – 7.06%. » The strategic agreement was signed with Ericsson with the intention of accelerating the development of 5G technologies in the Republic of Kazakhstan. As part of the agreement, the companies opened a new milestone in the development of advanced technologies in the country: the first pre-commercial 5G zone in Turkestan. » Fitch Ratings has assigned a long-term issuer default rating (IDR) of “BB+” to Kcell, and with a “Stable” outlook. » The government of the Republic of Kazakhstan approved amendments to the rules for the provision of frequency bands, radio frequencies, operation of radio electronic facilities, and high-frequency devices. As such, the Company is entitled to receive state subsidies in the form of a 90% reduction of the annual fee for the use of radio frequencies from January 1, 2020 to December 31, 2024. 18 19 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT2021BUSINESS MODEL The basis of Kcell’s success is a business model built on a solid foundation of productive solutions. By making good use of its asset base and competitive advantages and offering state-of-the-art innovative solutions, the Company strives to create and maintain the greatest value for all its shareholders. The main focus on investing in the team and building the right culture in the Company creates a solid foundation that will allow us to more readily withstand even the most difficult circumstances. SOLID FOUNDATION Brands Across years of productive operations, the Kcell and Activ brands have proven themselves in the highly competitive telecommunications markets in the B2B and B2C segments and are known for their high quality of service and concern for customer comfort. Natural Resources The Company pays great attention to environmental care. We comply with all requirements for the environment’s protection, mainly by balancing our operations with impact on the environment. The Company local and global contributes sustainability by using, developing, and promoting resource-efficient and environmentally friendly services. their to is also promoted by Finances Stable revenue growth is ensured through the introduction of innovative tariffs and a smart approach toward promoting additional services for subscribers, new OTT services, and mobile financial services. Financial growth the development of application package, with more functionality and by allowing customers to manage their accounts, with respect to their requirements. The new individual financial product to qualitatively improve our services and provide even more profitable services to our subscribers. is designed the We are successfully continuing the digital transformation of our Company through our commitment to innovation and value, in accordance with which we offer customers the most advanced solutions of the 21st century. This is made possible thanks to the quality of Kcell’s fast growing network, competitive brands, products, and services in the field of data processing and transmission, as well as the efforts of our dedicated employees. l e d o M g n i t a r e p O CLIENT-ORIENTED SOLUTIONS + OPTIMAL PRICE-VALUE RATIO s e c r u o s e R tries People Kcell always attracts talented working professionals, creates comfortable working conditions, and to develop and retain employees, which explains why the Company is one of the best employers in Kazakhstan. A positive and motivating work environment, concern for the quality of life of employees and their families, career opportunities, and financial prospects make Kcell a desirable place of work for both young and experienced professionals. Network Kcell is actively expanding its coverage in to provide high-quality services Kazakhstan. The Company uses one of the most modern, technologically advanced, and extensive mobile networks in the country, with unlimited licenses to operate on 2G, 3G, and 4G/LTE the launch of the first full- successful fledged 5G network in Turkestan became one of the most significant events the Company’s history, providing us with more advanced methods of delivering our services. frequencies. In 2021, in Technologies In Kazakhstan, Kcell is the largest digital ecosystem with a clear competitive advantage. These additional services are of incontestable value to our customers: financial services, mobile TV, online movies, music, books and magazines, and other useful services. in developing We also take pride unique for solutions corporate clients. business We create all conditions for the fruitful growth of our employees! Strategy Sustainable Development Risk Management Corporate Governance is based of strategy implementation on Our the the transformation and strategy of the digital player, which has significant potential to create value for our customers, and shareholders. employees, Investments sustainable in development play a crucial role in ensuring that the business model ensures the development of the Company and at the same time brings benefits to society. The risk management program, developed in accordance with the Organisational Risk Management Guidelines of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fully integrated into the Company’s business planning and control processes. the By maintaining highest standards of ethical behavior with all of our stakeholders, we develop a culture of responsible business. Read more on page 22 Read more on page 34 Read more on page 41 Read more on page 48 We are attentive to the needs and requirements of our customers! 1 2 3 4 l e u a V d e t a e r C PEOPLE NETWORK BRANDS PRODUCTS AND SERVICES AIMED AT DATA TRANSMISSION FOR CUSTOMERS The Company’s priority is to provide the highest quality services in the field of telecommunications. We are constantly improving the quality, spectrum of services, and customer experience for Kcell and Activ subscribers and remain a reliable partner for our retail and corporate clients. FOR SHAREHOLDERS The Company is confidently fulfilling its obligations to ensure sustainable maximum value for shareholders in the long term, including through a transparent dividend policy. FOR EMPLOYEES There are 2,120 employees in Kcell, with compensation packages that reflect the Company’s principles of equality and meet the requirements of the local market; employees are also eligible for comprehensive benefits. Subscriber base is 7,961 million people Dividends paid for 2020 KZT 17,578 million* * in 2020, KZT 9,000 million was paid for 2019 Growth of eNPS (employees Net Promoter Score) + 15 percentage points** ** +25.7 % in January 2022 vs. +10.7% in August 2021 We are building a world-class ecosystem! 20 21 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT STRATEGY The basis for the further success of the Company is a five-year development strategy aimed at becoming a fully digital operator with a diversified portfolio of products and services. I STAGE 2021–2023 II STAGE 2024+ Strategic Objectives of the First Stage ATTRACTING AND RETAINING QUALITY CUSTOMERS REALISATION OF B2B POTENTIAL Business stabilisation and building enablers (contributory factors) building Building an innovative digital operator » Attracting and retaining quality customers » Understanding and satisfying customer needs » Realisation of B2B potential » » The best place for employees to work Improving operational efficiency » Digital value proposition » Advanced analytics » Digitalisation of customer experience » Flexible organisation of the Company » » » Products meeting the needs of target customer corporate clients with personalized service (key segments account managers) Enrichment and bundling (packaged offers) of relevant » User-friendly products tailored to SMB customers with digital services and facilities into products based on an advanced digital customer journey » Partner products customized to the needs of customer needs Leadership in providing a wide spectrum of products (incl. devices) » New lines of business » Advanced perception of network quality UNDERSTANDING AND SATISFYING CUSTOMER NEEDS » Customer base using up-to-date tariff plans and products IMPROVING OPERATIONAL EFFICIENCY » Increased employee productivity » Optimal structure and cost level » High level of simplicity and process automation THE BEST PLACE FOR EMPLOYEES TO WORK » Proactive development of the subscriber base and » Decision-making institution based on flexible customer behavior patterns by meeting the needs with interaction practices and an increased level of the help of CVM (Customer Value Management) authority of employees » Online service for all key customer routes and » Ambitious, achievable business objectives for each transactions area and division through quarterly planning » Cross-functional teams interacting effectively across critical business areas » Leading employer of telecom talents in the market Expected Results Implementing the transformation and strategy of the digital player has a significant potential to create value for all involved persons: » Happy Customers – Constant contact with customers and understanding of their needs help to develop mobile advanced areas of the digital economy (AI, IoT, DevOps, etc.). Each member of the Kcell team demonstrates services. The introduction of digital customer experience professionalism and commitment to the tasks set by tools and investments in the network increases the cNPS. Result: Significant of services, and customer experience for Kcell/Activ in quality, spectrum improvement subscribers. » Happy Employees   – Attracting the best employees, programs for reprofiling engineering to IT professions and lucrative salary offers. Kcell strives to increase the eNPS and build the strongest team in the market. Result: satisfaction, development of local competencies in the engagement Increased employee and the Company. This allows us providing the society with the latest technologies and quality services. » Happy Shareholders  – A significant increase in income and EBITDA. Potential for evaluating shareholder value at the digital player level. Result: We create and maintain the greatest value for shareholders. We keep our promises and meet the expectations of all stakeholders! 22 23 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT MARKET REVIEW The global market is expected to reach $370.63 billion in 2025, with an average annual growth rate of 7%. Revenues of the telecommunications sector in Kazakhstan on a monthly basis for 2019-2021 (in billion tenge) 5 . 8 7 9 . 6 3 7 . 9 6 2 . 1 6 4 . 9 7 3 . 0 7 3 6 1 7 6 . 3 6 5 . 1 8 6 . 2 8 3 . 0 3 7 . 4 6 7 . 1 2 7 . 5 6 4 . 4 8 6 8 4 . 2 5 7 . 5 6 2 . 4 7 8 6 8 . 6 8 5 . 7 8 8 . 7 8 5 . 4 7 9 6 5 . 5 7 0 7 9 . 6 6 7 . 9 6 7 0 . 9 8 7 . 1 9 6 . 0 8 4 . 1 7 3 . 7 9 7 . 9 6 World Market of Telecommunication Services mobile internet, which is due to the active development of innovative technologies against the backdrop of globalisation processes, as well as an increase in the level of multimedia According to GlobeNewswire, the global satellite and content of the market. telecommunications service provider market increased from $273.57 billion in 2020 to $282.58 billion in 2021 at a compound The factors slowing down the development of the annual growth rate (CAGR) of 3.3%. telecommunications sector include: an oligopoly in the telecommunications market; a high level of regulation of the The growth is mainly due to changes in the way companies sector by the state; provision of services to customers that operate. The recovery from the COVID-19 crisis has also they do not need; high capital costs for the modernisation played a role in this growth. The decline in 2020 was driven by of the telecommunications infrastructure; and significant measures to contain the spread of the virus, including social differences in the potential for development of segments of distancing, transfer of employees to a remote work format, the telecommunications market in different countries for both and business shutdowns. However, in 2021, many restrictive economic and legal reasons. measures were lifted, and the work of operators recovered to a greater extent. Situation in Kazakhstan Digitalisation drives the use of wireless technologies and The market in Kazakhstan for telecommunication services is equipment. The growing data traffic, the rise of public Wi-Fi, represented by three major mobile operators: Kcell, Beeline, and the development of 4G and 5G technologies promote the and Tele2/Altel. All operators in this fierce market are making increase in the use of wireless equipment in developed and every effort to introduce new products, improve service, developing countries. In addition, many companies move from expand networks, and frequency range. The emergence of traditional systems such as fixed-line technologies to more innovative technologies contributes to increasing income in advanced wireless and mobile technologies. the industry. Main Trends of the Telecommunications Market in 2021 In recent years, all players in the Kazakhtan telecommunications market have shown steady growth, which is likely to continue into the future. It is expected that by 2025 the use of 2G networks Communication technologies are the main driver for the will come to naught, and that the volume of 3G networks will development of a number of key sectors of the economy, such also be significantly reduced. The successful launch of Kcell’s as trade, energy, finance, insurance, and education. Telecom is first full-fledged 5G network in Turkestan in 2021 allows us to becoming a key segment of the economy, providing business predict that the majority of mobile connections by 2029 will be processes in all sectors, from finance to agriculture. In carried out through 5G networks. addition, the industry has become one of the few beneficiaries of quarantine restrictions during the pandemic, as it was able to withstand the increased load on networks. Among the main trends in the development of the telecommunications market, one can single out the growth in the number of subscribers of mobile communications and Income from Communication Services in Kazakhstan in January-December 2021. In 2021, telecommunications operators earned more than KZT 1 trillion. January February March April May June July August September October November December 2019 2020 2021 Structure of income from communication services in Kazakhstan in 2021 (in percentages) 1.8% 24.9% 4.3% 4.9% 3.4% 20.3% 24.9% Mobile communication Internet Other communication services Local telephone communication Long-distance communication Data transfer Program distribution Communication Services, 2021 According to the Bureau of National Statistics of the Republic of Kazakhstan, the volume of the telecommunications market increased by 14.4% from January-December 2021 compared to the same period in 2020, reaching KZT 1.0121 trillion. The volume of long-distance and international telephone communication amounted to KZT 18.8 billion (12.2% less than the volume of the same period in 2020); internet services to KZT 405.5 billion (20.1% more); and cellular services to KZT 251.6 billion (7.2% more). As before, the largest shares in the total volume of communication services are accounted for by the internet, mobile communications, and other telecommunications services. The “Big Three” operators — Kcell, Beeline, and Tele2/Altel — concentrate more than 85.4% of the entire telecommunications market of the republic. Main Components of the Telecommunications Market in Kazakhstan Type of services Revenue from long-distance and international telephone communications Revenue from telephone communications Internet services Cable Infrastructure, Wireless and Satellite Programs Mobile services Other telecommunications services Unit of measurement KZT in billions KZT in billions KZT in billions KZT in billions KZT in billions KZT in billions 2020 1.62 2.88 47.93 3.50 33.26 16.50 2021 1.47 3.41 38.1 3.80 21.60 19.60 % –9.3 % –5.6 % 25.8 % 8.6 % 5.4 % 18.8 % 24 25 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTPERFORMANCE REVIEW Kcell successfully implements all spheres of the five-year strategy. The strong financial and operational performance achieved despite external challenges in 2021 confirms the correctness of the chosen development direction and strategic priorities. B2C Segment Overview Twenty twenty-one became a year of “evolutionary revolution” for the Mobile Financial Services (hereafter referred to as the MFS turnover has doubled, from KZT 18 billion in 2020 to 36 billion in 2021. There is a quarterly increase in the active user base. So, and only in the 4th quarter of 2021, the MFS base of Kcell exceeded 400 thousand and grew by 15% compared to MFS) business area. This is the result of the implementation of 2020. the strategy approved at the end of 2020. Main directions: » building the first Neobank in Kazakhstan following the example of the best world practices; Compared to similar indicators for bank cards in Kazakhstan, the growth of Kcell’s mobile financial services demonstrates comparable dynamics, as the number of transactions made on payments from the mobile phone balance increased by 84%, » » creation of a loyalty program based on the experience and from 9.8 million in 2020 to 18.2 million in 2021. expertise of the international payment systems; and wider involvement of Kcell subscribers in the use of MFS to increase such indicators as NPS and MultiPlay (use of several services of a telecom operator) Common subscriber base. Slight decrease compared to 2020 – by 1.2% Сoverage indicators. Steady growth from year to year by an average of 2.5 percentage points. B2C main indicators Units of measurement 2020 2021 2021 compared to 2020, ‘% Subscriber base 2019 8,275 2020 8,055 2021 7,961 Average revenue per client increased by 10.7%. The main drivers of ARPU growth are growth in service revenue, growth in the penetration of packaged offers, and growth in sales of contract smartphones. Average revenue per ARPU user 2019 1,334 2020 1,457 2021 1,614 The data traffic increased by 36.8% compared to 2020. One of the main reasons is the transfer of a significant part of the life of most Kazakhstanis online and the transition to a remote format of work and education. Additionally, the growth in sales of smartphones affects the increase in the level of penetration of smartphones in the network, which in turn entails an increase in the consumption of the data traffic. Data traffic, PB Average data traffic per user, GB 2019 322.5 6.2 2020 453.5 8.4 2021 621.0 11.2 The Company continues to focus its main efforts on improving operating performance and increasing the overall quality of customer service, including through increased 4G penetration and improvement of digital services. 2019 2020 2021 4G/LTE Coverage 62.2 % 65.1 % 67.5 % 3G Coverage 80.5 % 83.8 % 85.0 % Packaged offer penetration is up 6.3 percentage points year-on-year compared to 2020, due to active promotion of Mobile financial services Active users of MFS Active users of OTT Transactions and payments from mobile phone balance KZT in billions thous. subscribers thous. subscribers million 18 226 376 9.8 36 237 693 18.2 Payment in Google Play Market 100 % 4.9 % 84.3 % 85.7 % In April 2021, thanks to integration with Halyk Bank, one of The OGO Finance product family includes OGO Bonus, OGO the largest banks in the country, and the European payment Card, and OGO Deposit and is designed to qualitatively integrator BOKU, subscribers of Kcell telecom operator improve our services and provide more profitable services to were given the opportunity to pay for any available content Kcell subscribers. offers through the key communication channels and focus on in the Google Play Market using direct carrier billing (DCB) meeting specific customer needs. Penetration of packaged tariff plans 2019 2020 2021 54.2 % 62.3 % 68.6 % The subscriber churn rate is declining due to measures to improve the quality of the subscriber base and increase contract sales, which, in turn, positively affect the LTV lifetime value. Subscriber churn rate 44.5 % 34.1 % 27.7 % 2019 2020 2021 “The main achievement of mobile financial services is that Kcell closed the five-year gap from similar services of competitors in one year. We see a growing need to use Neobank, fully digitized financial services.” technology. The monthly volume of purchases made by subscribers from the balance of a mobile phone in the Google In 2021, the cashback campaign with Visa QR was launched, and today Kcell is the only mobile operator in Kazakhstan that Play Market is more than KZT 100 million. The number of provides contactless payment services using a QR code in the subscribers who made such transactions during a given month Visa QR network around the world. increased by more than 30 times during the year, which was also stimulated by the high amount of remuneration in the form of cashback. Loyalty Program In July 2021, one of the best loyalty programs, OGO Bonus, was launched. Within its framework, subscribers of Kcell telecom operator were given the opportunity to open a bonus account in the super application, receive rewards for payments made from their mobile phone balance in the amount of up to 90% of the amount, and withdraw accumulated bonuses to the phone balance, share with family and friends, or use them for repayment. The average monthly figure is 85%, which is several times higher than the figures for similar loyalty programs not only in Kazakhstan, but also in other countries from around the world. In 2021, more than 500 million bonuses were credited to subscribers, and the number of bonus accounts exceeded 100,000. According to forecasts, in 2022, the number of bonus accounts will grow at a rate similar to the penetration of the super app, and will reach 300,000. In July, we launched a bonus loyalty program in the Super App with a reward of up to 90% of the transaction amount. Today we have almost 100,000 active bonus accounts, and more than 85% of accrued bonuses are reused within a month.” 26 27 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTB2B Segment Review Private LTE for Industrial Enterprises Kcell JSC presents a wide range of smart solutions for business The maximum automation of production processes is an in the Kazakhstan market. The use of smart solutions opens important task for mining companies around the world. For up new opportunities for infrastructure management and the these purposes, the capabilities of a full-fledged technological systematisation and optimisation of business processes and wireless communication network, private LTE is also used. business information tasks. It also helps to reduce costs and, as a result, increases business profitability. Kcell became the first operator to launch commercial private Business solutions provided by the Company in the Kazakhstan market: LTE networks. One of the networks was put into commercial operation in September 2020 at the Aktogay mine of KAZ Minerals Group, one of the companies engaged in the extraction and processing of copper at the site. Private LTE is an excellent buffer state for the implementation of digitalisation in mining enterprises and mines. The Private LTE  – a dedicated secure network designed to solve production problems client receives a private dedicated radio network with high bandwidth and protection from external influences. It integrates autonomous networks for the digitalisation of the mining industry and provides an opportunity to automate the technological processes of mining and mining-and-processing enterprises, which, in turn, helps to increase labor productivity and reduce the number of accidents at work. FINANCIAL REVIEW Revenue Total revenue, KZT in millions 2019 2020 2021 156,657 174,684 196,189 Growth in total revenue by 12.3% or by KZT 12,105 million in 2021 Increase in service revenue by 10.7% compared to 2020 – KZT 140,049 million Service revenue, KZT in millions 2019 2020 2021 137,564 140,049 155,054 Growth in sales of mobile devices by 12.7% or by KZT 4,392 million compared to 2020 – KZT 34,634 million. Despite the global shortage of smartphones and the limited supply, it was possible to achieve a significant increase in the revenue from Sales and marketing expenses. Increase of 58% compared to 2020. Sales and marketing expenses, KZT in millions 2019 2,887 2020 1,965 2021 3,106 General and administrative expenses. Increase of 36% or KZT 3,891 million compared to 2020 – KZT 10,426 million General and administrative expenses, KZT in millions 2019 2020 2021 8,925 10,426 14,137 Financing expenses decreased by 17.9% and amounted to KZT 7,765 million compared to 2020 – KZT 9,453 million. Financing expenses, KZT in millions 2019 10,479 2020 9,453 2021 7,765 Push-to-Talk  – a solution for providing intra- production communication based on the private LTE network Automonitoring   – a comprehensive solution for the effective management of remote objects (vehicles and special equipment) Ecomonitoring   – a solution for monitoring and atmospheric at mining emissions metallurgical facilities, as well as controlling the indoor microclimate and compliance with sanitary and epidemiological rules and regulations Access control and management system – a comprehensive solution aimed at managing access to a given territory Production automation comprehensive solutions aimed at increasing systems   – the level of efficiency and mobility of employees and facilitating their work Video analytics  – a solution for automated data acquisition based on the analysis of a sequence of images coming from video cameras In 2021, a second private LTE network was launched at several sales of devices. Earnings, financial position and cash flows ERG group sites. It is used to implement the global ERG project and includes several dozen base stations operating on LTE technology. Revenue from handset sales, KZT in millions 2019 2020 2021 19,091 34,634 39,026 The expansion of the portfolio of offers through new digital services and solutions, which led to an increase in revenue in data-processing services and services for voice and other services segments by an average of 10%. These results are driven by the introduction of new OTT products (internet video services) and mobile financial services, and the launch of updated mobile applications and websites to improve the ease of use of the Company’s services. 2019 2020 2021 78,689 73,851 78,060 51,430 58,446 67,971 Voice and other services, KZT in millions Data services, KZT in millions Expenses Cost of sales increased by almost 5% or by KZT 6,734 million compared to 2020 – KZT 119,133 million, mainly due to the growth in handset sales. EBITDA  compared to 2020 – KZT 72,147 million, due to the growth of increased by 14.1% or by KZT 10,193 million service revenue and cost optimisation. 2019 2020 2021 64,364 72,147 82,340 EBITDA (income before income tax, interest and depreciation), KZT in millions As a result of outrunning revenue growth, gross profit (operating profit, excluding non-recurring expenses) increased by 25.1% and amounted to KZT 51,338 million, compared to 2020 – KZT 41,023 million. Operating profit excluding non-recurring expense, KZT in millions 2019 2020 2021 33,661 41,023 51,338 Free cash flow (the amount of cash flow from operating activities minus the amount for capital expenditures) increased by 48.6% and amounted to KZT 42,895 million compared to 2020 – KZT 28,865 million 2019 2020 2021 16,443 28,865 42,895 Cost of sales, KZT in millions 2019 2020 2021 108,928 119,133 125,867 Free cash flow, KZT in millions 28 29 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTLaunch of 5G Network in Turkestan In 2021, Kcell faced the task of launching the first 5G network in Kazakhstan. Turkestan was chosen as the site, where it was planned to provide uninterrupted 5G coverage to the business and cultural centers of the city. The project included the launch of nine new stations by updating the existing ones. All equipment was purchased, delivered, and installed in the shortest possible time. On December 9, 2021, the Company held a presentation and grand opening of the 5G network. The speed of 1400-1500 Mbit/s demonstrated during the event was in line with the stakeholders’ expectations from the 5G network. Net profit increased by 84.9% and amounted to KZT 32,506 million compared to 2020 – KZT 17,578 million In 2021, the amount of investment in the development of the network amounted to about KZT 36 billion. Net income for the reporting year, KZT in millions 2019 2020 2021 10,015 17,578 32,506 Capital expenditures (CAPEX), KZT in millions 2019 2020 2021 20,200 26,842 38,052 CAPEX-to-sales ratio % 12.9 % 15.4 % 19.4 % The CAPEX-to-revenue ratio amounted to 19.4%, up four percentage points compared to 2020, reflecting the continued high level of investment in the development of the network (More on investment projects on page 30). Earnings per share increased by almost 50% compared to 2020 Earnings per share, KZT 2019 50.1 2020 87.9 2021 162.5 INNOVATIONS AND INVESTMENT PROJECTS In 2021, the Company continued to solve the tasks of Work Beyond Obligations developing the digitalisation area. 250+ The first infrastructure project of the republican scale with the participation of three operators Kcell is actively working to expand the coverage of MBBA and improve the quality of communication beyond the obligations. For 2020-2021 base stations beyond obligations were activated in more than 240 rural settlements (RS). In 2021, LTE was activated in five RSs, which led to the deployment of LTE The implementation of the national Project 250+ to provide network in 249 villages of the country as part of the FOCL RS rural settlements with a population of over 250 people with project. broadband mobile internet was worked out jointly with the akimats and approved back in 2020. In 2021, the first stage of the project’s implementation was completed due to the joint efforts of Kazakhstan’s mobile operators. Integration Project. Multi-Operator Basic Network This project will allow Kcell to increase carrying capacity and Project 250+ provides for the connection of 1,600 villages in minimize the capital investment required to build and maintain Kazakhstan with a total population of 1 million people to 3G and a cellular network. 4G standards from all three operators, which allows residents of remote settlements of the Republic of Kazakhstan to access In 2021, the construction and upgrade of the LTE network in broadband mobile internet, and therefore the opportunity to MOCN technology by Mobile-Telecom Service LLP (MTS is use digital government services, as well as internet banking, the united company Tele2/ALTEL) launched and is currently telemedicine, online education programs, etc. Thus, thanks to ongoing. This network makes it possible to share MTS the project, the digital divide between rural and urban areas is equipment and frequencies of both operators now that Kcell erased and new opportunities are opened up for residents of JSC concluded its network-sharing agreement with Kar-Tel LLP remote areas. (Beeline brand). After agreeing to the agreement on November By the end of 2021 (for the period 2020-2021), Kcell launched first phase (35 out of 36 cities, except Ayaguz). In most cities, evaluate the operation of the 5G network in the building of the 1,423 sites. In the middle of 2021, the FOCL RS (fiber-optic there is a significant increase in both the average data rate and international airport in Turkestan. Since the official launch, 12, 2020, the companies began switching and completed the Many foreign guests have already managed to test and networks in rural settlements) project was also implemented, the amount of data transferred. according to which, in rural areas where FOCLs are connected, mobile broadband access (MBBA) will be activated using LTE technology in two bands, which means additional capacity to increase the data transfer rate. In 2021, the Company provided 190 villages with the internet, and installation is also planned in 20 villages. The total number of Kcell subscribers who received access to the internet amounted to about 670,000 people. the traffic has almost quadrupled, due to the fact that more and more mobile device manufacturers have activated the functionality of using 5G for Kcell subscribers. The certification with Samsung and Apple lasted more than 2 months. At the moment, there is a systematic increase in the number of devices supporting the fifth-generation network. According to the latest data, already 6% of subscribers can use the 5G network. The number of subscribers is expected to grow as the software of mobile devices is updated. 30 31 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTCoverage card «250+» 250+ The first infrastructure project of the republican scale with the participation of three operators Uralsk Aksai Inderborsky stl Makhambet village Ganyushkino village Dossor Atyrau Kulsary Petropavlovsk Kostanay Rudnyi Lisakovsk Kokshetau Shchuchinsk Atbasar Stepnogorsk Nur-Sultan Pavlodar Aksu Ekibastus Aktobe Khromtau Alga Kandyagash Shubarkuduk Arkalyk Temirtau Abai Karaganda Karkaralinsk Semey Ust-Kamenogorsk New Bukhtarma stl Ayagoz Zaisan Fort Shevchenko Beyneu village Aktau Munaishy stl Zhanaozen Shalkar Satpaev Zhezkazgan Aralsk Kazalinsk Kyzylorda Balkhash Beskol village Aktogay Dostyk Tekeli Usharal Kapchagay Chilik Chundzha village 2G 3G 4G The main goal of Project 250+ is providing state and social institutions in rural areas with broadband access services so that villagers receive internet with “urban parameters” Alga village Otar Zhanatas Turkestan Karatau Taraz Arys Shymkent Saryagash Zhetysu Almaty Kegen village + 22 SUSTAINABILITY SUSTAINABILITY REPORT REPORT SUSTAINABLE DEVELOPMENT MANAGEMENT STRATEGY FOR SUSTAINABLE DEVELOPMENT 36 37 SOCIAL ASPECTS OF SUSTAINABLE DEVELOPMENT 39 PERSONNEL MANAGEMENT OCCUPATIONAL HEALTH AND SAFETY ENVIRONMENTAL ASPECTS OF SUSTAINABLE DEVELOPMENT 40 43 44 22Reducing digital inequality 2022Sustainable Development Management Strategy for Sustainable Development Our approach to sustainable development ensures accountability and responsibility with regard to the long-term impact of activities. It includes all aspects of the Company’s Commitment to the UN Sustainable Development Goals activities and impact on society and the environment, One of Kcell’s strategic priorities is commitment to the which is an integral part of our business model, strategy, principles of sustainable development. The Company and philosophy. As one of the leading telecommunications supports the current UN sustainable development agenda companies in Kazakhstan, in which Kazakhtelecom JSC is until 2030 and shares the Sustainable Development Goals the controlling shareholder, Kcell takes its responsibility adopted by the UN General Assembly in 2015. The Company’s as a corporate citizen as seriously as possible. High ethical desire to make a positive contribution to the achievement of standards are observed at all stages of doing business and the Sustainable Development Goals is based on the following in our relationships with all stakeholders, including investors, approaches: transparency in its activities; more efficient customers, employees, business partners, suppliers, other interaction with key stakeholders; focus on improving the organisations, and the public in whole. quality of its services; and reducing the negative impact and strengthening the positive impact on environmental, social, The company’s quality of corporate governance directly and economic aspects. affects not only the success of the organisation’s strategy, but also the efficiency and effectiveness of sustainable Kcell invests and focuses on achieving several Sustainable development initiatives. Kcell builds and maintains an Development Goals that are most relevant for the effective corporate governance system in accordance with all telecommunications industry and the specifics of the Implementing the principles of sustainable development in all our business processes is an important task for our Company. Sustainable development issues are integrated into the Company’s strategy, which is integral to the growth of Kcell’s business in the long term. It is important for us to build stable and mutually beneficial relationships with all stakeholders. Reducing the digital divide Ensuring equal access to information and educational programs for various, including vulnerable, social groups is an important and integral social aspect of digitalisation. That’s why a significant part of Kcell’s strategic vision in the field of sustainable development, and a tool for achieving the UN Sustainable Development Goals, is increasing the digital literacy of society and reducing requirements and international best practices, striving to take Company’s activities, as well as for the implementation of inequality in this area. into account the interests of a wide range of stakeholders. the strategic directions of the Company’s development, in accordance with the approved strategy. We focus on 10 of the 17 Global Sustainable Development Goals The main driving force and the basis for the continuity of operational processes is our highly qualified personnel. For us, the safety and well-being of our employees is always a constant priority. We continue to actively invest in the professional development and training of our employees, offering up-to-date training programs to improve their skills and competencies. Partnership/collaboration Within the framework of the chosen strategy, we continue to seek new partnerships and cooperation with all interested parties, realizing that the result of this cooperation will be the systematic development of our business, the business of our partners, and, in general, the socio- economic development of the state and the improvement of the quality of life of society. Innovations Our initiatives to implement digital technologies to solve society’s urgent problems need to be constantly developed and improved. Relying on the best practices and global trends in the telecommunications sector, Kcell is trying to find the most efficient solutions that can be used to achieve systemic improvements and have a significant social effect. Reduction of environmental impact As a rule, companies in the telecommunications industry do not have a significant negative impact on the environment. However, Kcell approaches issues in this area with extreme responsibly and, accordingly, supports initiatives that can contribute to the solution of local and global environmental problems. We focus on improving the energy efficiency of our own facilities, developing appropriate digital solutions for customers, and increasing the information content of the disclosure of environmental performance parameters. 36 37 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT Priority directions in the field of sustainable development Environment Society Energy consumption and energy efficiency Environmental protection and reduction of negative impact on the environment Waste management Compensation of employees and remuneration system Social package for employees Personnel training and development Increasing the level of personnel involvement Personnel turnover management Ensuring safety and labor protection Reducing the digital divide Corporate governance Development strategy Shareholder rights High standards of corporate governance Gender equality Risk management system Social Aspects of Sustainable Development In the modern world of technological and socio-economic development of society, digital technologies play a crucial role. And a key competence center in this area is for companies in the telecommunications sector to assume all responsibility. ETHICAL BUSINESS Kcell’s attitude toward sustainability issues is governed by ethical norms and standards of legal Program for the Implementation of Initiatives in the Field of Sustainable Development Thus, in 2020 and 2021, with the COVID-19 pandemic necessitating that countries make all sorts of adjustments to life and business, the effective and uninterrupted provision of communication services and the introduction of new digital Membership in Associations and Participation in Socially Significant Projects and regulatory compliance, which guarantees the One of the main tools for integrating the principles of solutions became especially important for the social and Kcell is a member of various business associations in use of a systematic approach by the Company to the sustainable development into the activities of companies economic stability of states. The remote work format, online Kazakhstan, such as the National Chamber of Entrepreneurs implementation and monitoring of and compliance is the implementation of various initiatives in the field of learning, access to social services deployed by the state and of the RK “Atameken,” ALE “National Association Big Data,” with regulatory requirements in all areas of business: sustainable development. Kcell, as one of the leading business to support the population—all this was facilitated ALE “Union of Information Technology Producers.” We take telecommunications operators in Kazakhstan, takes into with telecommunication technologies. And Kcell remained at an active part in various projects within these associations, Responsible work with suppliers. Kcell brought its procurement regulations in line with the requirements of account the environmental and social considerations the forefront of efforts to improve remote working conditions as well as sponsor conferences and events held by these associated with its operations. When identifying sustainability and provide emergency services in 2021. A lot of that organisations as part of the creation of a digital ecosystem Kazakhtelecom JSC’s unified procurement system. The initiatives, we considered a wide range of relevant topics, depended on the smooth operation of our networks, from that will become the basis for maximizing the full potential of procurement regulations were developed in accordance including the Company’s development strategy and business ordering food and medicines to telemedicine and monitoring entrepreneurship development in Kazakhstan. with subclause 40 of clause two of article 12 of the model, as well as important topics relating to the sustainable the situation with the disease. Procedure for Procurement by the National Welfare Fund development of the Company, but also for stakeholders. Kcell is an active participant in the implementation of the Samruk-Kazyna Joint Stock Company. The purposes Kcell rose up to a difficult challenge, and it became an Digital Kazakhstan program, which aims to improve access of the document are: to provide a unified approach to Kcell has identified initiatives in the field of sustainable additional incentive for the Company to accelerate the to public services and reduce the costs associated with their the Company’s procurement; creation of conditions for development: implementation of the network expansion and modernisation provision and receipt by digitalizing such services: the timely and complete satisfaction of the Company’s needs for goods, works, and services—the cost, quality, projects aimed at increasing the availability of our services even in the most remote areas of the country. Investments in and reliability of which meet the requirements; efficient 1. Ensuring economic performance by improving revenue infrastructure development climbed to a five-year high. And The 250+ National Project is an initiative under the Digital Kazakhstan program aimed at providing high-speed internet use of funds; ensuring transparency of the procurement and EBITDA. Potential for evaluating shareholder value at we entered 2021 fully armed, ready to provide our customers access to residents of rural areas with a population of over procedure; and observance of the principle of non- the digital player level. with the highest quality services and continuing to actively 250 people. disclosure of confidential information. 2. Improving the efficiency of the corporate management develop our projects. Protection of personal data of customers. We are committed to maintaining the privacy and security of our 3. Reducing the digital divide and significantly improving the quality, spectrum of services, and customer experience customers’ personal data. In accordance with our privacy for subscribers. system. Society support during the pandemic 5G in Turkestan – The 5G network launch in Turkestan makes it possible to implement new scenarios in urban management, » » Free voice communication and internet traffic for doctors digitalisation of transport infrastructure, and implementation Free access to over 400 remote learning websites: online of the Smart City project. This project is designed to make policy, Kcell establishes clear principles and standards on 4. Increasing employee engagement and satisfaction. libraries, entertainment, film and TV services, and mobile the life of citizens safer and more convenient. Zones of the basis of which the Company fulfills its obligations to 5. Development of local competencies in the advanced applications for online-banking free access to 5G networks will also become an additional ensure confidentiality. areas of the digital economy. » Bonus minutes and free roaming internet for subscribers incentive to increase the flow of tourists to this beautiful 6. High ethical standards and anti-corruption policies. abroad ancient city, which is an important task for us in the long term. Fight against bribery and corruption. All aspects of Kcell’s activities are based on the principles of combating 7. Socially responsible partnership. 8. Protection of personal data of customers. bribery and corruption. The Company strictly follows the 9. Occupational health and safety. principle of zero tolerance for corruption and implements 10. Reducing the Company’s impact on the environment. effective measures to prevent, detect, and eliminate any form of questionable business practices. » » » Application for paying bills without leaving home Providing connected devices and tools to continue learning online as part of education support with the ministry of education Specially designed applications to make it easier to work from home and connect to the network 38 39 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTPersonal Management Kcell prioritizes building and developing an effective and » integration of HR processes with other corporate successful team of professionals. The Company is not only processes. one of the leading communication providers in the Republic of Kazakhstan, but also an attractive employer for both young and experienced job seekers. Composition and Structure of the Personnel Basic principles of the personnel management in the At the end of 2021, the Company employed 2,120 employees. Company: » meritocracy: the search for people with certain abilities can be carried out by testing with educational materials, studying the level of experience and other types of assessments, or a combination of these assessments; » strategic planning of human resources, as well as taking into account business needs and labor market conditions; » motivating remuneration, taking into account the results of the performance evaluation, and personal contribution of an employee; » focus on personnel development according to the 70:20:10 principle on the promotion of employees with potential; The slight reduction in the number of personnel is due to the restructuring of the Company through the transformation and revision of current business processes. Dynamics of the number of the regular personnel Number of personnel, persons 2019 1,950 2020 2,249 2021 2,120 Personnel structure in 2021 Indicator Total (per.) including by gender groups including by age groups Total personnel Permanent* management specialists workers Temporary* management specialists men 1,106 1,007 195 756 56 99 4 95 2,335 2,120 327 1,737 56 215 4 211 women up to 30 years 30-50 years over 50 years 1,229 1,113 132 981 116 116 801 662 25 631 6 139 1 138 88 88 15 53 20 1,446 1,370 287 1,053 30 76 3 73 *Permanent employees in the amount of 2,120 and temporary employees in the amount of 215 (employed for the duration of a certain job, or, in other words, freelance, or to replace a temporarily absent employee). Number of employees by regions, 2021 Personnel Turnover TOTAL Aktau Aktobe Almaty Atyrau Zhanaozen Zhezkazgan Zhetyssai Karaganda Kokshetau Kostanay Kyzylorda Nur-Sultan Pavlodar Petropavlovsk Saryagash Semey Taldykorgan Taraz Temirtau Turkestan Uralsk Ust-Kamenogorsk Shymkent The reduction in staff was part of the necessary changes in the structure of the Company and its elements to improve business efficiency, this restructuring and optimisation of business processes led to an increase in the indicator in 2021. Indicator Personnel turnover, % 2019 23 % 2020 21 % 2021 37 % Personnel turnover by gender groups by the results of 2021* Показатель Мужчины Женщины Personnel turnover, % 44 % 31 % *Calculation of % based on the number of employees by gender groups. Personnel turnover by age groups by the results of 2021* Indicator up to 30 years 30-50 years Over 50 years Personnel turnover, % 62 % 29 % 26 % *Calculation of % based on the number of employees by age groups. 2,120 persons 29 43 1,176 53 6 1 1 45 24 23 23 186 28 19 5 25 17 27 1 15 27 22 324 Remuneration and Personnel Motivation employee satisfaction and loyalty. In 2021, 82% of employees participated in the survey, while at the beginning of 2022 In order to determine the level of happiness and increase the number of participants increased to 93%. For 2021, the the level of motivation and well-being of employees, a happiness index increased by 15.2%, and the employee Net happiness job survey was conducted in 2021 to measure Promoter Score (eNPS) increased by 15 points. Remuneration of employees by the results of 2021 Category of workers Category of workers Average remuneration including bonuses and allowances Average remuneration of women Average remuneration of men Management Specialists Workers 874,295 308,315 146,850 1.295,302 376,177 159,087 1.117,075 347,474 – 1.410,157 410,992 159,087 Ratio 79 % 85 % 0 % Social Support for Employees Employees are supported in the following cases: » one-time financial assistance in connection with the death of an employee or a close relative of an employee; The number of employees who took childcare leave in 2021 is 272, of which 263 are women and nine are men. The number of employees who returned to work in the reporting period (2021) after the end of childcare leave is 157 persons. » » » » one-time financial assistance to employees, who have In order to improve the well-being of employees, the Company disabled children in their care; calculated the optimal balance between employees’ personal one-time financial assistance to employees with lives and their office lives, as well as defined the rules for disabilities; working meetings and introduced a culture of gratitude and financial assistance to minor children of the Company’s recognition of the employee’s achievements. deceased employees; female employees who have worked at the Company for more than three years are provided with financial assistance in connection to maternity leave, minus the state social payment. 40 41 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTPersonnel Performance Management Training and Professional Development In order to improve personnel performance, as well as to The continuous professional development and professional encourage, retain, and stimulate the best employees, Kcell growth of employees are important conditions for business has a system of comprehensive employee performance development. The following approaches were used during analysis, or KPI. The Company’s system of material incentives employee training in 2021: is designed to optimize employee work processes. Employee А) Internal training, which resulted in the training of 231 incentive plans in the form of bonus payments are reviewed employees. Focus on the front line and on creating and approved by the Company’s top management. favorable conditions for new employees, both for the first Kcell Business Award Program. Based on the fulfillment of quantitative and qualitative indicators for the reporting В) At the request of employees, open training formats were developed and conducted in the form of internal webinars period, depending on the approved programs for positions, from Kcell training partners: finance for non-financiers, and second lines, and for all Kcell employees. Indicator (internal training) By all employees By gender groups Average number of hours of training that employees of the organisation completed during the reporting period Number of employees trained Number of employees for whom qualification and performance assessment was carried out for career development during 2021 32 687 348 Women 32 389 187 Share of employees who have passed the assessment to the total number 51 % 48 % Men 32 298 161 54 % Recruitment and Adaptation of Personnel Number of employees recruited in 2021 monthly/quarterly functional motivational programs are Excel, time management, the art of being on time, goal The search and recruitment of Company employees is calculated in the Kcell Business bonus program. setting, motivation pitchfork, developing super memory carried out in accordance with Kcell JSC’s updated rules for A once-a-year annual bonus based on the KPI card results is calculated based on the KPI card results, consisting of corporate KPIs, KPIs of departments, and individual KPIs, and emotional competence, and stress resistance skills the recruitment of personnel. In personnel recruiting, we are (in total, webinars were attended by 1,200 people). focused on the principles of fairness and transparency of С) Carrying out internal expertise through the transfer the criteria for assessing candidates and the compliance of of knowledge and training of internal candidates for the criteria for assessing the position for which the selection the share of which depends on the position of an employee, positions in related departments. A mentoring program is made; timeliness and efficiency of the selection process except for employees participating in the Kcell Business was launched, which trained 37 internal mentors. And as in accordance with the business needs; and maximum bonus program. part of the School of Digital Talents program for internal candidates for IT positions, 13 people were trained. compliance of candidates with the requirements. Starting in 2022, the employee satisfaction indicator will Internal school mentors and 39 candidates are ready to For an efficient process of integrating new employees into become a key performance indicator for Kcell executives, study at the school. the work environment, the Company has developed and which will in turn motivate financial decisions moving forward. D) Professional development through external expertise at implemented an adaptation program: an initial training the request of employees and legal requirements (150 employees were trained in the 2nd half of 2021). program for mono-brand specialists and call center operators. Indicator Number of employees recruited per year Ratio to total headcount including by gender groups: Value (per.) 831 36.95 % men women including by age groups: up to 30 years 30-50 years over 50 years 447 384 517 307 7 2021 trainings by departments: Occupational Health and Safety We pay great attention to occupational health and safety Equipment repair and maintenance services are carried out issues. We have important tasks to achieve in order to prevent under contract for transformer substations and power lines. accidents, minimize risks, and ensure the safe professional This reduces the likelihood of accidents and, accordingly, activities of employees. diesel generator sets will be started up less frequently. Based on 2021 results, the Company registered one accident (traffic Registration and investigation of accidents related to work accident) related to production activities. activities at Kcell are carried out in accordance with the internal regulations of the Company and the labor code of the Republic of Kazakhstan. Technical and For members of Strategic Administrative Human Security Department Fraud detection Commercial Departments courses Python, IT 3-module training and boot camp the board and key Department Department executives Product training Trainings “Product Resources Department Trainings design workshop “Synchronisation of the business team” Management” “Changes in and “Estimating” legislation” and “Conciliation commission” 42 43 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTEnvironmental Aspects of Sustainable Development The telecommunications sector does not belong to companies that are significant environmental polluters, but Kcell, being a responsible company, pays great attention to environmental issues and reduces its impact in the regions where it operates. In 2021, the Company developed a plan that includes activities and initiatives on energy efficiency, waste management, and the formation of environmental awareness among its employees. Emissions of greenhouse gases and other pollutants into the atmosphere for 2021 Consumption Units of measurement Calculation units for conversion to conditional tonnes Actual emissions for the reporting period (tonnes) gasoline diesel Total 594,631 8,659 603,289 l l l 1,370 1,300 434.04 6.66 440.70 Waste Management In the course of the Company’s activities, waste mostly takes the form of household waste and is mainly generated by “Green Office.” Kcell continues to comply with the rules of the “Green Office.” As such, in 2021, an electronic decommissioned equipment. Municipal waste is removed document management system was introduced, which by a specialized, licensed organisation. The write-off and makes it possible to reduce paper consumption by 30% transfer of disposal and recycling of telecommunications and, accordingly, save electricity. All orders, internal and office equipment are carried out in accordance with regulations, and incoming and outgoing correspondence the organisation’s standard “rules for the disassembling are now signed with electronic signatures. The Company and disposal of decommissioned telecommunication also reviews archival documents twice a year, as a result Energy Consumption and Energy Efficiency In 2021, work was carried out to turn off unused equipment equipment.” Decommissioned equipment, cables, and office of which documents subject to disposal are transferred for in data centers in order to reduce the consumption of equipment are transferred to a specialized organisation that processing. In 2022, plans are in place to start a project to electricity. When diesel generator units are switched on, fuel has a license for the collection, storage, and disposal of non- sort household waste in offices. One of the main resources consumed by the Company is consumption is reduced. There are plans to replace precision ferrous and ferrous metals. The operational service decides electricity. And it is in this area that we see the opportunity to air conditioners with improved ones, which would increase on the further use of the spare parts from the equipment. make the greatest contribution to protecting the environment efficiency factor and reduce electricity consumption. and combating climate change. Compared to 2019 and 2020, resource consumption did not increase significantly in 2021. Environmental Protection Energy consumption Type of energy Unit of measurement Energy consumption, tons of equivalent fuel (t.o.e.) Diesel Gasoline Total l l 2019 130,587 826,752 957,339 2020 145,914 772,595 918,509 2021 179,669 776,744 956,413 Kcell develops digital infra- structure based on green energy Striving to reduce the consumption of energy resources and use alternative power sources, the Company installed a unique base station in the area of Charyn Canyon. It is the first site operating efficiently and reliably from wind and solar power, minimizing operating costs. Water Consumption The Company’s activities do not have a significant impact on water intake. However, we are committed to the rational use of water. In the production process for the provision of telecommunications services, the Company’s divisions do not reuse water, which is required exclusively for sanitary and household needs. The installed water metering devices are kept in a technically correct condition. The total volume of water used by the Company in the reporting period amounted to 23,804.78 m3 — that is, 16% less than in 2020 (28,473 m3). The Company complies with all stipulated requirements of the legislation of the Republic of Kazakhstan in terms of the environmental code. We strive to achieve sustainable development by minimizing damage to the environment and making rational use of natural resources. In order to minimize the negative impact on the environment, Kcell invests in modernisation of autonomous systems and switches them to more environmentally friendly types of fuel, carries out obligatory land restoration during installation of base stations and equipment, strives to use environmentally friendly materials and technologies during repair works, and organizes voluntary environmental actions and events. The Company has implemented an environmental management system in accordance with the requirements of the ISO 14001 international standard. 44 45 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT33 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT REPORT CORPORATE GOVERNANCE SYSTEM BOARD OF DIRECTORS MANAGEMENT BOARD 48 49 58 INTERNAL CONTROL AND AUDIT RISK MANAGEMENT 60 61 33Reducing digital iequality 2022CORPORATE GOVERNANCE REPORT Kcell’s corporate governance is based on the principles of sustainable development, fairness, honesty, responsibility, transparency, professionalism, and high competence. The application of these principles ensures the observance and protection of the rights and interests of all shareholders, increases the efficiency and market value of Kcell JSC, and stimulates the growth of the financial stability and profitability of the Company. In 2021, an updated corporate governance code was approved The Company also complies with the rules of the Kazakhstan to bring it into line with the corporate governance code of Stock Exchange (KASE), which regulate the activities of joint the National Welfare Fund Samruk-Kazyna. The need for stock companies and the circulation of securities. its implementation was due to editorial changes to exclude reference to depository receipts and regular requirements of the London Stock Exchange, as it was decided during the Company’s extraordinary general meeting of shareholders Corporate Governance Code of Kcell Joint Stock Company to delist depositary receipts from the LSE and AIX and The best international practice in the field of corporate terminate the depositary program (Appendix: Minutes of the governance became the basis of the corporate governance Extraordinary General Meeting of Shareholders No.17 dated guidelines for companies of the National Welfare Fund Samruk- April 9, 2021). Kazyna. All companies of the National Welfare Fund Samruk- Kazyna apply these general rules and recommendations on corporate governance issues. Corporate Governance Principles Protection of the rights and interests of shareholders Kcell’s corporate governance principles guarantee the protection and observance of the rights and legitimate interests of shareholders and contribute to the conduct of efficient activities, helping to increase welfare, and maintain the financial stability and profitability of the Company. Effective management of the Company by the board of directors The purpose of the board of directors is to increase the market value of the Company while simultane- ously following the principles of the strictest observance and satisfaction of the interests of shareholders. Kcell is aware of the need for a manager represented by the chairman of the board, who is responsible for the day-to-day management of the activities of the board and, together with other members of the board, effectively resolves issues that arise in the process of managing the Company. Transparency and objectivity of disclosure of information about the Company’s activities Legality and ethics Efficient dividend policy Efficient personnel policy Sustainable development Settlement of corporate disputes and conflicts of interest The Company strives to ensure maximum transparency by disclosing reliable information to shareholders and other stakeholders in a timely and accurate manner, including information about its financial position, economic performance, efficiency, ownership structure, and management system. Kcell operates in strict accordance with the legislation and generally accepted standards of business ethics, as well as the charter, corporate governance code, regulations on the board of directors, listing rules, and contractual obligations. The Company pays dividends in accordance with its dividend policy, legislation, the charter, and relevant decisions of the general meeting of shareholders. When deciding on the distribution of dividends, they are paid in accordance with the law. The Company guarantees the rights of its employees in accordance with the law and the Kcell code of ethics and conduct. The Company develops partnerships with its personnel to address social issues and regulate working conditions. Recognizing the importance of its impact on the economy, environment, and social development in the country, the Company strives to ensure its sustainable development in the long term, while balancing the interests of shareholders and improving its performance in the future. Members of the board of directors and the management board, together with ordinary Kcell employees, conscientiously and reasonably approach the performance of their professional duties and show a due degree of care and discretion while acting in the interests of Kcell and its shareholders and avoiding conflicts of interest. Company officers immediately report any arisen conflict of interest to the corporate secretary of the Company. Политика по корпоративному управлению In its activities, Kcell relies on the following policies: • Occupational health and safety policy • Regulations on the Kcell JSC Board of Directors • Dividend policy • • • Financial management policy (second version) Insurance policy Risk management policy • Communication policy Recruitment policy Insider information policy Insider trading policy • • • • • • • • • • • • Supplier code of conduct Personnel policy Environmental policy Anti-competitive conduct policy Enterprise risk management policy Electromagnetic field policy • Code of ethics and conduct • • Anti-corruption policy Rules for evaluating the activities of the board of directors Kcell JSC security regulations (second version) and its committees, the chairman, members of the board Privacy policy of directors, and the corporate secretary Policy on freedom of expression in telecommunications Corporate Governance Structure GENERAL MEETING OF SHAREHOLDERS BOARD OF DIRECTORS Compliance Service Strategic Planning Committee Internal Audit Committee Management Board chaired by the Chairman of the Management Board, Chief Executive Officer Internal Audit Service Corporate Secretary Human Resources and Remuneration Committee Sustainable Development Committee 48 49 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTBOARD OF DIRECTORS The Kcell JSC charter establishes the duties of the board of At the EGM on January 15, 2020, Jere Calmes was elected as directors and the management board, and the chairman of the an independent director of Kcell JSC. management board is the chief executive officer. According to the charter, the board of directors is responsible for the At the EGM held on February 26, 2021, Khudaiberdiyev T.T. overall management of the activities of Kcell JSC. The board and Saudabaev S.B. were elected to the board of directors as of directors develops strategies, approves the Company’s representatives of Kazakhtelecom JSC. development plans, and is responsible for making decisions: on the establishment of branches and representative offices On September 21, 2021, independent directors Makhat R.M. of Kcell; on the acquisition or alienation by the Company of and Popov V.G. (elected to the board of directors on January 10 or more percent of the shares of other legal entities; on the 25, 2019) terminated their powers ahead of schedule. conclusion of major transactions and transactions with related parties; and on the approval of annual budgets. The board of Naizabekov T.K. and Ramazanov Ye.T. were elected to the board directors is also responsible for resolving other issues related of directors at the EGM on December 6, 2021 as independent С В А to the exclusive competence of the board in accordance with directors. the Company charter and the law of the Republic of Kazakhstan on joint stock companies. As of January 1, 2022, five of nine members of the board were independent directors , including its chairman. Three The status, operating procedure, and competence of the Kcell directors of the remaining four represented the interests of the board of directors, the procedure for convening and holding its controlling shareholder, Kazakhtelecom JSC, and the fourth meetings, formalizing decisions, as well as the responsibility of acted as a representative of another shareholder, Freedom the members of the board of directors are determined by the Finance JSC. regulations on the Kcell JSC board of directors. Board of Directors Alexey Buyanov Chairman of the Board of Directors From January 25, 2019 to present – Chairman of the board of directors and independent director of Kcell JSC. Independent director of Kazakhtelecom JSC and director of Bengala Investments. From 2002 to 2014 – Senior vice president and chief financial officer, was a member of the management board of Sistema OJSC, an investment fund whose shares are listed on the London Stock Exchange. From 2014 to 2016 – Managing director and head of the investment committee at Redline Capital Management S.A. Graduated from the Moscow Institute of Physics and Technology (MIPT) with a degree in applied physics and mathematics, a graduate of the Oxford Fintech Program at Said Business School, the University of Oxford. Dinara Inkarbekova Independent Director From January 25, 2019 to present – Independent director of Kcell JSC. He also The composition of the board of directors during the reporting holds the position of CEO of Sigma Advisors. The board of directors: » determines the Company’s development strategy (directions and results), establishes and monitors the key period: » » Buyanov Alexey Nikolayevich (independent director) Inkarbekova Dinara Zholshybekovna (independent performance indicators of the development plan; director) » » » organizes and supervises the effective functioning of the risk management and internal control systems by involving the internal audit service for these purposes; approves and monitors the implementation of key strategic projects within the competence of the board of directors; pays special attention to the issues of election, remuneration, succession planning, and supervision of the activities of the management board and its members, as well as corporate governance and ethics; » and ensures the formation of an appropriate system in the » » » » » » Jere Calmes (independent director) Yessekeyev Kuanyshbek Bakhytbekovich (representative of the shareholder Kazakhtelecom JSC) Turlov Timur Ruslanovich (representative of the shareholder Freedom Finance JSC) Khudaiberdiyev Timur Telmanovich (representative of the shareholder Kazakhtelecom JSC) Saudabayev Serik Bolatovich (representative of the shareholder Kazakhtelecom JSC) Naizabekov Timur Kurmangaziyevich (independent field of sustainable development and its implementation director) together with the management board. » Ramazanov Yermek Turzhigitovich (independent director) Membership in the Board of Directors As of December 31, 2021, Timur Turlov owned 1,385,632 shares of Kcell JSC. Other members of the board of directors From 2010 to 2014 – General manager at AKSAI - BMC. From 2015 to 2016 – Senior adviser at Deloitte TCF. From 2016 to 2017 – CFO at Estate Management Company. В А У She holds a bachelor’s degree from Turan University (Kazakhstan) with a degree in jurisprudence, a bachelor’s degree from Narxoz University (Kazakhstan) with a degree in finance, and an MBA in economics and strategic research from Kazakhstan Institute of Management, Economics and Forecasting. Jere Calmes Independent Director From January 15, 2020 to present – Member of the board of directors of Kcell JSC. Over 20 years of experience in the telecommunications and wholesale and retail industry, with a Members of the Board of Directors are elected at the General do not own shares of the Company. special focus on emerging markets. Meeting of Shareholders (GM), where their term of office is also determined. At the time of writing this report, directors Buyanov A.N., Inkarbekova D.Zh., Yessekeyev K.B., Turlov T.R. were elected at the Extraordinary General Meeting of Shareholders (EGM), which took place before the reporting period, on January 25, 2019. С А У From December 2016 to June 2019 – CEO of the Russian division of Metro Cash & Carry. He has held various senior positions in the telecommunications sector, including the positions of deputy CEO of Tele2, CEO of Tele2 Russia, COO of the Italian mobile operator Wind Telecomunicazioni, executing vice president and managing director of the Moscow office of VEON OJSC, as well as director customer services and credit control of the mobile operator Orange Egypt. He holds a bachelor’s degree in political science and economics from Bates University (Maine, USA) and completed the Executive Development Program (EDP) at Wharton School of Business. 50 51 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTKuanyshbek Yessekeyev Representative of shareholder Kazakhtelecom JSC Timur Turlov Representative of shareholder Freedom Finance JSC From January 25, 2019 to present – Member of the board of directors of Kcell JSC. From January 25, 2019 to present – Member of the board of directors of Kcell JSC. From 2010 to present – Chairman of the management board and member of the board of directors of Kazakhtelecom JSC. Graduated from the Kazakh State National University named after Al-Farabi (Kazakhstan) with a degree in applied mathematics. PhD in mathematics, holds a diploma from Kazakh State Academy of Management (Kazakhstan) with a degree in management and completed the executive MBA program at Hult International Business School (UK). С General director of IC Freedom Finance LLC, advisor to the chairman of the management board of Freedom Finance JSC, director of FFIN Brokerage Service, independent director in the board of directors of FFINEU Investments, chairman of the supervisory board of FFIN Bank LLC, chairman of the board of directors of Freedom Finance JSC, chairman of the board of directors of life insurance company “Freedom Finance Life” JSC, chairman of the board of directors of insurance company “Freedom Finance Insurance” JSC. С В He holds a bachelor’s degree in economics and management from Russian State Technological University named after Tsiolkovsky. Serik Saudabayev Representative of shareholder Kazakhtelecom JSC From February 26, 2021 to present – Member of the board of directors of Kcell JSC. Chairman of the management board and member of the board of directors of Kazpost JSC, member of the board of directors of Kazakhtelecom JSC. Naizabekov Timur Independent Director From December 6, 2021 to present – Member of the board of directors of Kcell JSC and currently the independent director of Kazakhtelecom JSC. Over 10 years, he headed the division in charge of the communication assets of Samruk-Kazyna He previously held various senior positions in financial sector companies. JSC. In 1999, he graduated from Almaty State University named after Abay with a degree in jurisprudence. A lawyer, in 2006 he graduated from the State University of Economics named after Ryskulov with a degree in economics. He has a bachelor’s degree in mathematics and information systems in business from KazNU named after Al-Farabi, MSc in finance from the University of International Business, and a master of science in management (management and finance) from University College London (UCL). Timur Khudaiberdiyev Representative of shareholder Kazakhtelecom JSC Ramazanov Yermek Independent Director From February 26, 2021 to present – Member of the board of directors of Kcell JSC. From December 6, 2021 to present – Independent director of Kcell JSC. From 2019 to present – Member of the management board of Kazakhtelecom JSC, chief director for business provision and support, CEO of Telecom Komplekt. He has extensive experience in the telecommunications industry. He previously worked in the civil service and was an independent director of telecommunications companies. Over 15 years of managerial experience in the banking and corporate sectors, as well as in various commercial structures. У Graduated from the Law Institute of the Academy of the Ministry of Internal Affairs of the Republic of Kazakhstan with a degree in radio engineering, as well as Moscow School of Management Skolkovo with an executive MBA (joint program with Hong Kong University of Technologies). He graduated from Kyzylorda Institute of Engineers of Agro-Industrial Production named after Zhakhayev with a degree in economics, has a master’s degree in business administration from the European University (Geneva), as well as a master’s degree in business administration from Kazakh Economic University name after Ryskulov. 52 53 Membership in the Committees of the Board of Directors Chairman of the Committee A Internal Audit Committee У Sustainable Development Committee В Human Resources and Remuneration Committee С Strategic Planning Committee REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTCommittees of the Board of Directors The committees are established and operate in accordance with the legislation of Kazakhstan on joint stock companies The following committees have been established to consider and the regulations on the relevant committees approved by important issues and prepare recommendations for the Kcell the board of directors. Committee’s name Internal Audit Committee Strategic Planning Committee JSC board of directors: » » Human Resources and Remuneration Committee » » Sustainable development Committee. Internal Audit Committee The board of directors may create other committees at its own discretion. Each committee is chaired by an independent director. According to the legislation, committees must consist of members of the board of directors who have the necessary competence to serve in the relevant committee. All committees are advisory bodies of the board of directors. Committee’s name Role Chairman and members Strategic Planning Committee It makes recommendations to the board of direc- tors on strategic development issues. Composition of the committee: From January 1 to September 21, 2021 In 2021, the committee held seven in-person meetings in accordance with the agendas of the meetings. The committee considered 13 issues and provided relevant recommendations to the board of directors of the Company. During the reporting period, the meetings of the committee considered all issues related to activities within the competence of the committee. Human Resources and Remuneration Committee It makes recommendations to the board of direc- tors on issues of qualification requirements for employees, on the appointment and dismissal of certain employees, on bonus payments and wages for executives, as well as on internal documents, according to which the performance, need for training, and motivation of personnel are assessed. In 2021, the committee held nine in-person meetings in accordance with the agendas of the meetings. The committee considered 24 issues and provided relevant recommendations to the board of directors of the Company. During the reporting period, the meetings of the committee considered all issues related to activities within the competence of the committee. Rashit Makhat (Chairman) Alexey Buyanov Kuanyshbek Yessekeyev Timur Turlov Jere Calmes In accordance with clause 6.4 of the regulations on the Strategic Planning Committee of the board of directors of Kcell JSC: “In the absence of the chairman of the committee at any of its meetings, one of the members of the committee temporarily acts as chairman. He is elected by open voting by a simple majority of votes of the total number of members of the committee present at the meeting”. From September 21, 2021, the members of the commit- tee elected the chairman of the meeting of the commit- tee. In 2021, the Company’s board of directors changed the composition of the committee. The composition of the committee from January 1 to September 21, 2021 Rashit Makhat (Chairman) Alexey Buyanov Timur Turlov From September 21, 2021, the powers of independent director Makhat Rashit Mukaramovich were prematurely terminated on his initiative in the manner provided for in clause four of article 55 of the law of the Republic of Kazakhstan “On Joint Stock Companies.” In this regard, on October 29, 2021, by the decision of the board of directors of the Company (Minutes No. 2021/10/10-BoD), a new composition of the committee was elected: Dinara Inkarbekova (Chairman) Alexey Buyanov Timur Turlov Role Chairman and members It makes recommendations to the board of directors regarding financial reporting, internal controls and risk management, and internal and external audit. In 2021, the committee held seven in-person meetings in accordance with the agendas of the meetings. The committee considered 30 issues and provided appropriate recommendations to the board of directors of the Company. During the reporting period, the meetings of the committee considered all issues related to activities within the competence of the committee. It makes recommendations to the board of directors on issues of internal documentation related to social responsibility and sustainable development; improving the sustainable development strategy; development and implementation of the Company’s policies and procedures related to environmental and social sustainability issues, including, but not limited to, human rights, environmental protection, social responsibility and compliance with business ethics requirements, taking into account the requirements of applicable law and internal documents of the Company. In 2020, the committee held three in-person meetings in accordance with the agendas of the meetings. The committee considered seven issues and provided appropriate recommenda- tions to the board of directors of the Company. During the reporting period, the meetings of the committee considered all issues related to activities within the competence of the committee. In 2021, the board of directors of the Company changed the composition of the committee. The composition of the committee from January 1 to September 21, 2021 Dinara Inkarbekova (Chairman) Jere Calmes Vladimir Popov From September 21, 2021, the powers of independent director Popov Vladimir Gennadiyevich were prematurely terminated on his initiative in the manner provided for in clause four of article 55 of the law of the Republic of Kazakhstan “On Joint Stock Companies.” In this regard, on October 29, 2021, by the decision of the board of directors of the Company (minutes no. 2021/10/10-BoD), a new composition of the committee was elected: Dinara Inkarbekova (Chairman) Jere Calmes Alexey Buyanov In 2021, the board of directors of the Company changed the composition of the committee. The composition of the committee from January 1 to September 21, 2021 Vladimir Popov (Chairman) Alexey Buyanov Jere Calmes From September 21, 2021, the powers of independent director Popov Vladimir Gennadiyevich were prematurely terminated on his initiative in the manner provided for in clause four of article 55 of the law of the Republic of Kazakhstan “On Joint Stock Companies.” In this regard, on October 29, 2021, by the decision of the board of directors of the Company (minutes no. 2021/10/10-BoD), a new composition of the committee was elected: Dinara Inkarbekova (Chairman) Timur Khudaiberdiyev Jere Calmes Sustainable Development Committee Activities of the Board of Directors The activities of the Board of Directors in 2021 covered In 2021, the board of directors held 11 meetings, all held in person. According to the Company’s charter, members of the the following areas: » » amendments to the charter; consideration of business, commercial, operational and board of directors or any committee of the board of directors, legal issues, as well as the approval of related decisions; as well as experts, may participate in a meeting of the board of directors or such committee by means of a conference call by telephone or other means of communication allowing all participants in the meeting to hear and speak to each other effectively interacting. The special platform used by Kcell provides comprehensive protection of the management process and organisation of work, and also helps to improve information exchange in the board of directors and increase the efficiency of its functioning. » » » » » » » » » approval of major transactions; election and approval of the terms of employment contracts for members of the management board and executive bodies of subsidiaries of Kcell JSC; preliminary approval of the annual financial statements for 2020 and approval of quarterly reports; convening the annual general meeting of shareholders in 2021 and formulating proposals for the payment of dividends; approval of related party transactions; approval of the amount of the auditor’s remuneration for audit services provided in 2021; approval of the new corporate governance code; approval of amendments to the terms of loan agreements; and consideration of the composition of the committees of the board of directors. 54 55 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTProcedures, rules, and regulations of the council for 2022 are as follows: » consideration of business, commercial, operational, and Assessment of the Activities of the Board of Directors Human Resources and Remuneration Committee legal issues, as well as the approval of related decisions; The regulations on the board of directors of Kcell JSC contain In 2021, the Human Resources and Remuneration Committee approval of major transactions; a number of rules regarding the assessment of the activities of held nine in-person meetings in accordance with the agendas election and approval of the terms of employment contracts the board. In order to implement them, on February 17, 2022, of the meetings. of members of the management board; the board approved the rules for assessing the activities of The committee considered and provided recommendations to development strategy of the Company; the board of directors on the following issues: » » » » and strategic projects of the Company. transformation plan; development plan; preliminary approval of the annual financial statements for the board and its committees, the chairman, members of the The committee considered and provided recommendations to Sustainable Development Committee 2021 and approval of quarterly reports; board and the corporate secretary of Kcell JSC (hereinafter convening the annual general meeting of shareholders referred to as the rules). in 2022 and formulating proposals for the payment of dividends; The rules are developed in accordance with the legislation and other issues related to the competence of the board of the Republic of Kazakhstan, the charter, the corporate of directors. governance code, and other internal documents of Kcell JSC, as well as with the methodological recommendations of Six meetings of the board of directors are planned for 2022, at Samruk-Kazyna JSC. which regular issues related to financial results, risk reviews, election of members of the management board; election of the corporate secretary; the board of directors on the following issues: » » » » » organisational structure; personnel issues of the compliance control service; and determination of key performance indicators of the Company’s executives. In 2021, the Sustainable Development Committee held three in-person meetings in accordance with the agendas of the meetings. The committee regularly reviewed the reports of the compliance service, as well as documents regulating the activities of the compliance service. In accordance with the amendments to In addition, the committee carried out work to consider the charter approved by the EGM on September 23, 2021, the » » » » » and reports of the management board and committees of the A self-assessment of the activities of the board of directors candidates for the position of independent director of Kcell compliance service is accountable to the board of directors. board of directors will be considered. In addition, extraordinary and its committees, the chairman, members of the board of JSC. meetings will be held if it is necessary to obtain approvals on directors and the corporate secretary of Kcell JSC for 2021 issues not included in the agenda of regular meetings. is currently carried out. The results will be considered at the Strategic Planning Committee The committee quarterly considered information about the Company’s activities under quarantine restrictions. Accountability and Efficiency meeting of the board of directors of the Company in April 2022. Internal Audit Committee The board of directors is responsible for the preparation of the annual report and financial statements. Its members In 2021, the internal audit committee held seven in-person believe that the 2021 annual report and financial statements, meetings in accordance with the agendas of the meetings. taken together, are accurate, balanced, understandable, and contain the information necessary for shareholders to assess Since its establishment in 2013, the internal audit committee of the situation in the Company, its performance, business Kcell JSC has been monitoring and analyzing the effectiveness model, and strategy. The fundamentals and long-term goals of of its activities. effective operation of Kcell JSC, and the business model and strategies for achieving the Company’s goals are described in The committee regularly considers issues of the Company’s In 2021, the Strategic Planning Committee held seven in- person meetings in accordance with the agendas of the meetings. Remuneration for Members of the Board of Directors The Company pays remuneration to independent members of the board of directors in accordance with the current remuneration policy. the strategic report. internal audit service: on annual audit planning, on quarterly The annual pre-tax remuneration of independent directors was approved at the general meeting of shareholders in 2019. and annual reports of the service, as well as on special audits The board of directors assessed the prospects for Kcell JSC for of the service. 2022—i.e., the period during which the main risks faced by the Company can be accurately assessed and mitigated. Based The committee holds meetings with the external auditor on the on this assessment, the board of directors has reasonable Company’s financial results on a quarterly basis. grounds to expect that Kcell will be able to continue its activities and fulfill its obligations in a timely manner during the period The committee also reviews the Company’s risk matrix and a under review. plan to mitigate their negative impact on a quarterly basis. The board of directors has made a thorough assessment of The committee is responsible for preparing recommendations the main risks facing the Company, including those that may to the general meeting of shareholders on the appointment, pose a threat to its business model, operating performance, re-election, and dismissal of the external auditor. On May solvency, or liquidity. These risks and an explanation for 29, 2019, the participants of the annual general meeting of their management and mitigation are described in the risk shareholders approved Ernst & Young LLP as the new external management section. auditor of Kcell JSC for 2019-2021, which replaced Deloitte, which had been providing similar services since 2014. In order The board of directors monitors the operation of the risk to maintain its independence, Kcell JSC does not engage Ernst management and internal control systems of Kcell JSC and & Young LLP to provide the Company with non-audit services; a have assessed the effectiveness of these systems throughout similar practice was previously applied to Deloitte. the year. This assessment covered all significant controls, including financial, operational and regulatory ones. Pre-tax remuneration of Independent Directors Annual remuneration USD 75,000 USD 25,000 Fixed annual remuneration Additional annual remuneration for the performance of the functions of the chairman of the board of directors USD 15,000 Additional remuneration for the performance of the functions of the chairman of one of the committees Payment terms: 50 percent of the fixed annual remuneration and additional annual remuneration for acting as the chairman of the board of directors or one of its committees are paid six months after the independent director takes office, and the remaining 50 percent one year after that. The total amount of remuneration paid to independent members of the board of directors in 2021 amounted to the equivalent of USD 397.9 thousand or KZT 170.3 million (before taxes). 56 57 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTShareholder Relations As of December 31, 2021, the Company is controlled by Kazakhtelecom JSC. In turn, Kazakhtelecom JSC is controlled During the reporting period, the management board of Kcell JSC included the following members: The board of directors is in constant dialogue with the by the government of the Republic of Kazakhstan through the shareholders of Kcell JSC, including through representatives National Welfare Fund Samruk-Kazyna (51% of the controlling of Kazakhtelecom JSC and Freedom Finance JSC. shares of Kazakhtelecom JSC). Capital structure The equity capital of the Company: the total authorized number of ordinary shares is 200,000,000 with a par value of KZT 169 per share, which are fully paid as of December 31, 2021. Share capital of the Company On September 30, 2021, Kazakhtelecom JSC sold 24% of the Company’s shares on the Kazakhstan Stock Exchange. Kazakhtelecom JSC PIONEER TECHNOLOGIES S.A.R.L. First Heartland Jusan Bank JSC Unified Accumulative Pension Fund JSC Raiffeisenbank JSC nominal holder Other Subsidiaries KazNetMedia LLP КТ-Telecom LLP 31 December 2021 31 December 2020 Share Number of shares Share Number of shares 51,00 % 14,87 % 9,08 % 7,07 % 102.000,000 75.00 % 150,000,000 29.745,215 18.167,753 14.144,273 − − − − − − 1,54 % 3.070,664 11.60 % 23,209,124 16,44 % 100,00 % 32.872,095 200.000,000 13.40 % 100.00 % 26,790,876 200,000,000 31 December 2021 31 December 2020 100 % − 100 % 100 % On September 6, 2021, the Company sold 100% of the shares of its subsidiary KT-Telecom LLP to Kazakhtelecom JSC for KZT 103 thousand. MANAGEMENT BOARD The Kcell management board is a collective executive body include all issues that are not within the exclusive competence responsible for managing the day-to-day activities of the of the board of directors or the general meeting of shareholders Company. At the same time, the Company recognizes the need (GM). In addition, the management board is responsible for the for a leadership role that the chief executive officer assumes, implementation of decisions taken by the general meeting of acting as a chairman of the management board. shareholders and the board of directors. The chief executive officer and management board of Kcell In its work, the board is guided by the principles of legality, JSC is a highly professional group of experts with experience honesty, conscientiousness, prudence, systematic approach, in the telecommunications, finance, marketing and information professionalism, and objectivity. Its members fully respect the technologies. interests of the shareholders and are fully accountable to the GM and the board of directors. The Company’s charter details the duties of the chief executive officer to manage the day-to-day business activities of the Company with the support of the management board. These Yuri Kharlamov Chairman of the Management and Chief Executive Officer On February 6, 2021, he was elected by the board of directors as a chairman of the management board and chief executive officer of the Company. He has 20 years of experience in the telecommunications sector in senior positions, including in the positions of chief executive officer and chief financial officer in such companies as Golden Telecom, Corbina Telecom, VimpelCom, and Svyaznoy. He graduated from Moscow Institute of Electronic Technology with a degree in management and the University of Birmingham with a degree in finance. He holds an MBA degree from London Business School. Askar Yesserkegenov Chief Technical Officer On March 7, 2019, he was elected to the position of chief technical officer of Kcell JSC, and since June 19, 2019 he has been a member of the Company’s management board. He worked in Kazakhtelecom JSC for 16 years in various positions, including the position of managing director from September 2013 and chief commercial officer from September 2007. Previously, he worked for other telecommunications companies of the Republic of Kazakhstan within two years, and also for more than five years at Kazakhtelecom JSC (since 1996). He graduated from Moscow Electrotechnical Institute of Communications (Russia) with a degree in radio engineering and completed a master’s program in business administration from the International Academy of Business (Russia). Sevil Gassanova Chief Legal Officer On April 19, 2021, she was elected to the position of chief legal officer and is a member of the Company’s management Board. Since May 2020, she has been an advisor to Kcell JSC. She is qualified as an English solicitor and Kazakhstan lawyer with over 15 years of experience in international companies in the energy and construction sectors, including in Norton Rose, groups of companies SC Rosatom and PJSC Lukoil. She has a great experience in providing legal advice and participating in disputes in international arbitrations. Associate member of the Royal Institute of Arbitrators, LLM degree from Stockholm University. 58 59 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTMaria Averchenko Chief Commercial Officer On April 9, 2021, she was elected to the position of chief commercial officer of Kcell JSC and is a member of the Company’s management board. Over 17 years of experience in the telecommunications and banking sector, including the managerial one. From 2015 to 2017, she held the position of chief commercial officer of B2C at Vimpelcom Ltd (Moscow) and since 2017 the position of director of partnerships. Previously, she held senior positions at RTK (MTS retail chain) and Euroset. RISK MANAGEMENT Risk management is fully integrated into the Company’s business planning and control processes, has established procedures and clear lines of accountability, and is regularly reviewed. She graduated from Krasnoyarsk State Technical University with a degree in computer and engineering graphics engineer. Responsibility the need to identify and assess potential threats. It applies the best international practices and recommended management Dina Nurpeissova Chief Financial Officer The board of directors of the Company has overall responsibility standards. for the risk structure to shareholders on risk management issues. Risk management system In the near future, Kcell plans to improve the existing risk management model in accordance with the recommendations of the controlling shareholder Kazakhtelecom JSC and COSO, using the best international practices in the field of risk The risk management system implemented in the Company management and internal control. On August 23, 2021, she was elected to the position of chief financial officer of Kcell JSC, and ensures the continuity of business processes and satisfies since December 8, 2021 she has been a member of the Company’s management board. Over 20 years of experience in management positions, including the telecommunications sector, including in the positions of director of the financial and administrative unit and chief financial officer in such companies as Veon Armenia CJSC, 2Day Telecom LLP, RG Brands JSC, etc. She graduated from Almaty Technological University of Food and Light Industry with a degree in AIC Engineer-Economist. INTERNAL CONTROL AND INTERNAL AUDIT In Kcell JSC, the competence of the bodies included in the The internal audit service reports directly to the board of system of control over the financial and economic activities directors and provides it with information on the results of its of the Company is delimited, depending on their attitude to activities. The internal audit service is supervised by the audit the processes of development, approval, application, and committee. The tasks and functions of the service, including its evaluation of the internal control system. rights and responsibilities, are determined by the regulations In order to exercise control over the financial and economic activities of the Company, including the evaluation of internal The audit committee preliminary assesses the efficiency of the control, risk management, and the execution of documents in activities of the internal audit service, makes recommendations the field of corporate governance and consultation with regard to the board of directors for making an appropriate decision to the improvement of the Company’s activities, Kcell has an and is responsible for taking appropriate measures. on the internal audit service approved by the board of directors. internal audit service. Its employees cannot be elected to the board of directors and the management board. Basic principles of the risk management process: Integrity assessing the risk in full Openness ensuring accessibility and understanding of the process Structuring defining a clear structure Awareness dissemination of objective, accurate, and timely information Continuity encouraging a continuous learning process Cyclicity creating a constantly repeating cycle 60 61 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTPrincipal risks customer privacy and data management are vital parts of Kcell has no significant concentration of credit risk with a Legal risk the service that the Company offers. Any data breach can be highly diversified customer portfolio, which includes a large The COVID-19 pandemic made significant adjustments to detrimental to a business in both the short and long term. number of both individuals and companies. While income Legal risk is classified as the potential for uncertainty due to business processes in 2020 and continued to affect the In this regard, Kcell networks are supported by the latest could be affected by economic factors, the management legal action or ambiguity in the application or interpretation Company’s operations in 2021. information security systems, which provide for all measures sees no significant risk of loss. The Company has established of contracts, laws, or regulations. In this regard, Kcell’s legal and processes to reduce the threat of cyber attacks. relationships with several banks, which are considered to have department ensures compliance with the current legislation, minimal risk of default. The Republic of Kazakhstan itself is monitors amendments to legislation, and participates in identified as an emerging market and carries certain inherent relevant draft law debates whenever possible. risks. These risks apply equally to the banks that hold the Company’s cash, cash equivalents, and term deposits. In this regard, Kcell applies the principles of investing only in financial instruments with a high credit rating. Strategic risks Financial risks Strategic risk is classified as the potential for losses due to changes or errors in defining and implementing business The Company can be subject to financial volatility originating Natural disaster or catastrophe risk strategy and development of the Company; changes in the from various sources. The risk management system seeks Foreign exchange risk political or regional environment; and fluctuations in the market to minimize potential adverse effects on performance of the Natural disasters or catastrophes are defined as natural or customer behavior. The risk factors include increased Company stemming from fluctuations in financial markets as Most of the Company’s foreign exchange risk relates to the phenomena or processes that provoke catastrophic situations price competition caused by the activities of other mobile well as other macro and microeconomic factors. change of the tenge against the US dollar, although profit is and are characterized by a sudden reduction in the population, operators or new legislation. Kcell seeks to mitigate these less affected by this factor, despite the fact that the proceeds the destruction of infrastructure and property, and/or death. risks by protecting its leadership in “strong” regions and by Kcell does not use derivative financial instruments to hedge risk from the sale of a number of services, in particular roaming, Therefore, Kcell takes measures to minimize the occurrence of offering competitive tariffs and products to increase its share exposure. The Company has detailed policies covering specific are calculated in US dollars, and equipment, installations and disasters such as fires, accidents, and incidents resulting from at Kazakhstan market. areas of financial risk, including credit, foreign exchange, and inventories are also mainly purchased in this currency. the lack of proper care for people. These include fire drills, fire interest rate risks. Given the undeveloped market for financial instruments in against seasonal illnesses, medical insurance, annual medical Kazakhstan, Kcell does not use derivative financial instruments examinations for employees, diesel generators for use to hedge its foreign exchange risk. The Company has a policy during power failures, deliveries of reserve water supplies to of matching assets and liabilities denominated in foreign employees, and other preventive works. alarm systems, regular vehicle servicing, preventive measures currencies where possible and practicable. Operational risks Credit risk The Company’s credit risk policy ensures that products and services are sold only to customers and distributors with Operational risk is defined as the potential for losses due appropriate credit histories. If corporate customers have to defects or errors in internal processes, the supply chain, independent credit ratings, these are applied. Otherwise, recruitment, culture, and regulations. Most of these have a low a risk-control assessment is undertaken of a potential risk rating and mitigating actions are already in place as part of customer’s credit worthiness based on current financial the daily risk management procedures. position, credit history, and other factors. The management analyses and follows up outstanding trade receivables and The exceptions to this are information systems and overdue balances, and mobile services are disconnected if technologies, which Kcell categorizes as high risk. Protecting customers fail to settle their liabilities. 62 63 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT44 FINANCIAL FINANCIAL STATEMENTS STATEMENTS INDEPENDENT AUDITOR’S REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 66 74 76 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 77 78 80 44Reducing digital inequality 2022 «Эрнст энд Янг» ЖШС Әл-Фараби д-лы, 77/7 «Есентай Тауэр» ғимараты Алматы қ., 050060 Қазақстан Республикасы Тел.: +7 727 258 5960 Факс: +7 727 258 5961 www.ey.com ТОО «Эрнст энд Янг» пр. Аль-Фараби, 77/7 здание «Есентай Тауэр» г. Алматы, 050060 Республика Казахстан Тел.: +7 727 258 5960 Факс: +7 727 258 5961 Ernst & Young LLP Al-Farabi ave., 77/7 Esentai Tower Almaty, 050060 Republic of Kazakhstan Tel.: +7 727 258 5960 Fax: +7 727 258 5961 66 67 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT 68 69 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT ► ► ► ► ► ► 70 71 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2021 In millions of tenge Notes 31 December 31 December 2021 2020 Assets Non-current assets Property and equipment Intangible assets Advances paid for non-current assets Right-of-use assets Long-term trade receivables Cost to obtain contracts Deferred tax assets Total non-current assets Current assets Inventories Trade receivables Other current non-financial assets Other current financial assets Prepaid income tax Financial assets at amortized cost Cash and cash equivalents Total current assets Total assets Equity and liabilities Share capital Additional paid in capital Retained earnings Total equity Non-current liabilities Borrowings: non-current portion Long-term lease liabilities Government grants: non-current portion Asset retirement obligation Financial guarantee obligation Total non-current liabilities Current liabilities Borrowings: current portion Short-term lease liabilities Government grant: current portion Trade payables Financial guarantee obligation Contract liabilities Provisions Due to employees Property tax payable 7 8 7, 8 16 9 29 10 9 11 12 13 14 6 15 15 16 22 20 18 15 16 22 17 18 19 21 85,805 42,284 1,930 16,943 4,148 472 1,720 153,302 6,582 19,541 8,321 538 30 – 51,402 86,414 239,716 33,800 1,260 63,211 98,271 48,283 15,185 5,688 4,204 – 73,360 11,699 4,944 2,237 35,705 330 3,207 3,817 4,347 712 78,109 39,730 293 20,804 2,421 185 1,937 143,479 9,362 17,823 3,063 245 813 18,923 23,023 73,252 216,731 33,800 – 48,283 82,083 49,933 19,447 – 4,007 563 73,950 23,354 4,219 – 22,353 – 1,978 4,502 3,691 601 72 73 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTIn millions of tenge Notes 31 December 31 December Income tax payable Total current liabilities Total liabilities Total equity and liabilities Chairman of the Management Board & Chief Executive Officer Chief Financial Officer 2020 – 60,698 134,648 216,731 2021 1,087 68,085 141,445 239,716 Yuri Kharlamov Dina Nurpeissova CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2021 In millions of tenge Notes 2021 2020 Revenue from contracts with customers Income from government grants Cost of sales Gross profit General and administrative expenses Selling expenses Impairment of financial assets Impairment of property and equipment and intangible assets Reversal of tax and related fines and penalties provision Provisions for legal claims Other operating income Other operating expenses Operating profit Finance costs Finance income Net foreign exchange gain Other non-operating income Profit before tax Income tax expenses Profit for the year Other comprehensive income Total comprehensive income for the year, net of tax Earnings per share Basic and diluted, tenge Chairman of the Management Board & Chief Executive Officer Chief Financial Officer 23 22 24 25 26 9,12 7, 8 21, 32 21 28 28 27 27 29 194,081 2,108 (125,867) 70,322 (14,137) (3,106) (2,106) (588) 683 – 715 (1,298) 50,485 (10,326) 2,561 403 79 43,202 (10,696) 32,506 – 32,506 174,684 – (119,133) 55,551 (10,426) (1,965) (1,547) (5,227) 684 (4,386) 550 (408) 32,826 (11,753) 2,300 987 262 24,622 (7,044) 17,578 – 17,578 6 162.53 87.89 Yuri Kharlamov Dina Nurpeissova The accounting policies and notes on pages 80 to 129 are an integral part of these consolidated financial statements. The accounting policies and notes on pages 80 to 129 are an integral part of these consolidated financial statements. 74 75 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2021 In millions of tenge Share capital Additional paid-in capital Retained earnings Total equity Balance at 1 January 2020 33,800 Net profit for the year Other comprehensive income Total comprehensive income Financial guarantee obligation (Note 18) Dividends declared (Note 6) At 31 December 2020 Net profit for the year Other comprehensive income Total comprehensive income Discount on loan received from Shareholders (Note 6) Dividends declared (Note 6) At 31 December 2021 Chairman of the Management Board & Chief Executive Officer Chief Financial Officer – – – – – 33,800 – – – – – 33,800 – – – – – – – – – – – – – 40,297 74,097 17,578 17,578 – – 17,578 17,578 (592) (9,000) 48,283 (592) (9,000) 82,083 32,506 32,506 – – 32,506 32,506 1,260 – 1,260 – 1,260 (17,578) (17,578) 63,211 98,271 Yuri Kharlamov Dina Nurpeissova CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2021 In millions of tenge Cash flows from operating activities Profit before tax Adjustments for: Impairment of financial assets Impairment of property and equipment and intangible assets Finance costs Depreciation of property and equipment and right of use assets Amortisation of intangible assets Income from accounts payable write-off Write-off of inventory to net realizable value Loss on disposal of property and equipment Finance income Provisions for legal claims Reversal of tax and related fines and penalties provision Gain on cancellation of lease agreements Income from government grants Net foreign exchange gain Operating cash flows before changes in operating assets and liabilities Change in inventories Change in trade receivables Change in other current non-financial assets Change in other current financial assets Change in cost to obtain contracts Change in trade payables Change in other current financial liabilities Change in contract liabilities Change in taxes payable other than income tax Cash flows generated from operations Income tax paid Interest received Interest paid Net cash flows from operating activities Cash flows from investing activities Purchase of property and equipment Purchase of intangible assets Proceeds from disposal of property and equipment Proceeds from redemption of financial assets at amortized cost Proceeds from redemption of financial assets at fair value through other comprehensive income Purchase of financial assets at amortised cost Net cash flows used in investing activities Notes 2021 2020 43,202 24,622 2,106 588 10,326 20,157 10,621 (211) 179 1,134 1,547 5,227 11,753 19,792 11,010 (189) 654 273 (2,561) (2,300) 9,12 7, 8 27 7, 16 8 28 10 28 27 21 32 22 – (683) (14) (2,108) (403) 82,333 2,601 (5,075) (5,255) (522) (287) 5,645 (334) 1,229 9,145 89,480 (7,609) 2,406 31 (10,221) 74,056 (18,059) (13,102) 96 13 158,631 – 13 (140,018) (12,452) 4,386 (684) (21) – (987) 75,083 (3,272) (4,762) 4,254 1,129 54 (1,708) 114 (2,171) 100 68,821 (7,378) 1,719 (10,903) 52,259 (12,142) (11,413) 161 18,139 5,385 (36,751) (36,621) The accounting policies and notes on pages 80 to 129 are an integral part of these consolidated financial statements. The accounting policies and notes on pages 80 to 129 are an integral part of these consolidated financial statements. 76 77 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT Cash flows from financing activities Proceeds from loans Repayment of bonds issued Repayment of loans Repayment of principal portion of lease liabilities Dividends paid Net cash flows used in financing activities Net increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents held in foreign currency Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year NON-CASH TRANSATIONS 31 15 31 31 6 14 62,500 (21,754) (52,500) (4,321) (17,578) (33,653) 27,951 428 428 23,023 51,402 27,000 – (16,130) (3,758) (9,000) (1,888) 13,750 448 448 8,825 23,023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2021 1. GENERAL INFORMATION Kcell JSC (the “Company”) was established as a limited liability partnership (GSM Kazakhstan ОАО Kazakhtelecom LLP) on 1 June 1998 to design, construct and operate a cellular telecommunications network in the Republic of Kazakhstan, using the GSM (Global System for Mobile Communications) standard. The Company’s registered address is Alimzhanova 51, Almaty, the Republic of Kazakhstan. On 25 December 2010, the Committee of Communications, Informatisation and Information under the Ministry of Investments and Development of the Republic of Kazakhstan signed an addendum to the existing GSM license, which provided the Group with a right to operate a 3G network. In December 2010, the Group launched 3G services in Nur-Sultan and Almaty. As of 1 January 2015, the Group In 2021 the Group received government grants in the total amount of 10,033 million tenge represented by 90% reduction in the provided all locations with a population of over 10,000 people with mobile services using UMTS/WCDMA based on the terms of the annual fee for use of radio frequencies. addendum. The following significant non-cash transactions have been excluded from the consolidated statement of cash flows: On 27 August 2012, the Ministry of Justice registered the Company as a Joint Stock Company. Under Kazakhstani law, upon the conversion, retained earnings as of the date of the conversion became share capital of the Company and ceased to be available for In 2021, the Group paid an amount of 15,961 million tenge for property and equipment purchased in prior year (2020: 11,032 distribution to shareholders. million tenge). Property and equipment in the amount of 21,736 million was purchased in 2021 but not paid as at 31 December 2021 (2020: 15,961 million tenge). In 2016 the Group paid 26,000 million tenge for LTE radio frequencies. On 1 March 2016, the Group launched LTE in its network on the Chairman of the Management Board & Chief Executive Officer Chief Financial Officer Yuri Kharlamov Dina Nurpeissova previously granted frequencies. On 13 December 2012, the Company successfully completed its offering of Global Depositary Receipts at the London Stock Exchange and common shares at the Kazakhstan Stock Exchange. On 14 June 2021, the Group officially completed delisting of Global Depositary Receipts (GDR) on LSE and Astana International Exchange (AIX). As at 31 December 2021 and 2020 the Company is controlled by Kazakhtelecom JSC (“Parent”). Kazakhtelecom JSC is controlled by the Government of the Republic of Kazakhstan through Sovereign Wealth Fund “Samruk-Kazyna” JSC (“Samruk-Kazyna”) which owns 51% of Kazakhtelecom’s controlling shares. On 30 September 2021 Kazakhtelecom sold 24 % of shares of the Company on Kazakhstan Stock Exchange (KASE). As at 31 December 2021 and 2020, the shareholders of the Company are presented as follow: Kazakhtelecom JSC PIONEER TECHNOLOGIES S.A.R.L. First Heartland Jusan Bank JSC Single accumulative pension fund JSC Raiffeisenbank JSC Other 31 December 2021 31 December 2020 51.00% 14.87% 9.08% 7.06% 1.54% 16.45% 100.00% 75.00% − − − 11.60% 13.40% 100.00% As at 31 December 2021 and 2020, the Company has the following principal subsidiaries: KazNet Media LLP KT-Telecom LLP 31 December 2021 31 December 2020 100 % − 100 % 100 % The accompanying consolidated financial statements include the financial statements of Kcell JSC and its subsidiary (further referred to as “the Group”). On 6 September 2021 the Company sold 100% shares in subsidiary KT-Telecom LLP to Kazakhtelecom JSC for consideration of 103 thousand tenge. The consolidated financial statements were authorised for issue by the acting Chairman of the Management Board on 28 January 2021. The accounting policies and notes on pages 80 to 129 are an integral part of these consolidated financial statements. The accounting policies and notes on pages 80 to 129 are an integral part of these consolidated financial statements. 78 79 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT 2. BASIS OF PREPARATION 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards New and amended standards and interpretations (hereinafter, “IFRS”), as issued by International Accounting Standard Board (hereinafter, “IASB”). These consolidated financial statements have been prepared on a historical cost basis, except as described in the accounting policies 1 January 2021. The Group has not early adopted any standard, interpretation or amendment that has been issued but are not yet The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after and the notes to these consolidated financial statements. The consolidated financial statements are presented in Kazakhstani tenge effective. (“tenge”) and all amounts are rounded to the nearest millions, except when otherwise indicated. Going concern Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced The consolidated financial statements have been prepared on a going concern basis, which assumes continuation of the course of with an alternative nearly risk-free interest rate (RFR). business, realisation of assets and settlement of liabilities in the normal course of business. Basis of consolidation The amendments include the following practical expedients: » A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group » » has: » » » Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; The ability to use its power over the investee to affect its returns. as changes to a floating interest rate, equivalent to a movement in a market rate of interest. Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued. Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. These amendments had no impact on the consolidated financial statements of the Group. The Group intends to use the practical expedients in future periods if they become applicable. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has Covid-19-Related Rent Concessions beyond 30 June 2021 Amendments to IFRS 16 less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing The contractual arrangement(s) with the other vote holders of the investee; whether it has power over an investee, including: » » Rights arising from other contractual arrangements; » The Group’s voting rights and potential voting rights. On 28 May 2020, the IASB issued Covid-19-Related Rent Concessions - amendment to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more lease payments resulting from the COVID-19 related rent concession the same way it would account for the change under IFRS 16, if of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases the change were not a lease modification. when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to The amendment was intended to apply until 30 June 2021, but as the impact of the COVID-19 pandemic is continuing, on 31 March control the subsidiary. 2021, the IASB extended the period of application of the practical expedient to 30 June 2022. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group The amendment applies to annual reporting periods beginning on or after 1 April 2021. However, the Group has not received and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, ad- COVID-19-related rent concessions but plans to apply the practical expedient if it becomes applicable within allowed period of application. justments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Standards issued but not yet effective Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised IFRS 17 Insurance Contracts at fair value. applicable, when they become effective. In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: » » A specific adaptation for contracts with direct participation features (the variable fee approach); A simplified approach (the premium allocation approach) mainly for short-duration contracts. 80 81 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTIFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Standards issued but not yet effective (continued) Amendments to IAS 1 Classification of Liabilities as Current or Non-current Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 (continued) In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) current or non-current. The amendments clarify: » What is meant by a right to defer settlement; » » » That a right to defer must exist at the end of the reporting period; That classification is unaffected by the likelihood that an entity will exercise its deferral right; That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37 classification. In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively. The Group is currently assessing the impact the amendments will have on current practice and whether existing loan agreements may The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services require renegotiation. Reference to the Conceptual Framework – Amendments to IFRS 3 In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations − Reference to the Conceptual Framework. The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately. At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted. Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities In May 2020, the IASB issued Property, Plant and Equipment − Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity different from the terms of the original financial liability. These fees include only those paid or received between the borrower and recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted. The Group will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. IAS 41 Agriculture – Taxation in fair value measurements As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. An entity applies the amendment prospectively to fair value measurements on or after the beginning of the first annual reporting period beginning on or after 1 January 2022 with earlier adoption permitted. This standard is not applicable to the Group. 82 83 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Definition of Accounting Estimates - Amendments to IAS 8 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of ‘accounting estimates’. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates. The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting Standards issued but not yet effective (continued) Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as On 7 May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS this fact is disclosed. The amendments are not expected to have a material impact on the Group. Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2 In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim 12. The Board amended the standard to reduce diversity in the way that entities account for deferred tax on transactions and events, such as leases and decommissioning obligations, that lead to the initial recognition of both an asset and a liability. The Amendments narrow the scope of the initial recognition exception under IAS 12 Income Taxes, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences. The Amendments also clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement (having considered the applicable tax law) whether such deductions are attributable for tax purposes to the liability recognised in the financial statements (and interest expense) or to the related asset component (and interest expense). This judgement is important in determining whether any temporary differences exist to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their on initial recognition of the asset and liability. The Amendments apply to annual reporting periods beginning on or after 1 January 2023, ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities with earlier application permitted. apply the concept of materiality in making decisions about accounting policy disclosures. The Group is currently assessing the impact of the amendments to determine the impact they will have on the Group’s accounting The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application permitted. policy disclosures. Since the amendments to the Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy information, an effective date for these amendments is not necessary. Foreign currency translation The Group is currently assessing the impact of the amendments to determine the impact they will have on the Group’s accounting The consolidated financial statements of the Group are presented in tenge, which is the functional currency of the Company and its policy disclosures. Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information On 9 December 2021, the IASB issued an amendment to IFRS 17 Insurance Contracts, to add a transition option relating to comparative information presented on initial application of IFRS 17 and IFRS 9. This amendment follows from the Exposure Draft (ED) on Initial Application of IFRS 17 and IFRS 9 – Comparative Information, published in July 2021, and subsequent redeliberations based on feedback from stakeholders. subsidiary. Tenge is the currency of the primary economic environment in which the Company and its subsidiary operate. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currency are translated at the official exchange rate ruling at the reporting date established by Kazakhstan Stock Exchange (“KASE”) and published by the National Bank of the Republic of Kazakhstan (“NBRK”). All translation differences are recognized in the consolidated statement of The IASB decided to introduce this transition option, a classification overlay for financial assets in the comparative period, in response comprehensive income. to concerns raised by stakeholders regarding accounting mismatches that could arise between financial assets and insurance contract liabilities in the comparative information when IFRS 17 and IFRS 9 Financial Instruments are first applied in 2023. The amendments are not expected to have a material impact on the Group. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively). Foreign exchange rates are presented in the following table: US dollar Euro Russian rubles 31 December 2021 31 December 2020 431.67 487.79 5.77 420.71 516.13 5.65 84 85 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTCurrent versus non-current classification 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. Fair value measurement (continued) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Expected to be realised or intended to sold or consumed in normal operating cycle; An asset as current when it is: » » Held primarily for the purpose of trading; » » Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 (twelve) months after the Expected to be realised within 12 (twelve) months after the reporting period; or reporting period. All other assets are classified as non-current. It is expected to be settled in normal operating cycle; It is held primarily for the purpose of trading; A liability is current when: » » » » It is due to be settled within 12 (twelve) months after the reporting period; or There is no unconditional right to defer the settlement of the liability for at least 12 (twelve) months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. Fair value measurement Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarised in the Note 31. For assets and liabilities that are recognised in the consolidated financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The respective unit of the Group (hereinafter, the “Working Group”) determines the policies and procedures for both recurring fair value measurement, such as investment properties and unquoted AFS financial assets, and for non recurring measurement, such as assets held for distribution in discontinued operations. The composition of the Working Group is determined by the Management of the Group. External valuers are involved for valuation of significant assets, such as investment properties and unquoted financial assets, and significant liabilities, such as contingent consideration. Involvement of external valuers is determined annually by the Working Group after discussion with and approval by the Group’s Audit Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. Valuers are normally rotated every three years. The Working Group decides, after discussions with the Group’s external valuers, which valuation techniques and inputs to use for each case. At each reporting date, the Working Group analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Group’s accounting policies. For this analysis, the Valuation Committee verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. The Working Group also compares the change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset Property and equipment or transfer the liability takes place either: » » In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. Property and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. All other repair and The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or maintenance costs are recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an liability, assuming that market participants act in their economic best interest. asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Please refer to asset retirement obligation (Note 20) for further information about decommissioning provision recognised. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows: use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Buildings and constructions Machinery Equipment, tools and installations All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised within the Land is not depreciated. Years 10-50 3-10 2-8 fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: » » Level 2 − valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly Level 1 − quoted (unadjusted) market prices in active markets for identical assets or liabilities; observable; An item of property and equipment and any significant component initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of » Level 3 − valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. comprehensive income when the asset is derecognised. The residual values, useful lives and methods of depreciation of property and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Construction-in-progress Construction-in-progress represents property and equipment under construction and machinery and equipment awaiting installation and is recorded at cost. Construction-in-progress includes cost of construction and equipment and other direct costs. When 86 87 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) construction of such assets is completed or when the machinery and equipment are ready for their intended use, construction-in- progress is transferred to the appropriate category of depreciable assets. Construction-in-progress is not depreciated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Intangible assets Financial assets Initial recognition and measurement Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development income (OCI), and fair value through profit or loss. costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. Intangible assets have finite useful lives. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing Intangible assets with finite useful lives are amortised over the useful economic life and assessed for impairment whenever there is an component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as determined under IFRS 15. appropriate, and are treated as changes in accounting estimates. Expenses on amortisation of intangible assets with finite useful life are recognized in the consolidated statement of comprehensive income in the category of expenses, which corresponds to the In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows function of the intangible asset. that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds value through profit or loss, irrespective of the business model. and the carrying amount of the asset and are recognised in the consolidated statement of comprehensive income when the asset is derecognised. Intangible assets are amortized on a straight-line basis within the following estimated useful lives. Software and license Other telecom licenses Other Years 3-8 10 8-10 The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Impairment of non-financial assets Financial assets of the Group include cash and cash equivalents, trade and other accounts receivable, financial asset at fair value The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s or cash- generating unit’s (CGU) recoverable amount is the higher of: the fair value of an asset (cash generating unit) less costs of disposal and its value in use (cash generating unit). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. through other comprehensive income. Subsequent measurement Financial assets at amortised cost (debt instruments); For purposes of subsequent measurement financial assets are classified in four categories: » » » Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments); Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that instruments); reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of » Financial assets at fair value through profit or loss. disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available Financial assets at amortised cost (debt instruments) fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: » The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash of 5 (five) years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. flows; and » The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and Impairment losses of continuing operations are recognised in the consolidated statement of comprehensive income in those expense interest on the principal amount outstanding. categories consistent with the function of the impaired asset. Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s The Group’s financial assets at amortised cost includes trade and other receivables. recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of comprehensive income. 88 89 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTFinancial assets designated at fair value through OCI (equity instruments) 3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Financial liabilities Initial recognition and measurement Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a payables. recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly The Group elected to classify irrevocably its non-listed equity investments under this category. Derecognition attributable transaction costs. The Group’s financial liabilities comprise trade and other accounts payable, loans and borrowings, lease liabilities and financial guarantees. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized (i.e. Subsequent measurement NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) excluded from the Group’s consolidated statement of financial position) when: » » The rights to receive cash flows from the asset have expired; or The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash The subsequent measurement of financial liabilities depends on their classification, as described below: flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred Loans and borrowings substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. This category is the most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, the as well as through the EIR amortisation process. Group evaluates if it has retained the risks and rewards of the property, and to which extent, if any. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The the EIR. The EIR amortisation is included in finance costs in the consolidated statement of comprehensive income. transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. This category generally applies to interest-bearing loans and borrowings. Further details are contained in Note 15. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial guarantees Financial assets carried at amortised cost The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the credit enhancements that are integral to the contractual terms. The Group has financial guarantee issued to the Parent. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. The financial guarantee obligation issued to the Parent is initially recognized though equity. Subsequently, the liability is measured at the higher of the amount of the loss allowance determined in accordance with IFRS 9 Financial Instruments and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with IFRS 15 Revenue from Contracts with Customers. Further details are contained in Note 18. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial Trade and other accounts payable recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance Liabilities for trade and other accounts payable are recognised at fair value to be paid in the future for goods and services received, is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). whether or not billed to the Group. For trade receivables the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a Derecognition provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing the economic environment. financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group new liability. The difference in the respective carrying amounts is recognised in the consolidated statement of comprehensive income. may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Offsetting of financial instruments Financial assets and financial liabilities are only offset and reported at the net amount in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and the Group intends to either settle on a net basis, to realise the asset and settle the liability simultaneously. 90 91 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Leases Inventories The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control Inventories are valued at the lower of cost of acquisition and net realisable value. the use of an identified asset for a period of time in exchange for consideration. Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low- value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use assets Cost comprise expenses incurred in bringing inventory to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. The same cost formula is used for all inventories having a similar nature and use. All inventories are determined based on weighted average cost method. Provisions General The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance incurred, and lease payments made at or before the commencement date less any lease incentives received. contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement. If the effect of the time value of money The right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term, as is material, provisions are discounted using a current pre tax rate that reflects, when appropriate, the risks specific to the liability. When follows: Buildings and constructions discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Years 5-15 Decommissioning liability If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, Decommissioning liabilities are recognized in respect of the estimated future costs of closure and restoration and for environmental depreciation is calculated using the estimated useful life of the asset. rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the reporting period when the related environmental disturbance occurs. Decommissioning costs are recorded at the The right-of-use assets are also subject to impairment. Refer to the accounting policies in section Impairment of non financial assets. discounted value of expected liability settlement costs calculated using estimated cash flows and recognized as part of the initial cost Lease liabilities of the particular asset. Cash flows are discounted at the current rate before tax, which reflects risks inherent to the decommissioning obligations. Unwinding of discount is expensed as incurred and recognised in the consolidated statement of comprehensive income as finance costs. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to estimated future costs, or in the discount rate applied, are added to or deducted from the cost of the asset. be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Employee benefit Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Social tax Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. The Group pays social tax according to the current statutory requirements of the Republic of Kazakhstan. Social tax expenses are charged to expenses as incurred. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities Besides, the Group withholds 10% of the salary of employees paid as contributions of employees to the accumulating pension funds. is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease Under the legislation, employees are responsible for their retirement benefits and the Group has no present or future obligation to liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future further compensate its employees upon their retirement, except as provided below. payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. Short-term leases Pension payments The Group does not incur any expenses in relation to provision of pensions or other post-employment benefits to its employees. In accordance with the legal requirements of the Republic of Kazakhstan, the Group withholds pension contributions from employee The Group applies the short-term lease recognition exemption to its short-term leases of base station that have a lease term of 12 salaries and transfers them into state or private pension funds on behalf of its employees. Pension contributions are the responsibility months or less from the commencement date and the lessor has unconditional right to terminate contract. Lease payments on short- of employees, and the Group has no current or future obligations to make payments to employees following their retirement. Upon term leases are recognised as expense on a straight-line basis over the lease term. retirement of employees, all pension payments are administered by the pension funds directly. 92 93 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) originated within the Group’s network and terminated outside of the network. The Group recognises such costs when the services are Cash dividend and non-cash distribution to equity holders of the Parent The Group recognises a liability to make cash or non-cash distributions to equity holders of the Parent when the distribution is provided. (iii) Data revenue authorised and the distribution is no longer at the discretion of the Group. According to the legislation, distribution is approved by the The data service is recognised when a service is used by a subscriber based on actual data volume traffic or passage of time (monthly shareholders. A corresponding amount is recognised directly in equity. subscription fee). Non-cash distributions are measured at the fair value of the assets to be distributed with fair value remeasurement recognised directly (iv) Roaming revenues charged to the Group’s subscribers in equity. Upon distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount of the assets other operators to the Group. Roaming revenue from the Group’s subscribers for roaming in other operators’ network is charged based on information provided by distributed is recognised in the consolidated statement of comprehensive income. Revenue from contracts with customers (v) Roaming fees charged to other wireless operators The Group charges roaming per minute fees to other wireless operators for non-Group subscribers utilising the Group’s network. The Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an Group recognises such revenues when the services are provided. amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. (vi) Value added services Revenue is categorised as follows: voice and other services, data services, value added services, and sale of handsets. Voice service includes call out revenue, interconnect fees, roaming revenues charged to the Group’s subscribers for roaming in other end-customer for third party content service, amounts collected on behalf of the principal are excluded from revenue. Value added services mainly consists of content provided by third parties, different info services, fax and voice mail. When invoicing the wireless operators’ network, and roaming revenues charged to other wireless operators for non-Group subscribers using the Group’s network. Roaming discounts Data services include revenues from 3G and LTE internet, WAP services and other data services. The Group enters into roaming discount agreements with a number of wireless operators. According to the terms of the agreements the Group is obliged to provide and entitled to receive a discount that is generally dependent on the volume of inter operator roaming Value added services consists of SMS, MMS, info services and providing content of third parties, fax and voice mail services. traffic. The Group uses various estimates and assumptions, based on historical data and adjusted for known changes, to determine the The Group may bundle services and products into one customer offering. Offerings may involve the delivery or performance of multiple products, services, or rights to use assets (multiple deliverables). In some cases, the arrangements include initial installation, initiation, The Group accounts for discounts received as a reduction of roaming expenses and discounts granted as reduction of roaming or activation services and involve consideration in the form of a fixed fee or a fixed fee coupled with a continuing payment stream. Costs revenue. The Group considers terms of the various roaming discount agreements to determine the appropriate presentation of amount associated with the equipment are recognised when revenue is recognised. The revenue is allocated to separate product and services of receivable from and payable to its roaming partners in its consolidated statements of financial position. amount of discount to be received or granted. Such estimates are adjusted monthly to reflect newly-available information. on a relative stand-alone selling price method. Costs to obtain a contract The stand-alone selling prices are determined based on the list prices at which the Group sells the mobile devices and telecommunication services. Customised equipment that can be used only in connection with services or products provided by the Group is not accounted The Group sells part of payment scratch cards, sim cards, and handsets using dealers. The Group pays a certain commission to dealers for separately and revenue is deferred over the total service arrangement period. depending on the number of payment scratch cards, sim cards or handset sold. Sales commissions and equipment subsidies granted to dealers for obtaining a specific contract are capitalised and deferred over the period over which the Group expects to provide In revenue arrangements where more than one performance obligation, transaction price is allocated between the goods and services services to the customer. Other commissions to dealers are recognised when the item is sold to the subscriber. using relative stand-alone selling price method. Determining the transaction price for each separate performance obligation can require complex estimates. The Group generally determines the stand-alone selling price for each separate performance obligation based on prices at which the good or services are regularly sold on a stand-alone basis after considering volume discounts where appropriate. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the As a practical expedient, the Group does not adjust the promised amount of consideration for the effects of a significant financing related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in component if the Group expects, at contract inception, that the period between when the Group transfers a promised good or service equal amounts over the expected useful life of the related asset. to a customer and when the customer pays for that good or service will be one year or less. (i) Call out revenue Call out revenue is recognised based on the actual airtime used by the subscribers. Prepayments received for call out revenue are not recognised as revenue until the related service has been provided to the subscriber. Revenue is recognised based on the actual traffic time elapsed, at the customer selected calling plan rates. (ii) Interconnect revenues and costs When the Group receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. Contract balances Contract assets The Group charges interconnect per minute fees and fixed monthly payments to other local wireless and fixed line operators for calls transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by originated outside and terminated within the Group’s network. The Group recognises such revenues when the services are provided. recognised for the earned consideration that is conditional. The Group is charged interconnect fees per minute and fixed monthly payments by other local wireless and fixed line operators for calls 94 95 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contract balances (continued) Trade receivables NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Deferred tax liabilities are recognized for all taxable temporary differences, except: » When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in transaction that is not a business combination and, at the same time of transaction, affects neither the accounting profit nor taxable profit or loss; » In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. A receivable is recognised if an amount of consideration that is unconditional is due from the customer (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in section “Financial instruments Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused − initial recognition and subsequent measurement”. Contract liabilities tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: » When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group taxable profit or loss; transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs under the contract » In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint (i.e., transfers control of the related goods or services to the customer). Interest income arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable For all financial instruments measured at amortised cost and interest-bearing financial assets classified as AFS, interest income is that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets recorded using the effective interest rate (EIR). The EIR is the rate that exactly discounts the estimated future cash receipts over the are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The the deferred tax asset to be recovered. interest income is recorded as part of finance income in the consolidated statement of comprehensive income. Dividends Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Revenue is recognised when the Group’s right to receive the payment is established, which is generally when shareholders approve Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in the dividend. Expense recognition correlation to the underlying transaction either in OCI or directly in equity. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same Expenses are recognized as incurred and reported in the consolidated statement of comprehensive income in the period to which they taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and relate on the accrual basis. Borrowing costs assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Contingent assets and liabilities Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are Contingent assets are not recognized in the consolidated financial statements. Where an inflow of economic benefits is probable, they expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with are disclosed. the borrowing of funds. Taxes Current income tax Contingent liabilities are not recognized in the consolidated financial statements unless an outflow of resources embodying economic benefits has become probable. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Related parties Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. In accordance with IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Transactions with related parties are used to reflect the status of settlements for property, works and services received from companies Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are or sold to companies that are related parties to the Group. Items of a similar nature are disclosed in aggregate except when separate subject to interpretation and establishes provisions where appropriate. disclosure is necessary for an understanding of the effects of related party transactions on the consolidated financial statements. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. 96 97 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS 4. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued) The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and Judgements (continued) the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a Useful lives of property and equipment and intangible assets material adjustment to the carrying amount of assets or liabilities affected in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties includes: » Financial instruments and financial risk management objectives and principles Note 31. Estimates and assumptions The Group assesses the remaining useful lives of items of property and equipment and intangible assets at least at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. In 2021 the Group started optimisation and modernisation of network, swapping from old end of life equipment, expansion of capacity and coverage of network according to approved investment plan and strategy of the Group in order to achieve strategic goals to strengthen The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant and form leading positions in the telecommunication markets of the Republic of Kazakhstan. The Group plans to dismantle certain base risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. stations on locations where there are base stations of both entities. Such business operation shall provide further savings on capital and The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. operational expenditures and provide a better competitive position in the market. Therefore, in 2021, the Group reassessed the remaining Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances useful lives of certain telecommunication equipment that is subject for dismantling earlier than initially planned or otherwise would not arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur. be used once integration process is finalized. The Group performed reassessment from 1 December 2021, which resulted in decrease Judgements in remaining useful life of those assets by 3 years on average. The change in the remaining useful lives resulted in a total increase in depreciation expenses for the year ended 31 December 2021 in the amount of 15 million tenge. The effect of change in estimate for 2022- In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: Determining the lease term of contracts with renewal and termination options − Group as lessee 2025 approximated to 750 million tenge. Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably disposing of the asset. The value in use calculation is based on a DCF model. certain not to be exercised. The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested. The whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group rate used for extrapolation purposes. reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant Decommissioning liability customisation to the leased asset). Leases − estimating the incremental borrowing rate Decommissioning liabilities are recognized in respect of the estimated future costs of closure and restoration and for environmental rehabilitation costs in the reporting period when the related environmental disturbance occurs. Decommissioning costs are recorded at the discounted value of expected liability settlement costs calculated using estimated cash flows and recognized as part of the initial The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to cost of the particular asset. Cash flows are discounted at the current rate before tax, which reflects risks inherent to the decommissioning measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar obligations. Unwinding of discount is expensed as incurred and recognised in the consolidated statement of comprehensive income security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR as finance costs. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for estimated future costs, or in the discount rate applied, are added to or deducted from the cost of the asset. subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs In 2021, Kazakhtelecom JSC together with its subsidiaries, Kcell JSC and MTS LLP developed network integration plan as mentioned (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). above. In accordance with integration plan, the Group reassessed maturity of decommissioning of certain telecommunication base stations across Kazakhstan and reflected effect on asset retirement obligation estimation. Impacts are disclosed in Note 20. Provision for expected credit losses The Group recognizes provision for expected credit losses for trade and other accounts receivable and funds in credit institutions (cash and cash equivalents, bank deposits). For trade and other receivable, the Group has applied the standard’s simplified approach and has calculated expected credit losses based on lifetime of these financial instruments. The Group used a provision model that is prepared taking into account Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group will calibrate the matrix to adjust the historical credit loss experience with forward looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. 98 99 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTThe assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant prepared in accordance with IFRS. Management has determined a single operating segment being mobile communication services estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical based on these internal reports. credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables and contract assets is disclosed in Note 9. 6. SHARE CAPITAL AND EARNINGS PER SHARE For funds in credit institutions (cash and cash equivalent, bank deposits), the Group calculated expected credit losses based on the Share capital of the Group is as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 12-month period. The 12-month expected credit losses is the portion of lifetime expected credit losses that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime expected credit losses. The Group considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due. Also it is considered a financial asset in default when contractual payment are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. Thus, as at 31 December 2021 provision for expected credit losses was created in the amount of 6,651 million tenge (as at 31 December 2020: 9,964 million tenge) (Notes 9). Changes in the economy, industry or specific customer conditions would have impact to these allowances recorded in the consolidated financial statements. Costs to obtain a contract Kazakhtelecom JSC PIONEER TECHNOLOGIES S.A.R.L First Heartland Jusan Bank JSC Single accumulative pension fund JSC Raiffeisenbank JSC Other 31 December 2021 31 December 2020 Number of shares Share Number of shares 102,000,000 75.00% 150,000,000 Share 51.00% 14.87% 9.08% 7.07 % 7.07% 1.54% 29,745,215 18,167,753 14.144.273 14,144,273 3,070,664 16.44% 100.00% 32,872,095 200,000,000 − − − − − − − − 11.60% 13.40% 100.00% 23,209,124 26,790,876 200,000,000 The total authorized number of ordinary shares is 200,000,000 shares with a par value of 169 tenge per share, all of which are issued and fully paid. In 2021 the Group obtained loans from First Heartland Jusan Bank JSC at interest rate lower than market rate and recognised discount in the amount of 1,260 million tenge as additional paid in capital (Note 15). The Group considers commission to sales agents to be an additional cost to obtain a contract, and capitalizes such costs as an asset on expenses under contracts with customers. The Group depreciates the costs to obtain a contract with customers on a systematic basis, The calculation of basic and diluted earnings per share is based on the following data: which corresponds to the timing of the provision of services to customers. The Group reviews depreciation periods if the expected service dates have changed. Contract liabilities In millions of tenge Profit for the year attributable to equity shareholders Weighted average number of ordinary shares Earnings per share (Kazakhstani tenge), basic and diluted 2021 32,506 2020 17,578 200,000,000 200,000,000 162.53 87.89 Deferred revenues are recognized as contract liabilities and recognized over the expected period of the customer relationship. In The Group has no dilutive or potentially dilutive securities outstanding. making its judgments, management considered the detailed criteria for the recognition of revenues from contract with customers set out in IFRS 15, industry practice and the Group’s historical churn rate. During year ended 31 December 2021 and 2020, the Group declared and paid dividends in the amount of 17,578 million tenge and 9,000 million tenge, respectively. Dividends per share for the year ended 31 December 2021 were equal to 87.89 tenge (31 December Deferred tax assets 2020: 45 tenge). Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. As at 31 December 2021, net deferred tax assets of the Group were equal to 3,042 million tenge (at 31 December 2020: 1,937 million tenge). Further details are contained in Note 29. Fair value measurement of financial instruments When the fair value of financial instruments and financial liabilities recorded in the consolidated statement of financial position cannot be measured based on data in active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the fair value reported in the consolidated financial statements. For more details on the fair values refer to Note 31. 5. SEGMENT INFORMATION The Group’s main operations are concentrated in the Republic of Kazakhstan and are mainly represented by provision of mobile communication services. The Group identifies the segment in accordance with the criteria set in IFRS 8 Operating Segments and based on the way the operations of the Group are regularly reviewed by the chief operating decision maker to analyse performance and allocate resources among business units of the Group. The Group’s Chairman of the Management Board has been determined as the chief operating decision-maker (“CODM”). The CODM reviews the Group’s internal reporting in order to assess performance and allocate resources. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements Additional information disclosed in accordance with Kazakhstan Stock Exchange (KASE) requirements The cost of ordinary shares calculated in accordance with the requirements of the KASE According to the requirements of the Kazakhstan Stock Exchange (“KASE”), the Group has calculated its cost per ordinary share, which was calculated based on the number of ordinary shares outstanding at the reporting date. The cost per ordinary share as at 31 December 2021 and 2020 is presented below. In millions of tenge Net assets, excluding intangible assets Number of ordinary shares in issue Cost of ordinary share, calculated in accordance with listing requirements of KASE (Kazakhstani tenge) 31 December 2021 31 December 2020 55,987 42,353 200,000,000 200,000,000 279.94 211.77 100 101 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTl a t o T 1 5 4 , 4 1 9 9 8 , 1 7 4 1 , 0 0 3 − ) 7 0 1 ( ) 1 8 6 , 1 ( 9 0 7 , 4 1 3 − 5 3 1 8 4 4 , 4 2 ) 8 0 9 , 5 ( 4 8 3 , 3 3 3 ) 4 6 8 , 7 1 2 ( ) 8 2 2 , 5 1 ( 7 4 2 , 1 ) 5 5 7 , 4 ( ) 0 0 6 , 6 3 2 ( 8 7 6 , 4 ) 9 5 1 ( ) 8 9 4 , 5 1 ( − 9 5 1 , 9 6 6 3 , 8 1 ) 6 6 7 , 9 ( ) 7 1 4 ( ) 4 8 ( 8 5 2 , 7 1 − 5 2 5 , 2 2 ) 9 2 5 , 9 ( ) 3 1 0 , 1 ( 1 4 2 , 9 2 − − − ) 1 1 5 , 4 ( ) 1 1 5 , 4 ( − − ) 1 ( − − 4 0 8 , 4 8 5 4 , 4 3 − ) 3 9 1 ( 9 6 0 , 9 3 6 7 6 , 1 − − ) 0 1 ( 5 3 7 , 0 4 − 8 8 1 ) 6 2 9 , 2 ( ) 4 8 2 , 8 2 ( 3 2 2 9 9 8 , 1 6 6 7 , 9 3 0 1 , 5 2 2 ) 3 2 ( ) 1 7 0 , 1 ( 7 9 8 , 5 3 2 7 1 1 5 3 1 9 2 5 , 9 ) 9 2 7 , 4 ( 9 4 9 , 0 4 2 ) 9 7 ( 9 5 0 , 1 ) 4 4 9 , 1 1 ( ) 1 7 6 , 2 8 1 ( ) 2 2 0 , 1 3 ( ) 5 3 6 , 3 9 1 ( 0 1 ) 5 8 ( ) 4 0 2 , 3 ( ) 3 7 ( 4 5 5 , 4 ) 3 3 9 , 1 1 ( r e d n u s t e s s A n o i t c u r t s n o c l s o o t , t n e m p u q E i s n o i t a l l a t s n i d n a i y r e n h c a M s g n d i l i u B d n a L n o i t c u r t s n o c d n a ) 9 7 5 , 7 4 2 ( ) 2 1 5 , 4 ( ) 1 0 3 , 4 3 ( ) 7 8 0 , 1 0 2 ( ) 9 7 6 , 7 ( 9 0 1 , 8 7 5 0 8 , 5 8 7 4 7 , 2 1 9 2 7 , 4 2 7 4 0 , 8 4 3 4 , 6 2 6 2 , 2 4 2 6 8 , 9 3 1 3 9 , 2 1 1 7 6 , 2 1 2 2 1 , 2 9 0 1 , 2 − − 0 3 1 ) 3 4 1 ( 0 5 3 , 0 2 − ) 8 5 3 ( ) 9 0 9 , 6 ( ) 5 6 1 ( ) 2 3 4 , 7 ( − 4 1 1 ) 1 6 3 ( − − − − 5 6 2 8 9 0 , 0 2 − − − − − 2 2 1 , 2 3 6 3 , 0 2 2 2 1 , 2 − − − ) 3 1 ( 9 0 1 , 2 − − − − − − − − − : s w o l l o f s a e r e w 0 2 0 2 d n a 1 2 0 2 n i i t n e m p u q e d n a y t r e p o r p f o s t n e m e v o M I T N E M P U Q E D N A Y T R E P O R P . 7 102 e g n e t f o s n o i l l i m n I 0 2 0 2 y r a u n a J 1 t A s n o i t i d d A t s o C t n e m r i a p m i i d n a n o i t a c e r p e d d e t a u m u c c A l 1 2 0 2 r e b m e c e D 1 3 t A 0 2 0 2 y r a u n a J 1 t A e g r a h c n o i t a c e r p e D i s p u o r g e h t n e e w t e b r e f s n a r T l s a s o p s D i 0 2 0 2 r e b m e c e D 1 3 t A e g r a h c n o i t a c e r p e D i t n e m r i a p m I l s a s o p s D i 1 2 0 2 r e b m e c e D 1 3 t A t n e m r i a p m I l e u a v k o o b t e N 0 2 0 2 r e b m e c e D 1 3 t A 1 2 0 2 r e b m e c e D 1 3 t A l s a s o p s D i ) 0 2 e t o N ( g n i i l t n a m s d r o f n o s v o r P i i s p u o r g e h t n e e w t e b r e f s n a r T 0 2 0 2 r e b m e c e D 1 3 t A y r o t n e v n i o t r e f s n a r T s n o i t i d d A l s a s o p s D i ) 0 2 e t o N ( g n i i l t n a m s d r o f n o s v o r P i i NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. PROPERTY AND EQUIPMENT (continued) As at 31 December 2021 and 2020, assets under construction are represented by equipment for installation for base transmission stations, mobile switch servers and other telecommunication equipment and service works. As of 31 December 2021, the Group made prepayments for certain property and equipment in the amount of 329 million tenge (31 December 2020: 293 million tenge). As at 31 December 2021, the gross carrying value of property and equipment, which has been fully depreciated and still in use, was 173,272 million tenge (31 December 2020: 164,522 million tenge). Impairment test The coronavirus (COVID-19) outbreak has affected many countries and resulted in significant volatility in financial and commodity markets around the world. There is already evidence that the virus has significantly impacted the global economy (Note 32). The Group’s management analyzed external and internal sources of information, including the current and future impact of the COVID-19 pandemic on the Group and on macroeconomic environment, and did not observe any significant negative impacts on the Group’s business, financial conditions and results of operations. During 2021, the Group did not identify impairment factors for all CGUs related with COVID-19 impact, except certain items of property and equipment as described below. During 2021 the Group recognized an impairment loss in the amount of 158 million tenge (2020: 244 million tenge) for property and equipment and 1 million tenge for construction-in-progress (2020: 4,511 million tenge), which represented the write-down of certain assets to the recoverable amount as a result of technological obsolescence and damage. Loss was recognized in the consolidated statement of comprehensive income as an operating expense. 8. INTANGIBLE ASSETS Movements of intangible assets for 2021 and 2020 were as follows: In millions of tenge Cost At 1 January 2020 Additions Transfers Disposals At 31 December 2020 Additions Disposals At 31 December 2021 Accumulated amortisation and impairment At 1 January 2020 Amortisation charge Disposals Impairment At 31 December 2020 Amortisation charge Disposals Impairment At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 Software and licenses Intangible assets in development stage Total 95,818 12,392 718 (906) 108,022 13,604 (2,640) 118,986 (58,188) (11,010) 906 − (68,292) (10,621) 2,640 (429) (76,702) 39,730 42,284 1,190 − (718) − 472 − − 472 − − − (472) (472) − − − 97,008 12,392 − (906) 108,494 13,604 (2,640) 119,458 (58,188) (11,010) 906 (472) (68,764) (10,621) 2,640 (429) (472) (77,174) − − 39,730 42,284 103 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT As at 31 December 2021, the carrying amount of the 3G license was 1,333 million tenge (31 December 2020: 1,667 million tenge) and its remaining amortisation period was 4 years. As at 31 December 2021, the carrying amount of the 4G license was 15,744 million tenge (31 December 2020: 17,478 million tenge) and its remaining amortisation period was 9 years. As of 31 December 2021, the Group made prepayments for certain intangible assets in the amount of 1,601 million tenge (31 December 2020: nil). During 2021, the Group recognized an impairment loss of 429 million tenge, which represents part of billing system that was in non- operating condition (31 December 2020: 472 million tenge). Loss was recognized in the consolidated statement of comprehensive income as an operating expense. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. TRADE RECEIVABLES (continued) In millions of tenge Total Current Days past due 1 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days 31 December 2020 Estimated total gross book value for default Expected credit loss rate 30,208 17,761 1,574 Expected credit losses 9,964 0.1% 17 2% 25 467 12% 55 271 23% 62 543 9,592 53% 289 99% 9,516 As at 31 December 2021, the gross carrying value of intangible assets, which has been fully depreciated and still in use, was 42,175 As at 31 December 2021 and 2020 the Group’s trade receivables were denominated in the following currencies: million tenge (31 December 2020: 36,451 million tenge). 9. TRADE RECEIVABLES As at 31 December 2021 and 2020, trade receivables comprised of the following: In millions of tenge Trade receivable from subscribers Trade receivable from interconnect services Trade receivables from roaming operators Trade receivables from dealers and distributors Trade receivables from related parties (Note 30) Less: allowance for expected credit losses Less: long-term portion of trade receivable from subscribers During the year movements in the allowance for expected credit losses were as follows: In millions of tenge Allowance for expected credit losses at the beginning of the year Charge for the year Write-offs for the year Sales of trade receivables Allowance for expected credit losses at the end of the year 31 December 2021 31 December 2020 25,052 1,129 173 748 3,238 (6,651) 23,689 (4,148) 19,541 2021 (9,964) (1,914) 1,117 4,110 (6,651) 27,412 986 170 452 1,188 (9,964) 20,244 (2,421) 17,823 2020 (8,605) (1,547) 188 − (9,964) On 18 and 19 February 2021 the Group sold overdue receivables with gross value in the amount of 4,548 million tenge and net book value in the amount of 438 million tenge for 438 million tenge. Below is information as of 31 December 2021 and 2020 about the credit risk exposure on the Group’s trade receivables using a provision matrix: In millions of tenge Total Current Days past due 1 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days In millions of tenge Tenge US dollars 10. INVENTORIES As at 31 December 2021 and 2020, inventories comprised: In millions of tenge Handsets and accessories (at lower of cost and net realizable value) Start packages (at cost) Marketing materials (at cost) SIM-cards (at cost) Other materials (at cost) 31 December 2021 31 December 2020 23,516 173 23,689 20,074 170 20,244 31 December 2021 31 December 2020 5,898 207 70 85 322 6,582 8,523 255 150 77 357 9,362 During 2021, the Group recognised as an expense 179 million tenge (2020: 654 million tenge) for inventories carried at net realisable value. This is recognised in general and administrative expenses. 11. OTHER CURRENT NON-FINANCIAL ASSETS As at 31 December 2021 and 2020, other current non-financial assets comprised of the following: In millions of tenge Advances paid VAT recoverable Prepaid taxes other than income taxes Prepaid expenses 31 December 2021 31 December 2020 3,120 1,788 2,535 878 8,321 1,548 397 710 408 3,063 31 December 2021 Estimated total gross book value for default Expected credit loss rate 30,340 20,212 1,825 Expected credit losses 6,651 0.1% 23 2% 41 903 13% 118 580 922 5,898 23% 136 49% 454 100% 5,879 104 105 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT 12. OTHER CURRENT FINANCIAL ASSETS 14. CASH AND CASH EQUIVALENTS (continued) As at 31 December 2021 and 2020, other current financial assets comprised of the following: As at 31 December 2021 and 2020, cash and cash equivalents were denominated in various currencies as follows: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) In millions of tenge Other receivables Due from employees Less: allowance for expected credit losses due from employees 31 December 2021 31 December 2020 394 336 (192) 538 94 151 − 245 As at 31 December 2021 and 2020, other current non-financial assets were fully denominated in tenge. During year ended 31 December 2021 the Group has accrued allowance for amounts due from employees in the amount of 192 million tenge (2020: nil). 13. FINANCIAL ASSETS AT AMORTIZED COST As at 31 December 2020 financial assets at amortized cost in the amount of 18,923 million tenge, represented by short-term discount notes of National Bank of the Republic of Kazakhstan (“NBRK”) denominated in tenge, were fully redeemed as of 31 December 2021. In 2021 and 2020, the Group acquired short term discount notes at purchase price 140,018 million tenge and 36,751 million tenge, respectively. In 2021 short term discount notes with nominal value in the amount of 158,631 million tenge and interest income in the amount of 1,369 million tenge was redeemed (2020: 18,139 million tenge and 761 million tenge, respectively). The Group recognized the financial assets at amortized cost as the contractual cash flows are solely principal and interest and the financial assets are held within a business model for collecting contractual cash flows. NB RK Note NB RK Note NB RK Note NB RK Note 13 January 2021 15 January 2021 22 January 2021 22 January 2021 8.92% 9.41% 9.85% 9.85% 10,000 4,000 3,000 2,000 – – – – – 9,969 3,984 2,982 1,988 18,923 14. CASH AND CASH EQUIVALENTS As at 31 December 2021 and 2020, cash and cash equivalents comprised of the following: In millions of tenge Bank deposits with original maturity of less than 90 days Cash on current bank accounts Cash on hand 31 December 2021 31 December 2020 45,018 6,380 4 51,402 8,782 14,202 39 23,023 In millions of tenge Tenge US dollars Euro Russian roubles Other 15. BORROWINGS 31 December 2021 31 December 2020 34,133 16,651 526 91 1 9,398 12,982 642 − 1 51,402 23,023 As at 31 December 2021 and 2020, borrowings comprised of the following: In millions of tenge Currency Effective interest rate Maturity date 31 December 2021 31 December 2020 First Heartland Jusan Bank JSC (Note 30) Bank of China Kazakhstan JSC VTB Bank JSC Eurasian Development Bank JSC Halyk Bank of Kazakhstan JSC Bonds Tenge 11.70% 10 November 2024 39,871 − Tenge Tenge Tenge Tenge Tenge 10.70% 11.90% 13.06% 11.20% 11.84% 20 August 2024 15 October 2023 20 June 2024 21 April 2023 16 January 2021 13,105 7,006 − − − 59,982 11,059 6,005 18,129 15,223 22,871 73,287 (48,283) 11,699 (49,933) 23,354 Borrowings are repayable as follows: In millions of tenge Current portion of borrowings Maturity between 1 and 2 years Maturity between 2 and 5 years Maturity over 5 years Total non-current portion of borrowings 31 December 2021 31 December 2020 11,699 23,354 7,000 41,283 − 48,283 10,972 38,961 − 49,933 The Group’s borrowings are denominated in Kazakhstani tenge and represent unsecured loans and bonds. The borrowings have financial and non-financial covenants. Breaches in meeting the covenants would permit the banks to immediately call loans and borrowings. As at 31 December 2021 and 2020, there have been no breaches of the covenants. The Group has not entered into any hedging arrangements in respect of its interest rate exposures. As at 31 December 2021 and 2020 financial assets at amortised cost comprised of the following: In millions of tenge Maturity date Yield to maturity Nominal value 31 December 2021 31 December 2020 Less: non-current portion As of 31 December 2021, short-term bank deposits represent overnight deposits in tenge in Altyn Bank JSC at interest rate 8.9% in the amount of 20,000 million tenge, in Jusan Bank JSC at interest rate 8.69% in the amount of 11,000 million tenge, in Halyk bank JSC at On 23 April 2020, the Group obtained loan in the amount of 15,000 million tenge within credit line agreement with Halyk Bank of interest rate 7.5% in the amount of 700 million tenge and deposit in USD in Halyk Bank JSC at interest rate 0.1% in the amount of 13,318 Kazakhstan JSC with a maturity of 36 months and a fixed interest rate of 11.5% per annum. On 14 July 2020 interest rates of loan was million tenge, respectively. As of 31 December 2020, short-term bank deposits represented overnight deposits in tenge in Altyn Bank decreased from 11.5% to 11.2% per annum under credit line agreement. The change in the interest rate from 11.5% to 11.2% does not JSC at interest rate 8.5% in the amount of 8,782 million tenge. represent a substantial modification as in accordance with IFRS 9 and thus, it did not lead to the derecognition of the original liability. The Group recognized finance income in the amount of 115 million tenge as a result of change in the interest rate. On 24 February 2021 the Group obtained two loans in the amount of 2,100 million tenge and 4,900 million tenge from Halyk Bank JSC within the same credit line agreement. On 11 November 2021, the Group fully repaid principal and interest in the amount of 22,000 million tenge and 2,358 million tenge, respectively, ahead of the schedule. 106 107 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT On 6 January 2021 the Group obtained a loan in the amount of 12,000 million tenge from Alfa Bank JSC with maturity till 5 January 2024 at interest rate 10.7% per annum. On 19 May 2021 the Group entered into an additional agreement to increase the credit limit from 14 16. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES billion tenge to 21 billion tenge, for a period until 19 May 2026, with an availability period until 19 May 2025 at interest rate of 10.7% The Group’s right of use assets are represented by buildings and constructions. Set out below are the carrying amounts of right-of-use per annum. On 11 November 2021 the Group fully repaid principal and interest in the amount of 12,000 million tenge and 1,102 million assets and lease liabilities recognised and the movements during the year: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) tenge, respectively, ahead of the schedule. During 2019 and 2020, the Group obtained loan in the amount of 5,000 million and 6,000 million tenge, respectively, within credit line agreement with Bank of China Kazakhstan JSC with a repayment period of 36 months and a fixed interest rate of 10.5% per annum. On 14 October 2020 the Group has signed addendum to loan agreement with Bank of China JSC to decrease interest rate from 10.5% to 10.3% per annum under credit line agreement. The change in the interest rate does not represent a substantial modification in accordance with IFRS 9 and thus, it did not lead to the derecognition of the original liability. Consequently, in 2020 the Group recognized In millions of tenge Cost At 1 January 2020 Modification Additions Cancellation finance income in the amount of 33 million tenge as a result of change in the interest rate. The loan is secured by the financial guarantee At 31 December 2020 provided by Kazakhtelecom JSC, the parent company. The Group considers the financial guarantee provided by the parent to be an integral part of the loan, and therefore does not recognize the guarantee received separately in its consolidated financial statements. On 2 June 2021 the Group obtained additional tranche in the amount of 2,000 million tenge from Bank of China JSC within the same credit line agreement. On 28 October 2020 the Group obtained loan in the amount of 6,000 million tenge within the credit line agreement with VTB Bank JSC with maturity till October 2023 at interest rate 10.7% per annum. On 31 March 2021 the Group signed an additional agreement with VTB Bank JSC to increase the amount of the credit line from 6,000 million tenge to 7,000 million tenge, and obtained 1,000 million tenge with a maturity until 15 October 2023 and an interest rate of 10.7% per annum. On 20 May 2021 the Group has signed addendum to loan agreement with Eurasian Development Bank to decrease interest rate from 11.5% to 11.19% per annum under credit line agreement. The change in the interest rate does not represent a substantial modification in accordance with IFRS 9 and thus, it did not lead to the derecognition of the original liability. In 2021, the Group fully repaid principal amount of the loan obtained from Eurasian Development Bank in the amount of 18,500 million tenge and interest in the amount of 762 million tenge. On 21 February 2019, the Group undertook a bond placement at the Kazakhstan Stock Exchange, in which bonds to the value of 17,025 million tenge were placed with investors at a yield of 11.5% per annum and on 16 January 2018 a bond placement with the value of 4,950 million tenge at a yield of 11.5% per annum. On 26 January 2021, in accordance with schedule, the Group fully repaid bonds in the amount of 23,005 million tenge, including the principal portion in the amount of 21,754 million tenge and accrued interest in the amount of 1,251 million tenge. On 10 November 2021, the Group and First Heartland Jusan Bank JSC, one of the shareholders of the Company, signed a credit line agreement in the amount of 60,500 million tenge. On 11 November 2021 two tranches were received from First Heartland Jusan Bank JSC in the amount of 22,000 million tenge and 12,000 million tenge with an interest rate of 11% per annum and 10.7% per annum, respectively. Additionally, on 25 November 2021, third tranche was received from First Heartland Jusan Bank JSC in the amount of 6,500 million tenge with an interest rate of 11% per annum, with a maturity until 10 November 2024. At the date of initial recognition, the loan was recognized at fair value based on expected cash outflows at a market rate observable for similar instruments of 12.9% at the time the loan was issued. On initial recognition of all three tranches total discount in the amount of 1,260 million tenge was recognised within equity as the additional paid-in capital. Modification Additions Cancellation At 31 December 2021 Accumulated depreciation At 1 January 2020 Depreciation charge Cancellation At 31 December 2020 Depreciation charge Cancellation At 31 December 2021 Net book value At 31 December 2020 At 31 December 2021 Total 29,133 161 491 (300) 29,485 814 77 (138) 30,238 (4,157) (4,564) 40 (8,681) (4,659) 45 (13,295) 20,804 16,943 Set out below are the carrying amounts of lease liabilities and the movements during the year: In millions of tenge At the beginning of the year Interest expenses (Note 27) Payments Additions Modifications Cancellation At the end of the year Long-term lease liabilities Short-term lease liabilities The following are the amounts recognised in profit or loss: In millions of tenge Depreciation expense of right-of-use assets Interest expense on lease liabilities Expenses related to short-term leases Total amount recognised in profit or loss 31 December 2021 31 December 2020 23,666 2,772 (7,093) 77 814 (107) 20,129 15,185 4,944 2021 4,659 2,772 45 7,476 27,053 3,150 (6,908) 491 161 (281) 23,666 19,447 4,219 2020 4,564 3,150 49 7,763 The Group had total cash outflows for leases of 7,138 million tenge in 2021 (2020: 6,957 million tenge). 108 109 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT 17. TRADE PAYABLES As at 31 December 2021 and 2020, trade payables comprised of the following: In millions of tenge Trade payables to third parties Trade payables to related parties (Note 30) 31 December 2021 31 December 2020 32,603 3,102 35,705 21,259 1,094 22,353 As at 31 December 2021 and 2020, the Group’s trade payables were denominated in the following currencies: In millions of tenge Tenge US dollars Other currency 31 December 2021 31 December 2020 33,119 1,460 1,126 35,705 21,043 1,304 6 22,353 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. ASSET RETIREMENT OBLIGATION (continued) Decommissioning liabilities (continued) Movements in provision for decommissioning liabilities for the years ended 31 December 2021 and 2020 were as follows: In millions of tenge Provision for decommissioning liabilities as at 1 January Change in estimate (Note 7) Unwinding of discount (Note 27) Provision for decommissioning liabilities as at 31 December Current portion (Note 21) non-current portion 2021 4,007 135 194 4,336 132 4,204 2020 1,970 1,899 138 4,007 − 4,007 The provision was determined at the end of the reporting period using the projected inflation rate for the expected period of the fulfilment of obligation, and the discount rate at the end of the year which is presented below: 18. FINANCIAL GUARANTEE OBLIGATION On 27 November 2020 the Group issued the financial guarantee on loan agreement of Kazakhtelecom JSC obtained from Development Bank of Kazakhstan JSC in the amount of 18,266 million tenge. The financial guarantee has maturity till 19 December 2024. The Group Discount rate Inflation rate Period of fulfillment of obligation 2021 7.03% 5.5% 1-10 years 2020 6.83% 5.5% 11 years initially recognised the financial guarantee at fair value in the amount of 592 million tenge through retained earnings in equity. As at In 2021, the Group approved network integration project with Parents and MTS LLP, according which the Group plans to decommission 31 December 2021 and 2020, the Group measured financial guarantee obligation at the higher of the amount of the loss allowance determined in accordance with IFRS 9 Financial Instruments and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with IFRS 15 Revenue from Contracts with Customers. As of 31 December 2021, financial guarantee obligation equaled to 330 million tenge, which represents the initial amount less the cumulative amount of income recognised in accordance with IFRS 15 (31 December 2020: 563 million tenge). 19. CONTRACT LIABILITIES As at 31 December 2021 and 2020, trade contract liabilities comprised of the following: In millions of tenge Contract liabilities as at 1 January Deferred during the year Recognised as revenue during the year Contract liabilities as at 31 December 20. ASSET RETIREMENT OBLIGATION Decommissioning liabilities Provision for decommissioning liabilities is recorded at the discounted value of expected costs to bring the sites and facilities to their original condition using estimated cash flows and is recognised as part of the cost of the specific asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the decommissioning liability. 2021 1,978 159,344 (158,115) 3,207 2020 4,149 107,352 (109,523) 1,978 In millions of tenge Legal claims on contractual obligation Asset retirement obligation: current portion (Note 20) Provision of fines and penalties (Note 32) Other provision certain assets in 2022-2025. 21. PROVISIONS In 2020 the Group accrued certain amount of provision related to legal claims on contractual obligation and fines and penalties that Management considers as probable in the amount of 3,685 million tenge and 701 million tenge, respectively. Portion of provision of fines and penalties in the amount of 683 million tenge was reversed in 2021 due to finalisation of custom audit with actual amount of penalty in notice in the amount of 18 million tenge (Note 32). Movements in provision for decommissioning liabilities for the years ended 31 December 2021 and 2020 were as follows: In millions of tenge Provision as at 1 January Accrual of provisions for legal claim Reclassification of short-term portion of decommissioning liabilities Reversal of fines and penalties provision Utilized during the year Reversal of other provision (Note 28) Provision as at 31 December 2021 4,502 – 132 (683) (18) (116) 3,817 31 December 2021 31 December 2020 3,685 132 – – 3,817 3,685 – 701 116 4,502 2020 188 4,386 – – – (72) 4,502 110 111 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 22. GOVERNMENT GRANTS In millions of tenge Government grants as at 1 January Received during the period Released to the statement of profit or loss Government grants as at 31 December Government grants current portion Government grants non-current portion 31 December 2021 31 December 2020 – 10,033 (2,108) 7,925 2,237 5,688 – – – – – – In 2021 the Government approved the changes to the Rules for the assignment of frequency bands, radio frequencies, operation of radio-electronic means and high-frequency devices (“the Rules”), based on which the Group is eligible for government grants in form of 90% reduction in the annual fee for use of radio frequencies from 1 January 2020 till 1 January 2025. The government grants are subject to conditions, namely financing of the projects related to broadband internet in rural and urban areas. If the financing of the projects related to broadband internet is lower than the amount of the tax incentive received, the Group should pay the annual fee equal for use of radio frequencies to the amount of unfulfilled obligations to the authorities. The funds released as a result of reduction in the annual fee for use of radio frequencies for 2020 and 2021 in the amount of 4,725 million tenge and 5,308 million tenge, respectively, were used by the Group for the purchase and construction of certain items of property and equipment (mainly base stations). Government grants related to assets are recognized as deferred income that is recognised in profit or loss on a systematic basis over the useful life of the asset. As of 31 December 2021 the balance of deferred income recognized was equal to 7,925 million tenge, and part of the government grants released to the profit and loss over the period necessary to match the related depreciation charges equal to 2,108 million tenge. As of 31 December 2021 there are no unfulfilled conditions or contingencies attached to these grants. 24. COST OF SALES In millions of tenge Cost of SIM-card, scratch card and handsets sales Depreciation and amortisation Interconnect fees and expenses Personnel costs Transmission services Repair and maintenance Fees for use of frequency range Electricity Network sharing agreement Mobile service tax Security and safety Materials Rent expenses Other 25. GENERAL AND ADMINISTRATIVE EXPENSES In millions of tenge Personnel costs Depreciation and amortisation Consulting services Taxes other than income tax Repair and maintenance 23. REVENUE FROM CONTRACTS WITH CUSTOMERS Write-down of inventories to net realizable value In millions of tenge Voice and other services Data service Sale of handsets Value added services Over time At a point of time 2021 78,060 67,970 39,027 9,024 194,081 155,054 39,027 194,081 2020 73,852 58,446 34,634 7,752 174,684 140,050 34,634 174,684 Business trips Representative expenses Trainings Security and safety Insurance Inventories Other 26. SELLING EXPENSES In millions of tenge Marketing and advertising Amortisation of cost to obtain a contract Commissions for dealers and cash collection Other 2021 32,963 26,078 18,231 11,274 10,245 8,163 6,931 3,777 2,829 2,169 350 219 45 2,593 125,867 2021 4,542 4,700 2,473 1,175 335 179 99 97 55 32 28 25 397 14,137 2021 2,426 285 192 203 3,106 2020 28,430 27,377 19,163 11,090 9,998 7,065 6,310 2,939 919 1,960 284 284 49 3,265 119,133 2020 3,633 3,425 430 898 405 654 55 104 12 108 26 45 631 10,426 2020 1,361 253 42 309 1,965 112 113 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 27. FINANCE COSTS / FINANCE INCOME 29. INCOME TAX EXPENSES (continued) In millions of tenge Finance costs Interest expense on loans and bonds Interest on lease liabilities (Note 16) Unwinding of discount (provision for decommissioning liability) (Note 20) Other Finance income Interest income on financial assets at amortised cost Interest income on cash balances and deposit Recognition of discount on long-term loans Penalty income from late payments for contract phones Unwinding of issued financial guarantee Other 2021 7,158 2,772 194 202 10,326 1,058 979 − 244 233 47 2,561 2020 8,386 3,150 138 79 11,753 1,072 817 148 − 29 234 2,300 28. OTHER OPERATING INCOME/OTHER OPERATING EXPENSES A reconciliation of income tax expenses applicable to profit before taxation at the statutory rate, with the current corporate income tax expenses for the years ended 31 December 2021 and 2020 is set out below: In millions of tenge Profit before taxation Income tax at statutory income tax rate of 20% Non-taxable income Non-deductible expenses Legal disputes expenses Impairment of construction-in-progress Change in unrecognised tax loss carry forward Recognition of tax loss carry forward Adjustments in respect of income tax of previous year Adjustments in respect of deferred income tax of previous year Total income tax expenses 2021 43,202 8,640 (436) 1,131 – – 1,530 (192) (1,053) 1,076 10,696 2020 24,622 4,924 (351) 328 877 997 − (234) 175 328 7,044 Non-taxable income is mainly represented by income from reversal of tax and related fines and penalties provision in the amount of 684 million tenge and interest income on NBRK notes in the amount of 1,058 million tenge. Non deductible expenses mainly represented by representative expenses, taxes at own expenses, and other expenses which are in accordance with Tax Code of the Republic of 2021 2020 Kazakhstan are non-deductible. In millions of tenge Other operating income Income from frequency fee sharing Income from accounts payable write-off Income from reversal of provisions (Note 21) Other Other operating expenses Frequency fee sharing expenses Loss on disposal of property and equipment Other 29. INCOME TAX EXPENSES In millions of tenge Current income tax expense Adjustments in respect of income tax of previous year Deferred income tax benefit 170 211 116 218 715 135 1,134 29 1,298 2021 (11,532) 1,053 (217) (10,696) 250 189 72 39 550 – 273 135 408 2020 (8,611) (175) 1,742 (7,044) The Group are subject to taxation in the Republic of Kazakhstan. Tax rate for the Group and its subsidiary was 20% in 2021 and 2020. Deferred tax assets and liabilities are presented in the consolidated statement of financial position as follows: In millions of tenge Deferred tax assets Expected credit losses Accrued bonuses to employees Tax loss carry forward Lease liabilities Provision for unused vacation Asset retirement obligation Deferred services Other Government grants Unrecognised deferred tax assets Deferred tax assets Deferred tax liabilities Property and equipment and intangible asset Other Deferred tax liabilities Deferred tax assets, net Consolidated statement of financial position Consolidated statement of comprehensive income 31 December 2021 31 December 2020 2021 2020 322 498 1,804 637 199 821 641 142 1,585 (1,530) 5,119 (3,351) (48) (3,399) 1,720 391 402 1,612 572 166 801 793 148 – – 4,885 (2,854) (94) (2,948) 1,937 (69) 96 192 65 33 20 (152) (6) 1,585 (1,530) 234 (497) 46 (451) 48 42 234 157 50 407 142 15 – – 1,095 536 111 647 Change in deferred tax assets/(liabilities), net (217) 1,742 The Group performs offsetting of tax assets and liabilities only if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred tax assets and deferred tax liabilities relating to income tax collected by the same taxation authority. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. In accordance with legislation of the Republic of Kazakhstan, tax losses may be deferred for 10 (ten) years from the date of their origination. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be utilised. During year ended 31 December 2021 the Group derecognised deferred tax assets related to tax loss carried forward in the amount of 1,530 million tenge. 114 115 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) As at 31 December 2021, the Group has not recognised deferred tax assets in relation to the temporary difference in the amount of 735 million tenge (as at 31 December 2020: 225 million tenge) related to investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not expect to reverse them in the foreseeable future. 30. RELATED PARTY DISCLOSURES (continued) Compensation to key management personnel 30. RELATED PARTY DISCLOSURES For the years ended 31 December 2021 and 2020, the total compensation to key management personnel included in the accompanying consolidated statement of comprehensive income under general and administrative expenses was 1,218 million tenge and 1,073 million tenge, respectively. Compensation to key management personnel consists of wages fixed in the employment agreement, as Parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can well as remuneration based on the performance for the year. exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group’s primary transactions with related parties are consulting services, technical assistance and operational support, transmission rent, roaming and interconnect. 31. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT OBJECTIVES AND PRINCIPLES The Group’s principal financial instruments include loans, bonds, lease liabilities, cash and cash equivalents, bank deposits and accounts receivable and accounts payable. The main risks associated with the Group’s financial instruments include currency and As at 31 December 2021, the Group recognized an allowance for expected credit losses in the amount of 143 million tenge in respect credit risk. In addition, the Group monitors market risk and liquidity risk associated with all financial instruments. of receivables from related parties (31 December 2020: 56 million tenge). Impairment losses on financial assets Parent is controlled by the Government of the Republic of Kazakhstan through Sovereign Wealth Fund “Samruk-Kazyna” JSC (“Samruk- Kazyna”) which owns 51% of Kazakhtelecom’s controlling shares (Note 1). Governmental entities include entities under common control and associates of the Government of the Republic of Kazakhstan. Impairment losses on financial assets for the year ended 31 December 2021 and 2020, comprise accruing reserve on expected credit losses for trade and other receivables in amount of 2,106 million tenge and 1,547 million tenge, respectively (Note 9, 12). Related party transactions were made on terms agreed between parties that may not necessarily be at market rate. Sales and purchases with related parties during 2021 and 2020, and the balances with related parties as at 31 December 2021 and 2020, were as follows: Interest rate risk In millions of tenge Sales of goods and services Entities of Samruk Kazyna group Entities of Kazakhtelecom group Government entities Purchases of goods and services Entities of Samruk Kazyna group Entities of Kazakhtelecom group Government entities Finance expense Other Shareholders In millions of tenge Trade receivables (Note 9) Entities of Samruk Kazyna group Entities of Kazakhtelecom group Government entities Trade payables (Note 17) Entities of Samruk Kazyna group Entities of Kazakhtelecom group Government entities Borrowings (Note 15) Other Shareholders Cash and deposit accounts Other Shareholders 2021 197 13,942 251 447 24,708 92 2020 210 12,351 1,244 445 19,723 77 Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. As at 31 December 2021 and 2020, the Group had no loans or borrowings with floating interest rates and was not subjected to the risk of changes in market interest rates. Foreign currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The majority of the Group’s purchases of property, plant and equipment and inventories, as well as certain services such as roaming are denominated in US dollars, the Group’s consolidated statement of financial position can be affected significantly by movement in the US dollar / tenge exchange rates. The following table demonstrates the sensitivity to a reasonably possible change in the exchange rates of US dollar to tenge, with all the variables held constant, of the Group’s profit before income tax (due to changes in the fair value of monetary assets and liabilities). 588 − There is no impact on the Group’s equity. In millions of tenge 2021 2020 31 December 2021 31 December 2020 36 3,155 47 3,238 14 3,050 38 3,102 39,871 11,010 43 1,100 45 1,188 62 1,018 14 1,094 − − Increase/ (decrease) in exchange rate Effect on profit before tax Increase/ (decrease) in exchange rate 13% -10% 1,997 (1,536) 14% -11% Effect on profit before tax 1,659 (1,303) US dollars Credit risk Credit risk is the risk that the Group will incur finance costs because its customers, clients or counterparties failed to discharge their contractual obligations. The Group is exposed to credit risk associated with its operating activities (primarily with respect to trade receivables) and financial activities, including bank deposits and financial organisations, foreign exchange transactions and other financial instruments. Trade receivables Financial instruments in which the Group’s credit risk is concentrated are primarily trade receivables. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. The credit risk associated with trade receivables is limited due to the large number of the Group’s customers and the continuous monitoring procedures for customers and other debtors. 116 117 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., by geographical region, product type, customer type and rating, and coverage by letters of credit or other forms of credit insurance). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than three years and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 9 and 12. The Group does not hold collateral as security. Financial instruments and cash deposits NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 31. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT OBJECTIVES AND PRINCIPLES (continued) Cash flow risk Cash flow risk is the risk that future cash flows associated with a monetary financial instrument will fluctuate in amount. Cash flows requirements are monitored on a regular basis and management provides for availability of sufficient funds required to fulfil any liabilities when they arise. The management of the Group believes that any possible fluctuations of future cash flows associated with a monetary financial instrument will not have material impact on the Group’s operations. In accordance with the financial policy, the Group places free cash in several of the largest Kazakhstani banks (with the highest credit ratings). To manage the credit risk associated with the placement of free cash in banks, the Group’s management periodically conducts procedures for assessing the solvency of banks. To facilitate such an assessment, deposits are primarily placed in banks, where the Capital management Group already has comparable credit obligations, a current checking account and can easily monitor the activities of such banks. The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios In millions of tenge Rating 2021 Rating 2020 Cash balance Balance on deposit accounts in order to support its business and maximise shareholder value. Citibank Kazakhstan JSC Jysan Bank JSC Credit Suisse (Schweiz) AG Halyk Bank Kazakhstan JSC Altyn Bank JSC Kaspi Bank JSC Bank of China Kazakhstan JSC SB Sberbank JSC Bank CenterCredit JSC Total Liquidity risk BB- B- A+ BB BBB- BB- BBB+ BBB- B+ BBB+ B- A+ BB BBB- BB- BBB+ BB+ B+ 2021 174 10 1,839 3,747 488 54 – 38 30 2020 2,886 2021 1 – 11,000 1,057 8,861 1,301 88 1 8 – – 14,017 20,000 – − – – – 2020 1 – – – 8,781 – − – 6,380 14,202 45,018 8,782 Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances. The Group monitors its risk of a shortage of funds using a liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g., accounts receivables, other financial assets) and projected cash flows from operations. The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. In millions of tenge On demand 1 to 3 months 3 months to 1 year From 1 to 5 years More than 5 years Total At 31 December 2021 Borrowings Financial guarantee obligation* Trade payables Lease liabilities Due to employees At 31 December 2020 Borrowings Financial guarantee obligation* Trade payables Lease liabilities Due to employees − − − − − − − − − − − − 1,669 798 35,705 1,815 4,347 15,609 4,164 − 59,320 9,624 − − − − 5,444 17,460 1,515 − − − 76,598 14,586 35,705 26,234 4,347 44,334 25,217 86,404 1,515 157,470 24,398 852 22,353 1,592 3,691 52,886 4,258 3,593 − 4,780 − 12,631 56,244 14,586 − 19,706 − − − − 3,597 − 84,900 19,031 22,353 29,675 3,691 90,536 3,597 159,650 *Based on the maximum amount that can be called for under the financial guarantee’s contract (Note 18). The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to the holders of common shares, return equity to shareholders or issue new shares. No changes were made by the Group in the capital management objectives, policies or processes in 2021 and 2020. Fair values The fair value of non-current financial assets is estimated using discounted cash flow based on deposit rates currently available to the Group with similar terms and average maturities. The fair value of non-current financial assets is estimated using discounted cash flow based on credit rates currently available to the Group with similar terms and average maturities. The table below presents fair value hierarchy of assets and liabilities of the Group. Disclosure of quantitative information of fair value hierarchy of financial instruments as at 31 December 2021 was as follow: In millions of tenge Date of valuation Price quotation on active market (Level 1) Significant observable in-puts (Level 2) Significant unobservable in-puts (Level 3) Total Assets for which fair values are disclosed Financial assets at amortized cost Short-term trade receivables Long-term trade receivables Other current financial assets 31 December 2021 31 December 2021 31 December 2021 31 December 2021 Liabilities for which fair values are disclosed Borrowings Trade payables Financial guarantee obligation Due to employees 31 December 2021 31 December 2021 31 December 2021 31 December 2021 − − − − − − − − − − − − − − − − − − 19,541 19,541 3,115 538 3,115 538 56,289 35,705 564 4,347 56,289 35,705 330 4,347 118 119 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT The table below presents fair value hierarchy of assets and liabilities of the Group. Disclosure of quantitative information of fair value hierarchy of financial instruments as at 31 December 2020 was as follow: In millions of tenge Date of valuation Price quotation on active market (Level 1) Significant observable in-puts (Level 2) Significant unobservable in-puts (Level 3) Total Assets for which fair values are disclosed Financial assets at amortized cost 31 December 2020 18,624 Short-term trade receivables Long-term trade receivables Other current financial assets 31 December 2020 31 December 2020 31 December 2020 Liabilities for which fair values are disclosed Borrowings Trade payables Financial guarantee obligation Due to employees 31 December 2020 31 December 2020 31 December 2020 31 December 2020 − − − − − − − − − − − − − − − − 17,823 2,504 245 18,624 17,823 2,504 245 72,692 22,353 563 3,691 72,692 22,353 563 3,691 31. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT OBJECTIVES AND PRINCIPLES (continued) Fair values (continued) As at 31 December 2021 and 2020, the carrying amounts of the Group’s financial assets and liabilities presented as follows: In millions of tenge Financial assets Carrying amount 31 December 2021 Fair value 31 December 2021 Unrecognised gain/(loss) Carrying amount 31 December 2020 Fair value 31 December 2020 Unrecognised gain/(loss) Cash and cash equivalents 51,402 51,402 Financial assets at amortized cost Short-term trade receivables Long-term trade receivables Other current financial assets Financial liabilities Borrowings Trade payables Due to employees Total unrecognised change in unrealised fair value − − 19,541 4,148 538 59,982 35,705 4,347 19,541 3,758 538 56,289 35,705 4,347 Valuation techniques and assumptions − − − (390) − 3,693 − − 3.303 23,023 18,923 17,823 2,421 245 73,287 22,353 3,691 23,023 18,624 17,823 2,504 245 72,692 22,353 3,691 − (299) − 83 − 595 − − 379 The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements. Assets for which fair value approximates carrying value For financial assets and financial liabilities that are liquid or having a short-term maturity (less than three months) it is assumed that their fair value approximates to the carrying amount. This assumption is also applied to demand deposits and savings accounts without a specific maturity. Financial liabilities carried at amortised cost The fair value of loans obtained is measured by discounting future cash flows using rates currently existing for outstanding amounts with similar terms, credit risk and maturity. 120 s e i t i v i t c a l i a c n a n fi m o r f g n s i r a s e i t i l i i b a i l n i s e g n a h C r e b m e c e D 1 3 t n u o c s D i 1 2 0 2 d e z i n g o c e r - l e c n a C f o n o i t a l s e s a e l s n o i t - a c fi d o M i n o i t a c i - fi s s a c e R l i d a p t s e r e t n I t s e r e t n I d e u r c c a i d a p e r l i a p c n i r P 9 9 6 , 1 1 5 8 1 , 5 1 4 4 9 , 4 − − − 3 8 2 , 8 4 ) 0 6 2 , 1 ( − − − 4 1 8 ) 3 5 1 , 5 ( − − − − − ) 0 0 0 , 1 1 ( − 0 1 6 ) 0 0 5 , 2 5 ( 0 0 0 , 1 1 ) 9 4 4 , 7 ( 8 4 5 , 6 ) 4 5 7 , 1 2 ( − − 7 7 ) 7 0 1 ( − 3 5 1 , 5 ) 2 7 7 , 2 ( 2 7 7 , 2 ) 1 2 3 , 4 ( − i d e n a t b o 0 0 5 , 2 6 3 3 9 , 9 4 − − − 4 5 3 , 3 2 7 4 4 , 9 1 9 1 2 , 4 1 1 1 , 0 8 ) 0 6 2 , 1 ( ) 7 0 1 ( 4 1 8 − ) 1 2 2 , 0 1 ( 0 3 9 , 9 ) 5 7 5 , 8 7 ( 7 7 0 0 5 , 2 6 3 5 9 , 6 9 n o i t r o p t n e r r u c - n o n t n e r r u c : s g n w o r r o B i n o i t r o p i : s g n w o r r o B e s a e l m r e t - g n o L s e i t i l i b a i l e s a e l m r e t - t r o h S s e i t i l i b a i l l a t o T s e s a e l w e N n a o L 1 2 0 2 y r a u n a J 1 e g n e t f o s n o i l l i m n I : s w o l l o f s a e r e w 1 2 0 2 r o f s e i t i v i t c a l i a c n a n fi m o r f g n s i r a s e i t i l i i b a i l n i s e g n a h C r e b m e c e D d e z i n g o c e r s e s a e l f o s n o i t n o i t a c 1 3 t n u o c s D i n o i t a l l e c n a C - a c fi d o M i i - fi s s a c e R l i d a p t s e r e t n I t s e r e t n I d e u r c c a i d a p e r l i a p c n i r P i d e n a t b o 0 2 0 2 s e s a e l w e N n a o L y r a u n a J 1 e g n e t f o s n o i l l i m n I : s w o l l o f s a e r e w 0 2 0 2 r o f s e i t i v i t c a l i a c n a n fi o t e u d s e i t i l i b a i l n i s e g n a h C NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 0 2 0 2 3 3 9 , 9 4 ) 8 4 1 ( 4 5 3 , 3 2 9 1 2 , 4 7 4 4 , 9 1 − − − − − − ) 1 8 2 ( 3 5 9 , 6 9 ) 8 4 1 ( ) 1 8 2 ( − − − 1 6 1 1 6 1 ) 7 3 3 , 1 2 ( − − ) 0 3 1 , 1 1 ( 7 3 3 , 1 2 ) 3 5 7 , 7 ( 6 8 3 , 8 ) 0 0 0 , 5 ( 1 7 3 , 4 ) 1 7 3 , 4 ( − − − ) 0 5 1 , 3 ( 0 5 1 , 3 ) 8 5 7 , 3 ( − − − 1 9 4 0 0 0 , 7 2 8 4 5 , 5 5 − − − 4 8 3 , 6 7 4 4 , 3 2 6 0 6 , 3 − ) 3 0 9 , 0 1 ( 6 3 5 , 1 1 ) 8 8 8 , 9 1 ( 1 9 4 0 0 0 , 7 2 5 8 9 , 8 8 s e i t i l i b a i l e s a e l m r e t - g n o L e s a e l m r e t - t r o h S n o i t r o p t n e r r u c - n o n t n e r r u c : s g n w o r r o B i n o i t r o p i : s g n w o r r o B s e i t i l i b a i l l a t o T 121 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORT 32. COMMITMENTS AND CONTINGENT LIABILITIES Operating environment interpretation of the relevant legislation is appropriate and that it is probable that the Group’s tax positions will be sustained, except as provided for or otherwise disclosed in these interim condensed consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Tax risks assessment Kazakhstan continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The In the beginning of 2020, the Group performed recalculation of the tax risk provisions recognized by the Group in previous years. Accordingly, for future stability of the Kazakhstan economy will largely depend on these reforms, as well as on the effectiveness of the Government’s actions the year ended 31 December 2020, the Group recognised reversal of provision on VAT and personal income tax in the amount of 257 million tenge in the area of economy, financial and monetary policy. Coronavirus pandemic and market conditions and 211 million tenge, respectively. In addition, for the year ended 31 December 2020, the Group recognised income from reversal of the tax and related fines and penalties provision in the amount of 216 million tenge recognised due to expiration of the limitation period. Also, for the year ended 31 December 2020 the Group recognized reserve on CIT expenses in the amount of 175 million tenge in the consolidated The coronavirus pandemic left its mark on 2020 and continues to have impact in 2021, requiring businesses to limit or suspend operations statement of comprehensive income. and implement restrictions. On 1 July 2021, Ministry of Healthcare performed PCR screening and the Delta strain of COVID-19 was found in all regions and cities of Nur-Sultan, Almaty, Shymkent. Thus, on 1 July 2021 chief state sanitary doctor of the Republic of Kazakhstan introduced new decree, which obliges Akims of regions, cities of Almaty, Nur-Sultan, Shymkent, NPP “Atameken” (as agreed), national companies, heads Government grant related to frequency fee of organisations, individuals and legal entities, regardless of the form of ownership, operating in the territory of the Republic of Kazakhstan to The shareholders of the Group Kazakhtelecom has submitted consolidated report on expenditures used to finance broadband projects access organize preventive vaccinations of employees with the first component by 10 August 2021 and with the second component of the COVID-19 to the Internet in urban and rural areas included capital and operational costs that are necessary for the provision of broadband Internet access by 1 September 2021 (except for those who have permanent medical contraindications and have recovered from COVID-19 during the last services in urban and rural settlements throughout the territory of the Republic of Kazakhstan. Management believes that there are no unfulfilled three months). Admission to full-time work of those organisations for unvaccinated employees is limited. conditions or contingencies attached to these grants. In November 2021 Omicron strain was first reported by World Health Organization (WHO) identified in from South Africa. Omicron multiplies In case if, based on the results of the audited information, the fact of non-fulfillment by the telecom operator of obligations to allocate at least around 70 times faster than previous strains, however less fatal. Omicron first was identified in Kazakhstan in the beginning of January 2022, released funds from the reduction of the corresponding fee rate to finance broadband Internet access projects in urban and rural areas is which lead to average daily COVID-19 cases to 10,000. The Government put additional restrictions to stem the spread of the virus. Currently, confirmed, the authorized body in the field of communications not earlier than one year after of the year following the reporting year, recalculates only those who have been vaccinated can enter public areas such as shopping malls, entertainment venues, and indoor sports facilities. the amount of the annual fee for the use of frequency fee for the reporting year, which should be proportional to the unfulfilled volume of financial The measures taken to contain the virus have adversely affected operations activity and disrupted many businesses resulting in significant economic downturn in the markets. As the outbreak continues to progress and evolve, it is extremely challenging to predict the full extent and duration of its impact on the Group’s businesses. Whilst the Group’s business model is more resilient than many others, it is not immune to the challenges. The Group is experiencing a direct impact on roaming revenues from lower international travel and also expect economic pressures to impact customer revenues over time. However, there is significant increases in data volumes and further improvements in loyalty, as customers place greater value on the quality, obligations for this reporting year. New technical regulations Order No. 91 of the Committee of the National Security dated 20 December 2016 on approval of the Technical Regulations General Requirements to the Telecommunication Equipment in Ensuring Conducting of Operative Search Measures, Collection and Storage of Subscribers’ Information was published on 7 February 2017 and came into force on 8 February 2018. According to the new regulations, there are additional requirements to the telecommunication equipment that include expansion of technical capabilities of equipment to conduct operative search speed and reliability of the Group’s networks. activities, collection and storage of subscribers’ information (hereinafter − “ORA”). The Group’s investments in the network infrastructure have paid off throughout the pandemic: networks were running stably even under As of 31 December 2021 the Group partially implemented modernisation and expansion of license and port capacity for the total amount of substantially higher loads. The Group fulfilled its responsibility as an employer by introducing comprehensive rules and protective and 4,390 million tenge. The Group plans to complete expansion in full in 2022 and expect that total amount of capital expenditures in respect to supportive measures to help employees work from home while continuing to safeguard service for customers in parallel. At sites and in modernisation and expansion will be equaled to 7,586 million tenge. stores, the Group rolled out strict hygiene and safety measures with the support of hygiene experts. Based on information available as at 31 December 2021, the management of the Group believes that there were no impairment indicators of its long-term assets. While it is impossible to quantify the long-term impact of the coronavirus pandemic, the Group expects to see appreciable effects on the economy as a whole, Customs inspection while on the other, the pandemic has given a boost to the digitalisation trend, which would contribute strengthen the role of the companies in On 13 September 2019, the Customs Control Department (“CCD”) of Almaty issued an order on initiation of custom audit in relation to the telecommunications and IT sector, and will give impetus to the development of technologies and communication networks. Group’s operation for the period 2014-2019. CCD examines the Group’s tax reporting documents for the purpose of the revealing of violations on Capital commitments incorrect determination of the customs value of goods and its incorrect classification. On 9 October 2019, CCD suspended the custom audit to allow the Group to prepare required documents. On 9 September 2020, the Group provided the entire package of documents requested by the CCD, which are currently being examined by the auditors of CCD. The ongoing custom audit is related to the revealing of violations of customs The Group generally enters into contracts for the completion of construction projects and purchase of equipment. As at 31 December 2021, regulations, incorrect determination of the customs value of goods, and if violations are identified, the Group may be brought to administrative the Group had contractual commitments totaling 21,016 million tenge, excluding VAT (as at 31 December 2020: 4,375 million tenge, excluding penalty and be liable to pay appropriate customs charges, including import VAT and late payment fees. On 15 October 2020 the Customs Control VAT), which includes capital expenditures in respect to new technical regulation in the amount of 7,586 million tenge (as of 31 December 2020: 3,490 million tenge) described below. Taxation Department issued the notice to postpone the customs inspection of the Group for an indefinite period. The Group estimated probability of the outflow of resources embodying economic benefits as probable and accrued provision on fines and penalties in the amount of 701 million tenge (Note 21). On 22 April 2021 the custom audit was resumed, and a preliminary report was issued. According to the report, the Group was charged additional Tax legislation and regulatory framework of the Republic of Kazakhstan are subject to constant changes and allow for different interpretations. VAT charge in the amount of 39 million tenge and late payment penalty in the amount of 18 million tenge. The preliminary report was reviewed by Instances of inconsistent opinions between local, regional and national tax authorities are not unusual. The current regime of penalties and the Group. interest related to reported and discovered violations of Kazakhstan’s tax laws are severe. Penalties are generally 80% of the taxes additionally assessed and interest is assessed at the refinancing rate established by the National Bank of the Republic of Kazakhstan multiplied by 1.25. On 29 April 2021 CCD sent a formal letter regarding the on-site customs audit performed and a notice of audit findings, instructing the Group to As a result, penalties and interest can amount to multiples of any assessed taxes. Fiscal periods remain open to review by the authorities in pay 57 million tenge and to amend the customs declarations. In pursuance of the notice, the Group paid additional tax charge and late payment respect of taxes for five calendar years preceding the year of review. penalty and amended the customs declarations. Because of the uncertainties associated with Kazakhstan’s tax system, the ultimate amount of taxes, penalties and interest, if any, may be in excess of the amount expensed to date and accrued at 31 December 2021. Management believes that as at 31 December 2021 its On 28 May 2021, the Group sent a letter to the customs authority informing about fulfillment of the requirements stated in the notice. During the year ended 31 December 2021 the Group reversed unutilized part of provision in the amount of 683 million tenge, respectively (Note 21). 122 123 REDUCING THE DIGITAL INEQUALITYREDUCING THE DIGITAL DIVIDESUSTAINABILITY REPORTCORPORATE GOVERNANCE REPORT FINANCIAL STATEMENTSSTRATEGIC REPORTContacts Kcell JSC 51 Alimzhanov str., Almaty 050004 Irina Martinez Investor Relations Manager Tel.: +7 701 211 12 02 

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