THE NEW
SPEEDS
OPPORTUNITIES
2022 ANNUAL REPORT
www.kcell.kz
Kcell JSC is one of the largest telecommunication
companies in Kazakhstan, providing customers
with a comprehensive range of mobile
communication services. As of the end of 2022,
the Company had a customer base of 7,986,000
customers. The Kcell cellular network covers
approximately 89.1% of the population
in Kazakhstan.
The Company operates under the brands Kcell
and activ, both renowned for their excellent
customer service and popularity. The Kcell
brand primarily caters to corporate customers,
including governmental agencies, while the activ
brand targets mass-market subscribers.
The Company places special emphasis
on the development of its own ecosystem
through the KCell SuperApp platform. In addition
to the standard cell phone services, the Kcell/
activ mobile application provides customers
with access to an e-commerce marketplace
and a range of digital services called OGO
Finance. These services include features such
as virtual payment cards, deposit placements,
and lending.
The Company’s strategy prioritizes
the introduction of innovative telecommunications
and digital technology solutions. In December
2022, the Company emerged as the winner
in the 5G spectrum auction in Kazakhstan. This
deployment of 5G networks will enable customers
to access cutting-edge information technologies,
including the “Internet of Things.”
In December 2022, Fitch Ratings reaffirmed Kcell
JSC’s Long-Term Issuer Default Rating at BB+ with
a Stable Outlook.
CONTENTS
04
CORPORATE GOVERNANCE...............46
Corporate Governance System���������������������������������������������48
Share Capital����������������������������������������������������������������������49
The Shareholders’ Rights�����������������������������������������������������49
Disclosures�������������������������������������������������������������������������50
Payment of Dividends�����������������������������������������������������������50
Corporate Bodies����������������������������������������������������������������50
General Meeting of Shareholders������������������������������������������51
Board of Directors����������������������������������������������������������������52
Committees of the Board of Directors�����������������������������������56
Management Board�������������������������������������������������������������58
Information of Remunerations�����������������������������������������������61
Anti-Corruption��������������������������������������������������������������������61
Conflict of Interest Management�������������������������������������������61
Related Party Transactions���������������������������������������������������62
Procurement Practices���������������������������������������������������������62
Internal Audit����������������������������������������������������������������������63
External Audit...................................................................... 63
05
RISK MANAGEMENT....................... 64
Risk Management System���������������������������������������������������66
Classification of the Key Risks the Company is Exposed to�����66
06
HR MANAGEMENT........................... 68
HR Policy and Labor Practices�����������������������������������������������70
Personnel Structure and Headcount��������������������������������������70
Labor Remuneration, Staff Evaluation and Incentives��������������74
Employee Social Protection��������������������������������������������������75
Personnel Training���������������������������������������������������������������76
Health and Safety����������������������������������������������������������������77
07
ENVIRONMENTAL
AND SOCIAL RESPONSIBILITY.......................78
Environmental Policy............................................................ 80
Ensuring Customers’ Security�����������������������������������������������81
Social Responsibility and Charity�������������������������������������������82
Appendix 1. Audited Consolidated Financial Statements
for 2022.............................................................................. 86
Appendix 2. Report of the Compliance with the Code
of Corporate Governance.....................................................151
Glossary...........................................................................155
Contacts
The Company’s Profile��������������������������������������������������������������������1
Key indicators������������������������������������������������������������������������������2
Key milestones, Jnauary-December 2022��������������������������������������3
Comment by the Chairpman of the Board of Directors����������������������4
Comment byby the Chairman of the Management Board�����������������6
01
ABOUT THE COMPANY................. 8
General�������������������������������������������������������������������������������10
History of the Company��������������������������������������������������������12
Geographic Reach���������������������������������������������������������������16
02
CORPORATE STRATEGY................... 18
Mission and Vision of the Role in the Industry�������������������������20
Our Corporate Values and Priorities���������������������������������������21
Business Model of the Company�������������������������������������������22
Development Strategy����������������������������������������������������������24
Introduction of 5G����������������������������������������������������������������26
03
MANAGEMENT’S STATEMENT
OF PERFORMANCE.........................................28
Macroeconomic Situation����������������������������������������������������30
Situation in the Telecommunications Industry�������������������������32
Operating Activities of the Company�������������������������������������36
Financial Performance���������������������������������������������������������43
THE NEW
SPEEDS
OPPORTUNITIES
Please scan
the QR code
to obtain a link
to additional
information
2
3
KEY MILESTONES,
JANUARY – DECEMBER
KEY INDICATORS
60,174
50,485
90,848
82,340
55,221
43,202
40,350
32,506
EBITDA
Net profit
Profit before taxes
Operating profit
PROFIT PERFORMANCE
in million Tenge, for the period
2020
2021
2022
34%
27.7%
23.3%
CHURN RATE
year on year
Investments
in intangible assets
Investments
in fixed assets
41,551
38,052
12,659
13,604
28,892
24,448
Aggregate capital
expenditures (CAPEX)
INVESTMENTS AND CAPITAL EXPENDITURES
in million Tenge, for the period
2020
2021
2022
621.0
453.5
75.1%
76.9%
79.7%
722.3
Mobile data consumption for the period, in petabytes
Data consumed by LTE customers
MOBILE DATA
Voice and other services
Data services
Sale of mobile devices
Value-added services
State subsidies
88,872
78,059
78,174
67,971
45,310
39,027
6,646
9,024
2,230
2,108
INCOME FROM CORE ACTIVITIES IN 2022
in million Tenge, for the period
2020
2021
2022
1,457
1,614
1,649
AVERAGE MONTHLY REVENUE PER USER (ARPU)
in Tenge, per month
41.1%
42.0%
18.2%
16.6%
29.1%
33.1%
14.8%
13.6%
EBITDA
margin
Return on equity
(ROE)
Return on assets
(ROA)
Return on sales
(ROS)
PROFITABILITY RATIOS
2020
2021
2022
7,961
8,055
7,986
Number of subscribers as of the end of the period, in thousand
Share of prepaid subscribers
Share of subscribers using bundled offers
62.3%
87.7%
68.6%
87.7%
73.1%
87.1%
CUSTOMER BASE
2022
2021
2022
2021
2022
2021
2022
2021
• In response
to the widespread
disturbances,
the government has
declared a state
of emergency. Recognizing
its duty to the community,
the Company has
established operational
headquarters to facilitate
prompt decision-making,
ensuring uninterrupted
communication services
for its subscribers
and supporting
the government.
• The “Exchange for Gigs’s”
service has been launched,
enabling subscribers
to increase their monthly
data allowance by utilizing
their unused minutes
and SMS.
• The special promotion
“Walk for Gigs” has been
introduced for the TOP
tariff users allowing them
to earn extra data.
• The new CPA platform
has been implemented
to facilitate efficient
interaction with content
service providers.
• Fitch Ratings reaffirmed
Kcell JSC’s Long-Term
Issuer Default Rating
at BB+ with a Stable
Outlook.
• Kcell JSC, in collaboration
with Mobile Telecom-
Service LLP, emerged as
the winning consortium
in the 5G spectrum
auction.
• The second phase
of implementing
the Nexign Converged BSS
billing system has been
successfully completed.
• The initial phase
of implementing
the Nexign Converged BSS
billing system has been
successfully completed.
December
May
February
January
4
5
ABOUT THE COMPANY
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
COMMENT
BY THE CHAIRMAN OF THE BOARD
OF DIRECTORS
Dear partners, colleagues and customers,
Kcell JSC has reviewed the results of 2022 and is pleased
to present its latest Annual Report to you. We have made
every effort to comprehensively cover the main aspects
of our Company’s activities in this report, to the fullest
extent possible and in the most reliable manner.
The reporting year proved to be quite challenging
for the entire economy of Kazakhstan. Local businesses
faced a number of difficulties – starting with the tragic
events in January, followed by a series of external
economic shocks resulting from the sanctions-related
confrontation between neighboring Russia and Western
countries. Nevertheless, our Company gracefully handled
all the challenges and showcased outstanding financial
and operational performance.
The Company’s income from core activities grew by 12.8%
year on year, surpassing 219 billion Tenge. Additionally,
our return on sales increased from 16.7% in 2021 to 18.2%
in 2022. Our net profit surged from 32.5 to 40.4 billion
Tenge, and earnings per share saw a growth of 24.1%.
The stability of our market position and the continuous
growth in income are a result of strategic goal
setting and prioritization. Our Company is focused
on comprehensive development, maintaining a balance
between the interests of the state, owners, investors,
and customers. We strive to stay up-to-date with the latest
communication and information technologies, setting
trends in the industry.
In 2022, Kcell successfully completed the implementation
of the unified billing system called Nexign Converged
Business Support System. This enabled the Company
to modernize its business processes significantly.
The advanced solution offered by Nexign allowed
us to integrate all customer segments, regardless
of their billing models, into a single digital platform.
The introduction of Nexign has enabled the Company
to reduce operating expenses and increase revenues
through more flexible billing. The system also facilitates
the launch of new tariff plans and innovative digital
products, including those related to the Internet of Things.
Kcell has been actively developing its own digital
ecosystem,
with
the
mobile
platform
operating
in the SuperApp format as its core component. Our
mobile “super application” has become the primary
digital customer service channel, reaching an all-time
high of 2,048,216 unique monthly active users (MAU).
One of the key objectives of our ecosystem rollout is
the development of our own e-commerce marketplace
integrated into the mobile application. The growing sales
volumes are a testament to the successful achievement
of this goal. For instance, sales of contract phones
increased by 3.8 times in 2022 compared to the previous
year.
Another rapidly growing business line is OGO Finance,
a range of financial services launched by Kcell JSC in July
2021 in collaboration with First Heartland Jusan Bank
JSC and the international payment system MasterCard.
OGO Finance (OGO Bank) consists of the virtual payment
card OGO Card, the OGO Deposit, and the collateral-free
loan OGO Credit. All these products are accessible through
our mobile application. The popularity of the OGO Bank
line is evident from the 23% increase in revenue compared
to the previous year.
The corporate business segment also experienced
significant progress in the reporting year. The Company
successfully implemented 14 projects, including those
at mining facilities operated by NAC Kazatomprom JSC,
KAZ Minerals Aktogay LLP, and the Eurasian Group.
In 2022, we also secured a contract for building a private
corporate LTE network for Bakyrchik Mining Venture LLP.
At Kcell, we are not solely driven by commercial interests. As
one of the largest telcos in Kazakhstan, we fully recognize
our responsibility to the state and the community. Therefore,
from 2020 to 2022, Kcell has actively participated
in the “250+” project aimed at providing mobile broadband
access to the internet in rural areas. Over the course
of three years, the Company has successfully built over
one thousand base stations in remote localities with 250+
population. As a result, more than one and a half million
residents of remote areas gained access to modern mobile
communication services.
Finally, we consider the Company’s winning the 5G
auction, in consortium with Mobile Telecom-Service LLP,
to be the most significant event. The deployment of our
5G networks will strengthen our position in the mobile
communication service market, granting our customers
access
to
cutting-edge
mobile
communication
technologies. Residents of Almaty, Astana, and Shymkent
will have the opportunity to experience the benefits of 5G
networks in 2023, while citizens of all other regional centers
will have access by 2027.
In conclusion, I would like to emphasize that all our
successes have been made possible through cooperation
with our valued partners and customers. I express my
heartfelt gratitude for your role in our achievements. I
am confident that our fruitful cooperation will enable us
to achieve even greater things in the future.
Sincerely yours,
Alexey Buyanov
Chairman of Kcell JSC Board of Directors
6
7
ABOUT THE COMPANY
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
ADDRESS BY THE CHAIRMAN
OF THE MANAGEMENT BOARD
Dear Report readers,
Last year, our country faced numerous economic
challenges; however, our Company has been able
to successfully navigated through them. Once again,
Kcell has demonstrated its strong market standing
and ability to confront major challenges without
compromising financial stability. The excellent financial
and operating indicators achieved in 2022 are a testament
to the Company’s well-chosen strategic priorities.
Aggregate revenues grew by 12.8%, and revenues from
services increased by 12% compared to the previous year.
Kcell continues to expand its steady and dynamically
developing digital ecosystem. In 2022, we implemented
a best value offer strategy in Mobile Financial Services. Our
loyalty program, OGO Bonus, and Kazakhstan’s first full-
fledged “neobank”, OGO Bank, showed a 23% increase
in revenues compared to the previous year. We take great
pride in this socially important project as it provides equal
access to modern financial instruments for every segment
of the population.
By the end of the year, the number of users of our strategic
digital sales and service channel, SuperApp Kcell, reached
a record high of 2,048,216 unique users. We aspire for our
super application to become the prime example of a digital
ecosystem created in the Republic of Kazakhstan.
Our primary focus has been on the development
of e-commerce. The integration of an online shop into
the super application, coupled with its own scoring system,
has resulted in a 178% increase in the sales of contract
phones. Our team aims to achieve an ambitious goal
of creating one of the most advanced online stores with
an intuitive and user-friendly interface.
We understand our responsibilities to the community
and
recognize
the
need
for
high-quality
mobile
communication services and seamless internet access.
During our two-year participation in the “250+” nationwide
project, we have built over one thousand base stations
in remote areas, providing more than one and a half
million
rural
citizens
with
state-of-the-art
mobile
communication services. This has positioned our country
as one of the global leaders in internet connectivity.
According to the UK analytical agency cable.co.uk, 96%
of the population in Kazakhstan, exceeding that of many
CIS and foreign countries, now have access to mobile
internet. The Company plans to develop a mobile
broadband network in rural areas under its own program
for 2023-2024.
Thanks to increased revenues and efficient cost
optimization measures, our EBITDA grew by 10.3%
compared to the previous year. The free cash flow
amounted to 28,278 million Tenge in 2022. These funds
will be utilized to further develop our network across
the country and invest in infrastructure and technological
improvements.
One of the most significant events of the past year was
our success in the 5G frequency spectrum auction held
by the regulatory body. This achievement will allow Kcell
to participate in the large-scale project aimed at the digital
transformation of Kazakhstan and further strengthening
our market position.
In recent years, we have expanded our expertise
to successfully introduce 5G technology. Kcell is the first
operator in Kazakhstan to build a full-fledged 5th
generation network in the tourist center of Turkestan.
By 2023, residents of Almaty, Astana, and Shymkent will be
able to enjoy the advantages of 5G, and by 2027, residents
of all regional centers will have access to it.
In 2022, we also introduced Nexign Converged BSS,
a convergent billing platform. As the 5G network
continues
to
develop,
new
technology-intensive
products and services, including those in the “smart
devices” segment, will become available in Kazakhstan.
The scalable architecture of the convergent billing
system ensures business growth while reducing capital
expenditures. This new billing system will also enable
us to reduce time to market and implement flexible
marketing strategies, providing competitive advantages
for the Company.
We have achieved significant milestones in the corporate
business segment as well. We successfully launched
14 projects at the facilities of KAZ Minerals Aktogay,
Kazatomprom, and the ERG Group. Additionally, we
were awarded a contract to supply pLTE to the facilities
of the Polymetal Bakyrchik open pit.
I would like to express my gratitude to our customers
for giving us the opportunity to create high-quality
and reliable digital products that help them achieve their
daily and business objectives. We remain committed
to implementing our strategy, which focuses on maintaining
Kcell’s leadership position in every business area. We will
continue to make every effort for the Company to contribute
significantly to the development and sustainability of our
entire community.
With the kindest regards,
Askhat Uzbekov
Chairman of Kcell JSC Management Board
01
0
GENERAL
10
HISTORY OF THE COMPANY
12
GEOGRAPHIC REACH
16
The new speeds opportunities
ABOUT THE COMPANY
10
11
GENERAL
Kcell JSC is one of the largest telecommunications
companies in Kazakhstan, offering various services
including mobile communication services such as voice
calls and mobile internet access. It operates as a subsidiary
of Kazakhtelecom JSC, the national telecommunications
service provider, which holds a majority stake of 51%
in the Company.
The Company provides the following services to its
customers:
• Mobile voice communication services, including
short text messaging (SMS);
• Data services and wireless internet access;
• Value-added services (VAS), such as mobile content
access and ecosystem services.
As
of
2022,
Kcell
JSC
held
a
20.9%
share
in the telecommunications services market in Kazakhstan.
The Company’s customer base reached 7,986,000
subscribers, accounting for 31.8% of the total mobile
communication subscribers in the country.
Kcell operates under two popular brands, Kcell and activ,
known for their high-quality customer service. The Kcell
brand primarily targets corporate customers, including
governmental agencies, while the activ brand focuses
on the mass market subscribers.
One of Kcell’s competitive advantages lies in its advanced
digital ecosystem, centered around the Kcell/activ mobile
application. This application allows customers not only
to manage their products and services but also provides
access to an online shop and “virtual bank” – the OGO
Bank line of financial services, including virtual payment
card processing, deposits, and loans.
Kcell
owns
KazNet
Media
LLP,
its
wholly-owned
branch organization. KazNet Media LLP is engaged
in various activities, including website management,
search engine databases, internet access provision
through telecommunications infrastructure operators,
computer systems programming, consulting services,
information services, web portals, advertising/marketing
services, and other related activities permitted by law
and the Founders Agreement.
In December 2022, Fitch Ratings affirmed Kcell JSC’s
Long-Term Issuer Default Rating at BB+ with a Stable
Outlook.
HISTORY OF THE COMPANY
The history of Kcell JSC dates back to the late 1990s when
the Company was initially named GSM Kazakhstan OAO
Kazakhtelecom
LLP
(GSM
Kazakhstan
LLP).
GSM
Kazakhstan LLP was registered on June 1, 1998, with
the objective of designing, creating, and operating
a GSM cellular communications network in the Republic
of Kazakhstan. In 1998, Kcell JSC became the first
Kazakhstani company to be licensed for providing GSM
mobile communication services.
Until 2012, GSM Kazakhstan LLP had the following
participants: Fintur Holdings B.V. (a joint venture
of TeliaSonera Finland Oyj and Turkcell Illetisim Hizmetleri
incorporated in the Netherlands) and Kazakhtelecom
OJSC (renamed Kazakhtelecom JSC in 2004). Fintur
Holdings B.V. held a 51% stake, and Kazakhtelecom JSC
held a 49% stake. On February 2, 2012, Kazakhtelecom
JSC sold its share to Sonera Holding B.V., a subsidiary
of the Finnish company TeliaSonera (which changed its
name to Telia Company in 2017).
On
August
27,
2012,
the
Company
underwent
a reorganization and transformed into a joint-stock
company, adopting the name Kcell JSC. In December
2012, the Company offered 50 million shares (equivalent
to 25% of its Share Capital) in the form of global
depository receipts at the London Stock Exchange
and ordinary shares at the Kazakhstan Stock Exchange.
Ultimately, the key shareholders, Fintur Holdings B.V.
and Sonera Holding B.V., held participatory interests
of 51% and 24%, respectively.
In January 2018, Freedom Finance JSC announced
the consolidation of a 10.46% stake in Kcell JSC,
becoming one of the major participants in the Company.
On December 21, 2018, Kazakhtelecom JSC acquired Kcell
JSC from Telia Company and Fintur Holdings B.V., thereby
obtaining a 75% stake in the Company’s share capital.
KEY EVENTS
IN THE COMPANY’S HISTORY
1998
June 1 – Establishment
of GSM Kazakhstan OAO
Kazakhtelecom LLP;
June 8 – The Company
acquired a perpetual state
license to offer GSM mobile
communication services.
2012
February 2 –
The transaction for the sale
of Sonera Holding B.V.’s
participatory interest
to Kazakhtelecom JSC was
completed;
August 27 – The Company
underwent reorganization
and became a joint stock
company, changing its
name to Kcell JSC;
November 29 – The ordinary
shares of Kcell JSC were
listed on KASE;
December 13 – The listing
of global depository
receipts was finalized
on LSE.
2008
August 26 –
The Company’s license
was revised and amended
to include the right
to operate a GSM-1800
network.
2003
September 18 –
The Company became
the first mobile
communications
provider in the Republic
of Kazakhstan to grant
access to the Internet from
mobile devices;
September –
The multimedia messaging
service (MMS) was
launched.
2015
February – The rebranding
of the trademark activ was
completed;
March – The first activ brand
outlet was opened in Almaty.
2016
January 5 – The Company
was authorized to use
additional frequencies
within the range
of 700/800 MHz to 1800
MHz to enhance
communications within
the country and prepare
for the launch of its 4G
and LTE services (which
were launched in the same
year).
2021
June 14 – The delisting
of the global depository
receipts was completed
at LSE and AIX;
July – The line of financial
services OGO Bank was
launched in collaboration
with First Heartland
Jusan Bank JSC
and the international
payment system
MasterCard;
September 30 –
Kazakhtelecom JSC sold
24% of the shares in Kcell
JSC through KASE.
2022
January 5 – The operational
headquarters was
created during the state
of emergency declared
due to mass disturbances,
aiming to ensure timely
decision-making,
provide uninterrupted
communications
to subscribers, and assist
the government;
February 25 – The first
phase of implementing
the Nexign Converged
BSS billing system was
completed;
December 12 – Fitch
Ratings affirmed Kcell
JSC’s Long-Term Issuer
Default Rating at BB+ with
a Stable Outlook;
December 16 – Kcell JSC,
in consortium with Mobile
Telecom-Service LLP,
emerged as the winner
in an auction for the use
of 5G networks;
December – The second
phase of implementing
the Nexign Converged
BSS billing system was
completed.
2019
January 10 – Freedom
Finance JSC announced
the consolidation
of 10.46% of the shares
in Kcell JSC, becoming one
of the major stakeholders
in the Company.
2020
During the pandemic, 3,500
healthcare professionals
were provided with free
voice communications
and internet traffic;
Subscribers were granted
free access to over 400
distance learning websites
and 27 mobile applications
for online banking;
April 16 – The installation
project for SIMcomats
(self-service terminals) was
launched. These terminals
use biometric identification
when customers purchase
new or replacement SIM
cards, top up their phones,
and install eSIMs on their
devices.
2017
March 1 – The LTE network
was launched in Kazakhstan;
June – The 4G+ (LTE
Advanced) network
was launched in Almaty
and Shymkent;
November 1 –
The international rating
agency Fitch assigned
the Company a Long-Term
Issuer Default Rating of BB
with a Stable Outlook.
2018
January 16 – The Company
issued bonds for an amount
of 4.95 billion Tenge, which
were placed on KASE;
December 21 –
Kazakhtelecom JSC
acquired shareholdings
in Kcell JSC from
Telia Company
and Fintur Holdings B.V.,
thereby obtaining 75%
of the outstanding shares
in the Company.
2015
2016
2017
2018
2019
2020
2021
2022
1998
1999
2003
2005
2008
2010
2012
2014
1999
February 7 – The Kcell brand
was launched;
September 9 – The activ brand
was launched.
2005
September 13 –
The Company became
the first operator
in Kazakhstan to provide
the GPRS roaming
service.
2010
December 1 –
The commercial
operation of the 3G
network commenced
in the cities
of Astana and Almaty.
2014
April 15 – Kcell JSC
became an official
distributor of iPhones
in Kazakhstan;
September – The start
of a large-scale rebranding
campaign for the activ
trademark;
November 16 – The Kcell/
activ mobile application was
launched;
According to the annual
results, the Company
became the leader among
non-financial companies
in Kazakhstan in terms
of taxes paid.
COVERAGE MAP
Kcell coverage map, as of January 1, 2023
2G
3G
4G
5G
Petropavlovsk
Kyzylorda
Satpaev
Arkalyk
Atbasar
Kostanai
Kokshetau
Shchuchinsk
Stepnogorsk
Astana
Temirtau
Abai
Taraz
Karatau
Zhanatas
Arys
Shymkent
Saryagash
Zhetysu
Rudnyi
Lisakovsk
Zhezkazgan
Turkestan
Uralsk
Aksay
Aktobe
Alga
Khromtau
Shubarkuduk
Inderborsky stl
Makhambet village
Dossor
Kulsary
Ganyushkino village
Aktau
Atyrau
Fort Shevchenko
Munaishy stl
Zhanaozen
Beyneu village
Shalkar
Aralsk
Kazalinsk
Ekibastuz
Pavlodar
Aksu
Karagandy
Karkaralinsk
Semey
Ust-Kamenogorsk
New Bukhtarma stl
Ayagoz
Zaisan
Aktogay
Beskol village
Balkhash
Dostyk
Tekeli
Usharal
Kegen village
Chundzha village
Chilik
Almaty
Kapchagay
Otar
Alga village
Kandyagash
of the nation
had access to the Company’s LTE network
68.1%
of Kazakhstan’s population lived in areas and
localities
covered by the Company’s 3G network
89.1%
16
17
Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
ABOUT THE COMPANY
ABOUT THE COMPANY
Additionally, the Company conducts retail trade through its
partner network, which includes a total of 91 sales outlets
GEOGRAPHIC REACH
The services of Kcell JSC are available in every region of Kazakhstan. As of the end of 2022, there were a total of 20 cusotmer service
centers and 16 Kcell/activ stores operating in the country. At these branded stores, customers can purchase Kcell and activ SIM cards,
as well as smartphones, laptops, tablets, and other smart devices on favorable terms.
91
36
ALMATY
8 12
TALDYKORGAN
1
2
URALSK
1
2
ATYRAU
2
6
AKTAU
2
3
ZHANAOZEN
1
0
AKTOBE
2
2
KYZYLORDA
1
4
KOSTANAI
1
5
ASTANA
4
3
PETROPAVLOVSK
1
9
KOKSHETAU
1
2
PAVLODAR
1
5
SHYMKENT
3
4
TURKESTAN
2
2
TARAZ
1
6
KARAGANDY
2 14
SEMEY
1 24
UST-KAMENOGORSK
1
4
11
outlets
Activ Dealer
Store
41
outlets
branded retail
outlets
4
electronics
stores
29
outlets
Activ shop
6
outlets
Shop In Shop
ADS
AS
CUSTOMER SERVICE CENTERS/ STORES
PARTNERS
02
0
MISSION AND VISION OF THE ROLE IN THE INDUSTRY
20
OUR CORPORATE VALUES AND PRIORITIES
21
BUSINESS MODEL OF THE COMPANY
22
DEVELOPMENT STRATEGY
24
INTRODUCTION OF 5G
26
The new speeds opportunities
CORPORATE
STRATEGY
20
21
OUR CORPORATE VALUES
AND PRIORITIES
We believe our mission is to provide
every person in Kazakhstan with access
to cutting-edge information technologies
and telecommunication solutions.
We strive to become a world-class
company and to retain and strengthen our
position as Kazakhstan’s leading mobile
communications provider, introducing
trendsetting technologies for the benefit
of our customers.
MISSION
VISION
01
02
03
04
05
SAFEGUARDING
INVESTORS’
INTERESTS
The Company strives to be an attractive investment vehicle for a broad group
of shareholders. Our goal is to ensure long-term, steady growth in the value
of shareholders’ investments. We promptly and transparently inform our
shareholders and the market of any significant events that may affect the share price
of the Company.
ENVIRONMENT
REDUCING DIGITAL
INEQUALITY
Kcell JSC aims to reduce digital inequality through the development of infrastructure
and services that are readily available in the domestic market. Our services
contribute to economic growth and development, directly or indirectly creating jobs
and making a financial contribution to the society in which we operate.
The Company strives to create a business model that fully appreciates the necessity
of protecting the environment. We contribute to global sustainability through
the development, promotion, and use of resource-saving technologies, and we aim
to minimize the impact of our activities on the environment.
BUILDING
THE STRONGEST
TEAM
CUSTOMER
CONFIDENCE
The Company strives to build trust with existing and prospective customers and aims
to become their number one choice. Our goal is to provide high-quality and safe
services that offer the best value for money and contribute to the success of our
customers.
Our employees are key to the Company’s success. We strive to be an attractive
employer, attracting purpose-driven individuals to join our team and creating
conditions for their professional growth.
04
03
02
01
05
Priority
Priority
Priority
Priority
Priority
MISSION AND VISION
OF THE ROLE
IN THE INDUSTRY
22
23
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.
PEOPLE
Kcell consistently attracts
talented professionals, provides
favorable working conditions,
and prioritizes employee
development and retention. As
one of the leading employers
in Kazakhstan, Kcell offers
a positive and motivating work
environment, emphasizes
the well-being of employees
and their families, and offers
career growth opportunities
and financial prospects. This
makes Kcell an appealing choice
for both young and experienced
professionals.
NETWORK
Kcell has been actively expanding
its infrastructure to deliver
high-quality services throughout
Kazakhstan. The Company
operates one of the most
technologically advanced
and state-of-the-art mobile
networks in the country, holding
perpetual licenses for 2G, 3G,
and 4G/LTE frequencies. Notably,
Kcell secured the top position
in an auction for radio frequencies
dedicated to the development
of 5G technology in Kazakhstan,
making it one of the significant
achievements in 2022.
TECHNOLOGIES
Kcell boasts Kazakhstan’s
largest digital ecosystem,
providing a distinct competitive
advantage and enabling a wide
range of additional services. Our
customers enjoy access to mobile
financial services, mobile TV,
digital movies, music, books,
magazines, and many other
useful offerings. Moreover, we
take pride in developing unique
business solutions tailored to our
corporate clients.
BRANDS
The Kcell and activ brands are
widely recognized and trusted
in Kazakhstan. For nearly
a quarter of a century, we have
consistently delivered top-quality
mobile communication services,
earning the loyalty of our
customers.
GAINS
We ensure a steady revenue
growth through the introduction
of innovative tariffs and a diverse
product lineup. Year after year,
our services continue to offer
increasing benefits and enjoy
growing popularity among our
customers.
FOR CUSTOMERS
The Company prioritizes providing
telecommunication services
of the highest quality. We are
continuously striving to improve
and expand our range of services,
ensuring that our Kcell and activ
subscribers have a positive
customer experience.
FOR SHAREHOLDERS
The Company is committed
to fulfilling its obligations
and ensuring sustainable long-
term value for its shareholders.
This includes implementing
a transparent Dividend Policy.
FOR EMPLOYEES
There are over 2,500 employees
working at the Company. They
are paid competitive salaries
and receive comprehensive
compensation packages.
WE HAVE
SUCCESSFULLY
BEEN ADVANCING
THE DIGITAL
TRANSFORMATION
OF OUR COMPANY
by embracing innovative
solutions that shape
the future. Our growth
can be attributed to our
competitive brands,
unwavering commitment
to service quality, diverse
product offerings,
and the dedicated efforts
of our team.
Resources
Values We Create
Operating Model
1
PEOPLE
NETWORK
BRANDS
HIGH-TECH
PRODUCTS AND
SERVICES
7,986
million customers
90.8
billion Tenge
37%
eNPS
01
02
03
2
3
4
CUSTOMER-FOCUSED
SOLUTIONS
+
THE BEST VALUE
FOR MONEY
As of December 31, 2022, our
customer base comprised
Employees Net
Promoter Score
EBITDA in 2022
24
25
CORPORATE STRATEGY
Management’s Statement of Performance / Corporate Governance / Corporate Governance / Risk Management / Environmental and Social Responsibility
CORPORATE STRATEGY
About the Company
DEVELOPMENT STRATEGY
Kcell JSC’s long-term Development Strategy was approved
in 2021. The Strategy aims to position the Company as
a fully digital operator with a diverse portfolio of products
and services by 2026.
The guiding principle of the Kcell JSC Development Strategy is to prioritize the interests and needs of its three key stakeholders:
customers, employees, and shareholders.
GOALS AND OBJECTIVES
GOALS
OBJECTIVES
01
ATTRACTING AND RETAINING
RELIABLE CUSTOMERS
• Products that meet the needs of the target customer groups;
• Enrichment and bundling (bundled offerings) of relevant digital
services into products based on customer needs;
• Leadership in providing a wide range of products, including
mobile devices;
• New areas of focus;
• Advanced perception of network quality.
02
UNDERSTANDING AND MEETING
THE NEEDS OF CUSTOMERS
• Customer base utilizing current tariff plans and products;
• Proactive development of the subscriber base and customer
behavior patterns through Customer Value Management
(CVM);
• Online support for all key customer journeys and transactions.
03
UNLOCKING THE B2B POTENTIAL
• Affiliate products customized to meet the needs of business
customers, including personalized services;
• Easy-to-use products tailored to the needs of small
and medium-sized businesses.
04
IMPROVEMENT IN OPERATING
PERFORMANCE
• Improved employee performance;
• Optimal cost structure and level;
• Highly intuitive automated processes.
05
THE BEST EMPLOYER FOR EMPLOYEES
• Decision-making institution based on flexible interaction
practices and a higher level of employee empowerment;
• Ambitious and achievable business goals for each focus
area and subdivision through quarterly planning;
• Cross-functional teams effectively collaborating with each
other in critical focus areas;
• The leading employer for telecom talents in the market.
Stakeholders
Ways to safeguard interests
Desired outcome
• Maintaining constant communication
with customers and understanding
their needs helps in developing
the mobile service.
• The introduction of digital user
experience tools and investments
in network development contribute
to an increase in the customer Net
Promoter Score (cNPS).
• A significant improvement
in the quality and range of services,
as well as the overall customer
experience for Kcell/activ
subscribers.
Customers
• Engagement of top-tier employees
through programs aimed
at reorienting engineering personnel
to IT and offering highly competitive
salaries.
• Kcell strives to increase
the employees’ Net Promoter
Score (eNPS) and build the most
exceptional team in the market.
• Increased employee engagement
and satisfaction.
• Development of employees’ subject
matter expertise in cutting-edge
technologies such as AI, IoT, DevOps,
etc.
• Every member of the Kcell
team exhibits professionalism
and dedication to the Company’s
objectives.
EMPLOYEES
• Substantial increase in income.
• Potential measurement
of shareholder value at the “digital
player” level.
• Creation of maximum value
for the shareholders.
SHAREHOLDERS
26
27
5G is directly relevant
to the development of the “smart”
city concept, as the mMTC scenario
enables the connection of millions
of “smart” sensors to control
transportation flows, monitor
municipal infrastructure, and assess
the quality of air, water, and more.
As immersive technologies
(i.e., virtual and augmented
reality technologies) become
more intuitive and user-friendly,
entire economic clusters will
transition to the metaverse. 5G is
the primary catalyst for the growth
of immersive technologies, as they
not only require high data transfer
rates but also minimal latency.
According to Huawei’s forecasts,
the augmented reality market could
reach $300 billion by 2025, driven
by growth in the education, gaming,
and social media sectors.
The Industry 4.0 concept suggests
the development of “smart”
production based on the automation
of business processes
and the widespread adoption
of trendsetting technologies such as
artificial intelligence, IoT, and additive
manufacturing. This concept
requires the connection of hundreds
of thousands of self-contained
devices to monitor and analyze
manufacturing processes, as well
as automate various tasks. Wired
networks are not capable of rapidly
scaling the “smart” devices, while
Wi-Fi networks fail to meet coverage,
reliability, and safety requirements.
Consequently, when implementing
their “smart” operating processes,
manufacturing companies prefer
private LTE (pLTE) networks.
Currently, 5G technologies are
being utilized by private networks.
According to McKinsey estimates,
Industry 4.0 has the potential to,
by 2030, increase the global GDP
by $400 billion to $600 billion
through the use of 5G technology.
FWA (Fixed Wireless Access)
based on 4G technology is already
an alternative option to fiber optic
communication lines in locations,
where building a conventional
“wired” infrastructure would be
too expensive or technically
complicated. With the introduction
of 5G, FWA becomes a fully-fledged
competitor to fiber optic lines.
FWA based on 5G offers faster
deployment and a shorter pay-off
period, as it eliminates the need
for trenching or cabling.
According to forecasts by ABI
Research, the FWA market capacity
is expected to reach 70 billion dollars
by 2026, with a total of 180 million
subscribers. Among them, 40% will
be utilizing 5G technology.
INTRODUCTION OF 5G
The global number of 5G network subscribers grew
by 89.5% in 2022, from 619 million at the start of the year
to 1.2 billion users at the end of the year. The 5G network
customer base currently represents 10.7% of the total
number of mobile network users worldwide. By the end
of 2023, it is estimated that the number of 5G subscribers
will reach 1.8 billion, accounting for 16% of the total mobile
network users. Additionally, it is expected that by 2026,
over 75% of smartphones will support 5G technology.
5G is the fifth generation of mobile technology, offering
higher data transfer rates, more reliable connections,
and reduced power consumption compared to previous
network generations. It provides significantly faster
and more reliable performance than the popular 4G
networks,
potentially
revolutionizing
how
we
use
the Internet, run applications, and engage with social
media platforms.
In December 2021, the Company launched its pilot 5G
network in Turkestan, Kazakhstan. Nine base stations were
installed at strategically important facilities and tourist
sites in the city, including the City Akimat, Congress Hall,
Turkestan Arena stadium, bus station, Farab Central
Library, Youth Palace, and others. This marked the first-ever
deployment of the next generation network in Kazakhstan,
covering the cultural and administrative center of the city.
Test measurements demonstrated data transfer rates of up
to 1,400 Mbit per second. Any Kcell/activ subscriber with
a 5G-enabled smartphone can connect to the network
without incurring data charges.
An auction for radio frequencies to develop 5G technology
in Kazakhstan took place on December 22 and 23, 2022.
Companies that met the requirements set by the Radio
Frequency
Assignment
Procedure
participated
in the auction. The winners would be responsible
for the introduction and development of fifth-generation
mobile communications (5G/IMT-2020) in cities with
national status and regional centers.
On December 22, the consortium of Mobile Telecom
Service LLP and Kcell JSC secured the first lot (3,600 –
3,700 MHz). On December 23, Lot 2 for the range of 3,700
– 3,800 MHz was auctioned, and the consortium won again.
The total value of the frequencies exceeded 156 billion
Tenge.
As per the auction terms and conditions, the winners
committed to deploying a 5G network in Kazakhstan.
The consortium plans to install 728 5G base stations
in Astana, Almaty, and Shymkent within the first year,
and subsequently, 1,568 base stations annually in regional
centers and cities with national status over the next four
years. By 2027, the operators aim to launch over 7,000
base stations, achieving 75% coverage in cities with
national status and 60% coverage in regional centers.
In the first year, the Company aims to build about 400 5G
base stations in major cities across Kazakhstan. Currently,
around 15% of devices in the country support 5G technology.
Considering the average useful life of smartphones to be
2-3 years, it is projected that the percentage of 5G devices
will increase to 30-40% by 2024 and reach approximately
65% by 2027.
PROMISING FOCUS AREAS FOR KCELL’S BUSINESS DEVELOPMENT EFFORTS
WIRELESS
RESIDENTIAL
INTERNET ACCESS
VIRTUAL
AND AUGMENTED
REALITY
TECHNOLOGIES
“SMART” CITIES
“INDUSTRY 4.0”
03
0
MACROECONOMIC SITUATION
30
SITUATION IN THE TELECOMMUNICATIONS INDUSTRY
32
OPERATING ACTIVITIES OF THE COMPANY
36
FINANCIAL PERFORMANCE
43
The new speeds opportunities
MANAGEMENT’S
STATEMENT
OF PERFORMANCE
30
31
MANAGEMENT’S STATEMENT OF PERFORMANCE
Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
MANAGEMENT’S STATEMENT OF PERFORMANCE
About the Company / Corporate Strategy
MACROECONOMIC SITUATION
In 2022, Kazakhstan’s nominal GDP increased
by 24.9% compared to the previous year, reaching
101.5 trillion Tenge. However, this growth in GDP was
primarily driven by accelerated inflationary pressures
and rising oil prices amidst international geopolitical
tensions. As a result, the actual growth rate declined
from 4.0% to 3.2%.
The highest growth rates were observed
in the agriculture sector (+9.1%), construction sector
(+9.4%), and the “Information and Communications”
sector (+8.0%). However, the overall output
of the mining industry decreased by 1.0% in real
terms.
The cost of industrial products manufactured
by Kazakhstani enterprises in 2022 reached
48.01 trillion Tenge, which represents a 29.6%
increase compared to 2021. However, the growth
in production volumes experienced a decrease
of 2.4 percentage points in real terms compared
to the previous year, resulting in a total growth rate
of 1.4%.
This slowdown in manufacturing output growth
can be attributed to the decline in subsoil resource
production volumes, including crude oil (-1.9%),
natural gas (-1%), coal (-0.7%), and iron ores
(-20.6%).
Kazakhstan’s external surplus increased
from $24.2 billion to $36.4 billion, primarily
due to a significant growth in exports. Export
volumes grew by $20.3 billion, while import
volumes increased by $8.9 billion. The positive
impact on the trade balance was primarily driven
by favorable pricing conditions in the global
hydrocarbon market.
In 2022, the average monthly nominal salary
increased by 59.2 thousand Tenge compared
to the previous year, reaching 308.0 thousand
Tenge. Furthermore, the average salary growth
rate also significantly rose in real terms. In 2021,
it was 17.0% compared to the previous year, but
according to the results of 2022, the average
salary growth rate increased to 23.8%.
In 2022, there was a significant acceleration
in inflationary developments. According
to the results from January to December,
the Consumer Price Index (CPI) reached 115%
compared to the same period of the previous year,
marking the highest level in the 14-year period.
Additionally, the prices of foodstuffs increased
by 19.0%, non-food goods by 14.0%, and paid
services by 10.3%.
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Source: NB of the RoK.
DYNAMICS OF GDP
INDUSTRIAL PRODUCTION VOLUME
FOREIGN MERCHANDISE TRADE
in $ billion, for the period
AVERAGE MONTHLY SALARY
CONSUMER GOODS AND SERVICES PRICE INDEX
in %, YoY
2020
2021
2022
81.27
70.13
97.4%
104%
103.2%
101.50
GDP, in trillion Tenge
GDP Quantum Index, in YoY
2020
2021
2022
37.5
26.74
99.3%
103.8%
101.4%
48.1
Industrial products output, in trillion Tenge
Industrial output Quantum Index, in YoY
Exports
Imports
Balance of Trade
86.1
65.8
44.1
49.8
41.6
38.1
36.4
24.2
6.0
2020
2021
2022
2020
2021
2022
248.8
212.6
114.6%
117%
123.8%
308
Average monthly nominal salary, in thousand Tenge
Real wage index, in % of the previous year
2022
2021
2020
115
108
106.8
119
110.8 110.4
114
106.9
105.5
110.3
105.5
103.3
Goods
and services
Foodstuffs
Nonfood
goods
Paid
services
32
33
MANAGEMENT’S STATEMENT OF PERFORMANCE
Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
MANAGEMENT’S STATEMENT OF PERFORMANCE
About the Company / Corporate Strategy
SITUATION
IN THE TELECOMMUNICATIONS
INDUSTRY
Global Information and Telecommunication Technology
Development Trends
According
to
estimates
by
the
International
Telecommunication Union (ITU), by late 2022, the total
number of active mobile subscribers exceeded 6.9
billion worldwide, while the number of fixed Broadband
Internet Access (BBA) subscribers approached 1.4 billion.
Of the global population of 8.01 billion, nearly 5.3 billion
individuals were Internet users, and there were over 4.8
billion mobile phone owners worldwide. As of the end
of 2022, more than 7.7 billion people resided within
the coverage area of mobile communications networks.
Concurrently, there has been a consistent trend of declining
demand for fixed telephony over the past decade:
the number of wired telephone channels decreased from
1.25 billion in 2009 to 861.6 million in 2022.
GLOBAL POPULATION’S ACCESS TO TELECOMMUNICATIONS NETWORKS AND TECHNOLOGIES
IN MILLION, AS OF THE END OF THE YEAR
Particulars
2020
2021
2022
Number of fixed telephone channels
888.8
877.6
861.6
Number of subscribers to fixed BBA
1,223.6
1,322.0
1,398.6
Number of mobile communication subscribers/numbers
8,233.4
8,390.8
8,585.7
Number of active mobile communication subscribers/numbers
6,064.6
6,459.4
6,908.9
Population coverage with the mobile communications networks /number of individuals
7,577.0
7,653.1
7,735.7
Population coverage with the mobile communications networks of the 3G level or higher/ number
of individuals
7,248.5
7,367.9
7,531.6
Number of individuals – Internet users
4 663.6
4,944.5
5,282.4
Number of individuals owning mobile phones
4,486.3
4,622.8
4,814.0
Source: ITU.
Access to telecommunications networks and technologies
for individuals is largely dependent on the income level
of the countries in which they reside. Additionally, while
there is a significant difference in indicators describing
the availability of mobile communications (up to 1.5-
2 times), the situation around internet access is markedly
different. In countries categorized as low-income
by the World Bank (with an income below $1,085 per
capita per year), the average number of Internet users per
100 individuals is 26.4, whereas in high-income countries
(with an income of $13,205 or more per capita per year)
this figure is 92.4. The disparity between the poorest
and wealthiest countries is evident in the number
of fixed telephone channels (1.0 versus 33.7) and fixed
BBA subscribers (0.5 versus 37.8) per 100 people.
According to the World Bank’s methodology, Kazakhstan is
classified as a country with an income level above
the average (ranging from $4,256 to $13,205 per capita).
The figures relating to the availability and usage of mobile
communication
networks
in
Kazakhstan
align
with
the average level typically found in high-income countries.
At the same time, the provision of landline telephone
networks in Kazakhstan slightly exceeds the average
level seen in countries with above-average income, while
the coverage of BBA in Kazakhstan is significantly lower
than the average figure in this group of countries.
ACCESS TO TELECOMMUNICATION TECHNOLOGIES IN COUNTRIES DEPENDING
ON THEIR INCOME LEVEL PER CAPITA
number per 100 persons
Worldwide mean
Low-income
countries
Lower-middle-
income countries
Higher-middle-
income countries
High-income
countries
Kazakhstan (as
of the end
of 2021*)
Number of fixed telephone channels
10.8
1.0
3.3
13.1
33.7
15.5
Number of fixed BBA subscribers
17.6
0.5
4.4
30.7
37.8
14.3
Number of mobile communication subscribers
108.0
61.1
100.7
123.9
125.1
127.5
Population coverage with the mobile communications
networks
97.3
88.9
97.4
98.5
99.8
98.2
Population covaerage with the mobile communications
networks of the 3G or higher level
94.8
75.2
94.9
98.1
99.7
96.0
Number of individuals – Internet users
66.3
26.4
56.1
79.1
92.4
90.9
Number of individuals owning mobile phones
72.7
49.1
65.5
76.3
95.4
92.6
Source: ITU.
*At the time of preparing this Annual Report, the latest figures on Kazakhstan available in the ITU database are dated 2021.
According to the information from ITU, in 2021, only 24%
of countries disregarded the implementation of advanced
telecommunications technologies while pursuing their
national
telecommunication
development
policies.
Simultaneously, based on their national strategies
and policies, 19% of countries focused on the development
of 5G/6G networks, 12% on the Internet of Things, 8.7%
on artificial intelligence, and 7.7% on other promising
technologies.
In 2022, the Institute for Statistical Studies and Economics
of Knowledge (ISSEK) at the Higher School of Economics
in Moscow published the results of a research aimed
at
assessing
the
priority
of
telecommunications
technologies. According to their findings, the ISSEK
identified the most promising technologies, including 5G
mobile networks, cloud services, the Internet of Things
(IoT), quantum communications, satellite communications,
and more.
KAZAKHSTAN’S TELECOMMUNICATION INDUSTRY
2022
2021
2020
252.3
278.4
255.6
53.2
45.6
54.4
48
53.4
56.4
278.6
257.4
223.4
474.31
406.5
336.9
Mobile
communications
Internet access
Data transfer
Landline
telephone
Other services
According to the 2022 results, the contribution
of industries classified as “Information
and Communications” under the CCEA of the Republic
of Kazakhstan (section J) to the nominal GDP
was 2.1%. The total volume of services provided
by communications enterprises exceeded 1.1 trillion
Tenge (excluding courier and postal services).
The growth in this figure was mainly due to an increase
in the volume of services related to wired and wireless
Internet access. However, there was a decline
in the volume of landline and mobile telephone
services, which could be attributed to the increasing
popularity of video and audio communication through
Internet messengers and other specialized software.
Source: BNS ASP&R of the RoK.
THE COST OF COMMUNICATION SERVICES PROVIDED
in billion Tenge, for the period
34
35
MANAGEMENT’S STATEMENT OF PERFORMANCE
Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
MANAGEMENT’S STATEMENT OF PERFORMANCE
About the Company / Corporate Strategy
98.2%
55%
96%
32%
83.5%
5.8%
Territory
Population
4G network
3G network
Mobile communications
networks
As of the end of 2021 (the most recent available
data), the mobile communications networks
covered 55.0% of Kazakhstan’s territory
and 98.2% of its population. However, the 4G
coverage was noticeably lower, reaching 83.5%
of the population and 5.8% of the territory. Due
to the increasing demand for advanced mobile
technologies, such as IoT, and the implementation
of stimulating state policies, it is expected that
the population coverage with higher-speed
networks, including 5G, will expand in the coming
years.
POPULATION AND TERRITORY COVERED BY BY MOBILE COMMUNICATIONS NETWORK
as of the end of 2021
As the demand for landline telephony has
been declining, the number of fixed telephone
channels is gradually decreasing, and there
has been a halt in the growth of subscribers
to fixed Internet services via xDSL (i.e., through
an ordinary telephone line). However, there
has been a successive increase in the number
of connections via fiber optic communication lines
(FOCL). It is likely that FOCL will replace xDSL
connections in the near future.
NUMBER OF LANDLINE TELEPHONY AND FIXED WIRED
ACCESS SUBSCRIBERS
in million, as of the end of the period
24.30
17.82
24.48
18.01
25.12
17.18
2020
2021
2022
Number of mobile BBA subscribers
Number of mobile communications subscribers
As of the end of 2022, the combined customer
base of the three mobile communications
providers operating in Kazakhstan was 25.12
million subscribers (i.e., active SIM cards).
The number of mobile communications
subscribers significantly surpasses the country’s
population, as many Kazakhstanis utilize
multiple mobile numbers. However, the number
of mobile broadband access (BBA) subscribers
is considerably lower than the number of mobile
communications subscribers. This is primarily
due to limitations in the mobile network coverage
in rural areas.
NUMBER OF MOBILE COMMUNICATIONS AND MOBILE BROADBAND ACCESS (BBA) SUBSCRIBERS
in million, as of the end of the period
2022
2021
2020
Mobile communications
Internet access
(including wireless access)
Data transfer via wired
and wireless networks
Local telephony
services
Long-distance
and international telephony
Communications services, total
-16.5
7.1
5.7
7.4
-5.0
-2.1
-4.4
-2.4
-16.6
-10.1
-19.6
-1.4
18.6
17.3
15.4
10.9
6.4
8
The real growth in the volume of communication
services in recent years has exceeded that of other
industries. In 2021, the QI for communication
services was 110.9%, while the GDP QI was
103.6%. According to the 2022 results,
the communication service QI was 108.0%. It is
worth noting that the increase in the overall volume
of rendered communication services in real
terms was mainly driven by the growing demand
for Internet access, while the demand for other
services gradually declined.
QI WITH A BREAKDOWN BY TYPES OF COMMUNICATION
in %, YoY
140.9
89.7
128.6
144
178.9
158.8
2020
2021
2022
New fixed assets commissioned, in billion Tenge
Investments in fixed capital, in billion Tenge
New fixed assets commissioned,
in% of the aggregate volume for all the industries
Investments in fixed capital,
in % of the aggregate figure for the entire economy
1.3%
1.4%
1.7%
1.1%
1.0%
1.2%
Investments in fixed capital in the industries
classified as “Information and Communications”
grew by 39.1% in 2022 compared to the previous
year, and the value of commissioned fixed
assets increased by 10.3%. The significant
growth in investment volumes can be largely
attributed to the need for technological renewal
of communication networks and the rapid adoption
of digital technologies in business processes.
INVESTMENTS IN FIXED CAPITAL OF THE ENTERPRISES CLASSIFIED AS “INFORMATION
AND COMMUNICATIONS”
2020
2021
2022
19.0
188
23.6
210.4
23.1
291.9
Costs towards creation and purchase
of computer software and databases, in billion Tenge
Costs towards information, computer
and telecommunications hardware, in billion Tenge
Costs towards hardware and software,
in % of aggregate investments
1.7%
1.8%
2.1%
Source: BNS ASP&R of the RoK.
The costs incurred by Kazakhstani enterprises
to purchase computers, telecommunication
equipment, and software have been increasing
significantly in recent years. According to the 2022
results, this indicator grew for the economy
compared to 2021, both in absolute terms (from
234.0 to 315.0 billion Tenge) and in relative
terms (from 1.8% to 2.1% of the total volume
of investments in fixed capital).
COSTS INCURRED BY ENTERPRISES TO INTRODUCE
INFORMATION AND DIGITAL TECHNOLOGIES
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Source: BNS ASP&R of the RoK.
Number of fixed telephone channels
Number of fixed Internet access subscribers
Number of subscribers connected to the Internet via digital lines
Number of subscribers connected to the Internet via FOCL
2020
2021
2022
2.98 2.75
1.02 1.39
3.092.62
1.02 1.30
2.84 2.89
36
37
MANAGEMENT’S STATEMENT OF PERFORMANCE
Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
MANAGEMENT’S STATEMENT OF PERFORMANCE
About the Company / Corporate Strategy
2020
2021
2022
34.1%
27.7%
23.3%
The churn rate decreased from 34.1% in 2020
to 23.1% in 2022. This downward trend indicates that
the Company’s subscriber base is becoming more
stable, and the customer Net Promoter Score has been
increasing.
CHURN RATE
in annual terms
2020
2021
2022
1,457
1,614
1,649
The average monthly revenue per customer increased
from 1,614 Tenge in 2021 to 1,649 Tenge in 2022. This
growth can be attributed to the increasing demand from
customers for mobile communications services, as well as
the Company’s efforts to meet that demand.
AVERAGE MONTHLY REVENUE PER USER (ARPU)
in Tenge per month
Source: BNS ASP&R
of the RoK, Kcell, VEON Ltd.
In late 2022, the customer base of Kcell JSC
consisted of 8.0 million subscribers (i.e., active
SIM cards), accounting for 31.8% of the total
number of mobile communications subscribers
in Kazakhstan. The subscriber shares of Mobile
Telecom-Service LLP and Kar-Tel LLP were 26.0%
and 42.2%, respectively. It is anticipated that
the Company’s subscriber base will continue to grow
in the medium term, both in absolute and relative
terms, as the 5G network is deployed in Kazakhstan.
DISTRIBUTION OF MOBILE COMMUNICATIONS SUBSCRIBERS
AMONG SERVICE PROVIDERS IN KAZAKHSTAN
as of the end of the period
2020
2021
2022
8,055
62.3%
68.6%
73.1%
7,986
7,961
Number of subscribers as of the end of the period, in thousand
Percentage of subscribers using the advance payment method
Percentage of subscribers using bundled tariffs
87.7%
87.7%
87.1%
From 2020 to 2022, the Company’s customer
base reached approximately 8 million subscribers.
According to the 2022 data, the customer base
increased by 25 thousand subscribers, reaching
a total of 7 million 986 thousand subscribers.
The number of prepaid subscribers decreased
from 6 million 978 thousand to 6 million 953
thousand, accounting for 87.1% of the total
number of subscribers, down from 87.7%.
Conversely, the percentage of subscribers using
bundled tariffs grew from 68.6% to 73.1%.
CUSTOMER BASE OF THE COMPANY
2020
2021
2022
18.9%
21.3%
59.8%
18.8%
23.3%
57.9%
20.9%
26.5%
52.6%
Kar-Tel LLP
Other companies
Kcell JSC
Kcell JSC’s share of the telecommunications
industry’s revenue increased from 18.8% in 2021
to 20.9% in 2022. The share of the Company’s main
competitor, Kar-Tel LLP, operating under the Beeline
Kazakhstan brand, also rose from 23.3% to 26.5%.
Meanwhile, Kazakhtelecom JSC, the parent company
of Kcell JSC and another mobile communications
provider, Mobile Telecom-Service LLP, holds a market
share of over 55%.
MARKET SHARES OF KCELL JSC AND ITS MAIN COMPETITOR
as of the end of the period
MARKET SHARE
KEY OPERATING INDICATORS
The average monthly voice traffic per subscriber
(MOU) decreased from 230 to 192 minutes. The main
cause of the decrease was the industry-wide trend
related to the displacement of traditional mobile audio
communications by internet-based communications,
including audio and video calls through internet
messengers.
AVERAGE MONTHLY VOICE TRAFFIC PER SUBSCRIBER (MOU)
in minutes per month
2020
2021
2022
210
230
192
In 2022, the volume of mobile data traffic reached a record
level for the Company of 722.3 PBytes. This represents
a 16.3% increase compared to 2021 and a significant
59.3% increase compared to 2020. The surge in mobile
data traffic can be attributed to the growing demand from
customers for Internet access, as digital technologies play
an increasingly critical role in all aspects of life of society.
MOBILE DATA
2020
2021
2022
621.0
453.5
75.1%
76.9%
79.7%
722.3
Mobile Internet traffic for the period, in PBytes
Percentage of the traffic via the LTE networks
2020
2021
2022
33.1%
27.7%
39.1%
32.5%
26.9%
40.6%
31.8%
26.0%
42.2%
Mobile Telecom-Service LLP
Kar-Tel LLP
Kcell JSC
Source: BNS ASP&R
of the RoK, Kcell, VEON Ltd.
Operating Activities of the Company
38
39
INTRODUCTION OF THE UNIFIED
BILLING SYSTEM – NEXIGN
CONVERGED BSS
In
December
2022,
Kcell
successfully
completed
the implementation of the unified billing system, Nexign
Converged Business Support System (BSS), which
has enabled the Company to significantly modernize its
business processes. Nexign’s advanced solution allowed
for the integration of all customer segments, regardless
of the billing method, into a single digital platform.
During the implementation process, over 140 existing tariff
plans and approximately one thousand product offerings
available to both B2B and B2C customers were migrated
to the new platform.
The Nexign Converged BSS billing platform offers a number
of advantages and opportunities for the Company,
including:
• Reduced total cost of ownership for the billing
system;
• Increased consistency in the functioning of all
services;
• Faster time to market;
• Improved quality of customer services;
• Reduced workload on call centers and sales offices;
• Additional opportunities to monetize various types
of services.
CHANGES IN THE TARIFF POLICY
The Company’s tariff policy underwent significant changes
in 2022 due to two main factors:
• The expiration of the three-year moratorium
on revision of the tariff terms set by Order #170-
OD of the Committee for Regulation of Natural
Monopolies, Protection of Competition and Consumer
Rights under the Ministry of National Economy
of the Republic of Kazakhstan, dated July 10, 2018,
“On approval of economic concentration at the request
of Kazakhtelecom Joint Stock Company”;
• The implementation of the Nexign Converged BSS
billing system, which enabled the integration of the activ
and Kcell subscriber bases, previously serviced
by different billing systems, into a single platform.
The launch of the Nexign Converged BSS platform allowed
the Company to streamline its product portfolio and simplify
its product line. Outdated and obsolete tariffs and services
were discontinued, resulting in a reduction in the number
of tariff offerings from 153 to 80, and the number of valie-
added services from 23 to 6.
Kcell and activ subscribers now have access to new
opportunities, including:
• “Early tariff restart” which allows customers
to restart their tariffs before the end of the billing cycle;
• “Exchange for Gigs” - an opportunity to convert
unused minutes and SMS from their monthly allowance
to data and vice versa at the exchange rate of 10
minutes = 50 SMS = 1 GB;
• The ability to switch tariffs at any time without losing
their unused allowances remaining from the previous
tariff;
• Unlimited allowances (unlimited use of social
media platforms, messengers, Kaznet), even when they
run out of their monthly data allowance.
In May 2022, plans offered as part of the starter packs
were reviewed as well, resulting in a reduction from 66 to 1
plan (the “Reactiv 3290” tariff). This simplified the product
portfolio and led to an increase in ARPU among new
subscribers. The migration of starter packages to the new
billing platform was completed in November 2022.
The new TOP tariff line was launched in late May 2022
to address the current market needs and standards.
In December, it was strengthened with a special offer
whereby customers using the TOP tariffs were offered twice
as much data allowance for the same price if they restarted
their tariffs before the end of the current billing cycle.
On December 15, the “Walk for Gigs” special offer was
introduced with a view to promote a healthy lifestyle
and physical activity among young individuals. Customers
get the opportunity to earn up to 6 GB of free data a month
based on the number of steps they have walked.
In 2022, the Kcell team set a goal to introduce the new
CPA billing platform to facilitate customer migration
to the new Nexign billing system and implement features
for managing OTT and VAS services.
During the reporting year, the Company launched a new
system for managing digital products and integrated it
with the new billing platform. This successful integration
allowed for the launch of 8 new digital products.
The ARPU for OTT customers rose by 15% vs. the previous
year. The key growth driver was the customers’ growing
awareness of the product.
MOBILE FINANCIAL SERVICES
Performance results in the Mobile Financial Services
segment were promising in 2022. The Mobile Financial
Services (MFS) focus area continued to work towards
its objectives outlined in the Company’s 2020 strategy.
The strategy prioritizes the development of OGO Bank’s
financial services and aims to increase the participation
of Kcell/activ subscribers in MFS usage, with a focus
on improving customer Net Promoter Score (cNPS)
and encouraging MultiPlay (utilizing multiple services
provided by the company).
Throughout the reporting year, MFS turnover experienced
significant
growth,
increasing
by
42%
compared
to the previous year, reaching 51 billion Tenge. The active
monthly user base of MFS also saw substantial growth,
expanding by 20% from 237 thousand users in 2021
to nearly 280 thousand users in 2022.
Additionally, notable developments took place, such as
the introduction of the balance replenishment service
and the feature enabling users to store their bank card
details in the MasterPass wallet. Furthermore, the list
of business development partners was extended to include
the national postal operator, KazPost JSC.
In
2022,
Kcell
JSC
became
the
sole
operator
in Kazakhstan to offer its customers the ability to make
payments for content available in Google Play Market,
AppStore, and Huawei AppGallery using the DCB
(Direct Carrier Billing) technology. The monthly volume
of payments made by subscribers using their prepaid
mobile balance exceeded 200 million Tenge, which was
twice the amount compared to 2021.
2020
2021
2022
2020
2021
2022
1,642
861
1,997
REVENUES IN THE MFS SEGMENT
in million Tenge, for the period
2020
2021
2022
2020
2021
2022
36
18
51
VOLUME OF PAYMENTS
in billion Tenge for the period
2020
2021
2022
2020
2021
2022
18.2
9.8
23.2
NUMBER OF TRANSACTIONS
in million transactions for the period
2020
2021
2022
2020
2021
2022
237
226
279
ACTIVE USERS
in thousand subscribers as of the end of the period
40
41
MAIN FOCUS AREAS IN THE BUSINESS SEGMENT
In 2022, the Company identified the following priority focus
areas in the business segment:
• Integrated support for the digital transformation
of major manufacturing enterprises operating in the oil
and gas, as well as mining industries;
• Diversification of the service portfolio through the launch
of IoT products under projects aimed at creating “smart
cities” and digitizing major industrial enterprises;
• Development of the product portfolio related to Big
Data processing, including loan scoring and assignment
of credit ratings based on subscribers’ activities, as well as
targeted marketing campaigns.
The migration to the Nexign Converged BSS billing platform
allowed for the discontinuation of 42 outdated tariff plans
in the business segment without any adverse effects
on the Company and its corporate customers’ business
processes. Additionally, the introduction of the new
platform reduced the time to market for conventional
telecommunications products by threefold and simplified
service launching processes based on the M2M/IoT
technologies through resource consolidation.
Aggregate revenues in the business segment grew by 11.6%
in 2022 compared to the previous year, with revenues from
conventional
telecommunications
services
increasing
by 19.0%. The M2M segment experienced an 11.0% growth
in the subscriber base and a remarkable 49.0% increase
in revenues. The high-tech segment saw the most significant
revenue growth (53.9%) from the sale of products related
to Big Data processing.
In 2022, the Company successfully implemented 14 projects
at major industrial enterprises, including the creation of private
LTE networks. Existing private networks were also expanded
and modernized, with a total coverage area increase of 18%.
During the reporting year, the Company embarked on several
infrastructure projects utilizing IoT and M2M technologies
in collaboration with government agencies. These projects
aimed to establish “smart cities” and implement industrial IoT
systems in major industrial enterprises. The projects involved
the introduction of advanced digital technologies, including:
• the launch of e-ticketing and “smart” lighting systems
in several cities;
• the implementation of centralized monitoring systems
using portable protected cameras;
• the installation of “smart” meters in manufacturing
premises.
DEVELOPMENT OF MOBILE NETWORKS
IN RURAL AREAS
Kcell JSC has been working intensely to reduce the digital
divide between urban and rural populations. The Company
is a key participant in the “250+” program, which was
adopted in 2020 by mobile communications providers
in Kazakhstan. The goal of the program is to provide mobile
broadband access to rural communities with a population
of 250 or more people. Additionally, the Company has
been implementing its own program to expand mobile
broadband coverage and improve communication quality
in rural areas.
Between 2020 and 2022, the Company enabled a total
of 1,018 base stations in rural areas. This includes 468
base stations in fulfillment of its commitments to the state
and 550 base stations as part of its own program aimed
at developing mobile networks in rural communities. As
a result of these efforts, 900 thousand people were provided
with 3G mobile communications, and 660 thousand people
were provided with 4G mobile communications.
PRODUCTS IN THE OGO FINANCE LINE
OGO CARD
Virtual
payment card
DISTINCTIVE
FEATURES
Up to 5% back in bonuses
on payments with an OGO card
OGO DEPOSIT
Rollover
deposit
DISTINCTIVE
FEATURES
The annual effective interest
rate is up to 15.5%
OGO CREDIT
Collateral-free loan
DISTINCTIVE
FEATURES
The annual effective interest
rate ranges from 24.1%, with
a loan tenor of up to 5 years
and a loan amount of up
to 8 million Tenge.
The mobile financial service OGO Bank was launched
by Kcell JSC in July 2021 in collaboration with First Heartland
Jusan Bank JSC and the international payment system
MasterCard. In 2022, the OGO Finance line underwent
rebranding and was renamed to OGO Bank. A dedicated
section called OGO Bank was created within the Kcell/
activ mobile application, and the product line available
to the Kcell/activ subscribers was expanded. One of the new
additions to the product line was OGO Invest, which enables
users to open investment accounts and manage them
through the mobile application.
The distinguishing feature of all the products in the line
is that they can be applied for through the Kcell and activ
mobile applications. The OGO cards offer several
advantages, including instant opening through the mobile
application, higher cashback bonus (up to 50% for certain
types of purchases), and low bank fees compared
to conventional bank cards.
In 2022, over 150 thousand OGO cards were issued.
By the end of the year, the number of OGO cardholders
reached 156,270, with close to three hundred thousand
bonus accounts opened. Throughout the year, there were
1.4 million transactions, totaling 32 billion Tenge, carried
out using the OGO Cards. These achievements demonstrate
the significant success of Kazakhstani mobile financial
services. Additionally, OGO Bank users were granted 3,732
loans during the reporting year, amounting to a total of 1.5
billion Tenge.
42
43
Financial Performance
KCELL JSC’S ACTIVITIES
IN DEVELOPING MOBILE NETWORKS
IN RURAL AREAS
• Works were carried out
at 519 locations, including
329 under the “250+”
program and 130 on its
own initiative;
• A total of 550 base stations
were activated.
• A total of 258 base stations were activated;
• In accordance with its license commitments,
communications were provided to 35 locations;
• The LTE network covered 107 locations;
• The 3G and 4G networks covered 45 locations;
• The introduction of the LTE standard led
to an improvement in the quality of mobile
BBA in 59 locations;
• The installation of additional base stations
operating under the 3G standard improved
the quality of mobile BBA in 12 locations.
• A total of 245 base
stations were launched
at 216 locations, including
104 under its license
commitments and 112
on its own initiative;
• The introduction
of LTE technology led
to an improvement
in communication quality
in 29 locations.
2022
2021
2020
90,848
82,340
60,174
50,485
40,350
32,506
55,221
43,202
2022
2021
EBITDA
Net profit
Profit before…
Operating profit
The Company’s operating profit increased
by 12.8%, primarily due to a higher rate of revenue
growth compared to the growth in the cost of sales
(12.8% versus 8.3%). The growth in revenues
and operating profit was also the main factor
contributing to the increase in other profit
indicators.
PROFIT PERFORMANCE IN 2022
in million Tenge, for the period
Voice communication
and other services
Data transfer services
Value-added services
State subsidies
Sale of mobile
devices
40.2%
35.3%
20.5%
3%
1%
The Company’s income from core activities
increased by 12.8% compared to 2021, reaching
221.2 billion Tenge. The most significant sources
of income are voice communication services
(40.2% of total sales volume), data services
(35.3%), and handset sales (20.5%).
STRUCTURE OF INCOME FROM CORE ACTIVITIES
in 2022
272,416 239,716
133,795
141,445
138,621
98,271
2022
2021
Equity
Liabilities
Assets
The book value of the Company’s assets increased
by 13.6% in 2022, reaching 272.4 billion Tenge.
The growth was mainly attributed to an increase
in accounts receivable, the value of inventories,
and financial assets.
Equity rose by 41.1% due to an increase in retained
net earnings. In contrast, liabilities decreased
by 5.4%, primarily as a result of repaid loans.
BALANCE SHEET STRUCTURE
in million Tenge, as of the end of the period
44
45
MANAGEMENT’S STATEMENT OF PERFORMANCE
Corporate Governance / Risk Management / HR Management / Environmental and Social Responsibility
MANAGEMENT’S STATEMENT OF PERFORMANCE
About the Company / Corporate Strategy
INCOME FROM CORE ACTIVITIES IN 2022
in million Tenge, for the period
INVESTMENTS AND CAPITAL EXPENDITURES
in million Tenge, for the period
Capital expenditures increased by 9.4% compared
to 2021, exceeding 41.6 billion Tenge. Additionally,
investments in intangible assets decreased by 6.9%
(from 13.6 to 12.7 billion Tenge), while investments
in fixed assets rose by 18.2% (from 24.5 to 28.9 billion
Tenge).
4,905
27,951
18,370
33,653
52,463
12,452
65,928
74,056
2022
2021
Cash
flow from
operating (CFO)
Cash
flow from
investing (CFI)
Cash
flow from
financing (CFF)
Net cash
flow (NCF)
CASH FLOWS
in million Tenge for the period
Cash flow from operations decreased by 8.1 billion
Tenge compared to 2021, reaching 65.9 billion Tenge,
primarily due to the increase in accounts receivable.
Meanwhile, the net cash flow was negative, amounting
to -4.9 billion Tenge.
The negative cash flow from investments increased
as a result of the acquisition of short-term notes from
the National Bank of the Republic of Kazakhstan with
a maturity date in January 2023.
The negative cash flow from financing decreased due
to a reduction in expenses related to loan repayment.
41.1%
42.0%
18.2%
16.6%
29.1%
33.1%
14.8%
13.6%
2022
2021
Return on Sales
(ROS)
Return on Assets
(ROA)
Return on Equity
(ROE)
EBITDA
margin
PROFITABILITY RATIOS
The growth in revenues and net profits led
to an increase in the main profitability ratios. Return
on Assets grew from 13.6% to 14.8%, Return on Sales
increased from 16.6% to 18.2%, and EBITDA margin
decreased from 42.0% to 41.1%. However, Return
on Equity declined from 33.1% to 29.1% due
to an increase in retained earnings.
Income from the voice communication
and data services grew by 13.9% and 15.0%
respectively, compared to 2021. Additionally,
proceeds from the sale of mobile devices
increased by 16.1%. However, income from
the value-added services declined by 26.4%.
Cost of sales
Selling expenses
Asset impairment
Financial expenses, net
CIT expenses
General and administrative
expenses
75.2%
1.5%
9.0%
3.5%
2.7% 8.2%
THE COMPANY’S EXPENDITURE PATTERN IN 2022
Сost of sales, accounting for 75.2% of the total
expenditures, has the highest relative share
in the Company’s expenditure pattern. General
and administrative expenses (9.0%) and corporate
income tax (CIT) expenses (8.2%) are also
significant expenditure items. Other types
of expenses make up approximately 7.7%
of the total expenditures.
136,269
125,867
2,714
3,106
16,260
14,137
6,264
2,694
4,920
7,765
14,871
10,696
2022
2021
CIT
expenses
Financial
expenses, net
Asset
impairment
General and
administrative expenses
Selling
expenses
Cost
of sales
EXPENSES INCURRED BY THE COMPANY IN 2022
in million Tenge, for the period
In 2022, cost of sales increased by 8.3%
compared to 2021, reaching approximately
136.3 billion Tenge. The following expenses
experienced growth in 2022: expenses related
to corporate income tax (CIT) payment (by 39.0%)
and general and administrative expenses (by
15.0%). Asset impairment charges grew by 2.3
times; however, their impact on the Company’s
profit margin was negligible due to their low
relative shares in the expenditure pattern.
Additionally, it should be noted that the 12.6%
decrease in sales proceeds can be attributed
to the optimization of the Company’s business
processes.
78,174
67,971
45,310
39,027
6,646
9,024
2,230
2,108
88,872
78,059
2022
2021
Voice communication
services
Data transfer services
Sale of mobile
devices
Value-added
services
State
subsidies
Investments
in intangible
assets
Aggregate
capital expenditures
(CAPEX)
28,892
24,448
12,659
13,604
41,551
38,052
2022
2021
Investments
in fixed assets
04
0
CORPORATE GOVERNANCE SYSTEM
48
SHARE CAPITAL
49
THE SHAREHOLDERS’ RIGHTS
49
DISCLOSURES
50
PAYMENT OF DIVIDENDS
50
CORPORATE BODIES
50
GENERAL MEETING OF SHAREHOLDERS
51
BOARD OF DIRECTORS
52
COMMITTEES OF THE BOARD OF DIRECTORS
56
MANAGEMENT BOARD
58
INFORMATION OF REMUNERATIONS
61
ANTI-CORRUPTION
61
CONFLICT OF INTEREST MANAGEMENT
61
RELATED PARTY TRANSACTIONS
62
PROCUREMENT PRACTICES
62
INTERNAL AUDIT
63
EXTERNAL AUDIT
63
The new speeds opportunities
CORPORATE
GOVERNANCE
48
49
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
CORPORATE GOVERNANCE
SYSTEM
The
corporate
governance
structure,
principles,
and procedures of the Company are outlined in the Kcell
JSC Code of Corporate Governance (the “CCG”), which
was approved by the General Meeting of the Company’s
shareholders on May 24, 2021. The adoption of the Code
aims to enhance and systematize the Company’s corporate
governance, ensuring greater transparency in corporate
governance management and reaffirming the Company’s
commitment to sound corporate governance standards.
According to the provisions of the CCG, corporate
governance encompasses the processes that govern
and
control
the
Company’s
activities,
including
the
relationships
between
its
shareholders,
Board
of Directors, Management Board, other Company bodies,
and its stakeholders. The Company views Corporate
Governance as a tool to enhance its performance,
strengthen its reputation, and reduce its capital raising
costs.
KCELL JSC’S CORPORATE GOVERNANCE PRINCIPLES
Share Capital
The Company’s share capital consists of 200,000,000
fully paid-up ordinary shares with a par value of 169
Tenge per share. The majority of shares in the Company
are held by Kazakhtelecom JSC, which is controlled
by the Government of the Republic of Kazakhstan through
the Sovereign Wealth Fund Samruk-Kazyna JSC.
CHANGES IN THE STRUCTURE OF STAKEHOLDERS’ PARTICIPATION FOR THE REPORTING PERIOD
December 31,
2022, in %
December 31,
2021, in %
Kazakhtelecom JSC
51.00
51.00
PIONEER TECHNOLOGIES S.A.R.L.
14.87
14.87
First Heartland Jusan Bank JSC
9.08
9.08
Unified Accumulative Pension Fund JSC
7.06
7.07
Raiffeisen Bank JSC
1.54
1.54
AROYGROUP LLP
1.39
-
EVEREX LLP
1.16
-
Other
13.90
16.44
Total
100.00
100.00
The Shareholders’ Rights
The Charter of Kcell JSC (the “Charter”), approved
by the General Meeting of shareholders on May 29, 2019,
stipulates the rights of shareholders in accordance with
the laws of the Republic of Kazakhstan. The following are
the entitlements of shareholders:
• Participate in the administration of the Company as
prescribed by the laws and/or the Charter.
• If a shareholder individually or together with other
shareholders holds five percent or more of the voting
shares, propose additional matters for inclusion
in the agenda of a General Meeting of Shareholders.
• Receive dividends.
• Receive information on the Company’s activities,
including the review of financial statements,
in accordance with the procedures specified
by the General Meeting of Shareholders or the Charter.
• Obtain excerpts from the central depository
or nominee holder as evidence of their ownership
of securities.
• Nominate candidates for election to the Company’s
Board of Directors at the General Meeting
of Shareholders.
• Contest resolutions adopted by the Company’s
bodies in court.
• If a shareholder individually or together with other
shareholders holds five percent or more of the voting
shares in the Company, seek legal recourse in their own
name to collect damages from the Company’s officers
for losses caused to the Company, and to require
the Company’s officers and/or affiliates to reimburse
gains/income received from decisions related to major
transactions and/or interested party transactions.
• Submit written inquiries to the Company regarding
its activities and receive reasonable responses within
thirty calendar days after receipt by the Company.
• Receive a share of the Company’s assets
in the event of its liquidation.
• Exercise preemptive rights to purchase shares
or other securities convertible to the Company’s shares,
as specified by the laws, unless otherwise stipulated
by the legal acts of the Republic of Kazakhstan.
• Participate in the decision-making process
at the General Meeting of Shareholders regarding
changes in the number or type of shares, as stipulated
by the laws.
• Possess additional rights as provided by the Law
of the Republic of Kazakhstan “On joint stock
companies” and the Charter.
The Company seeks to ensure maximum transparency through timely and accurate
disclosures of true information to its shareholders and other stakeholders. This includes
information on its financial standing, economic indicators, performance, shareholding
structure, and management system.
TRANSPARENCY AND OBJECTIVITY
IN DISCLOSING THE COMPANY’S
ACTIVITIES
The Company has been operating in strict compliance with the laws, generally accepted
codes of business conduct, internal regulations, and contractual commitments.
LAWFULNESS
AND ETHICS
Recognizing the significance of its impact on the economy, environment, and social
development in the country, the Company seeks to ensure its sustainable development
in the long run while balancing the interests of its shareholders and enhancing its future
performance.
SUSTAINABLE
DEVELOPMENT
The Company ensures the rights of its employees in accordance with the laws
and the Code of Business Conduct and Ethics of Kcell JSC. Furthermore, the Company
has been fostering partnership relationships with its personnel to tackle social issues
and regulate working conditions.
EFFICIENT
HR POLICY
The Company pays dividends in accordance with its Dividend Policy, the laws, charter,
and relevant resolutions of the General Meeting of its shareholders. When adopting
a resolution to allocate the dividends, the latter shall be paid in compliance with the laws.
EFFICIENT
DIVIDEND POLICY
The activities of the Board of Directors should be based on the principles of safeguarding
and implementing the shareholders’ interests to the greatest possible extent. These
activities are aimed at increasing the fair market price of the Company.
The main principles guiding the Management Board’s activities are legality, integrity,
good faith, reasonableness, regularity, professionalism, and impartiality.
EFFICIENT ADMINISTRATION
OF THE COMPANY
BY THE BOARD OF DIRECTORS
AND THE MANAGEMENT BOARD
Corporate governance is based on the principle of protecting and respecting
the rights and legal interests of shareholders. It contributes to the efficient operation
of the Company, including the growth of its assets, maintenance of its financial stability,
and profitability.
SAFEGUARDING THE RIGHTS
AND INTERESTS OF SHAREHOLDERS
Members of the Board of Directors and Management Board, together with the workforce,
fulfill their professional duties in good faith and with reasonable grounds, exercising
due care and diligence, acting in the best interest of the Company and its shareholders,
while striving to avoid any conflicts. Officers of the Company promptly report any alleged
conflicts of interest to the Corporate Secretary.
RESOLUTION OF CORPORATE
DISPUTES AND CONFLICTS
OF INTEREST
50
51
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
A majority shareholder holding 10 percent or more
of the voting shares, or several shareholders collectively
holding 10 percent or more of the voting shares based
on a signed agreement between them, are entitled to:
• Call for an extraordinary General Meeting
of Shareholders or file a claim in court if the Board
of Directors refuses to convene the meeting.
• Call for a meeting of the Board of Directors.
• Demand an audit of the Company conducted
by an auditing firm, at the expense of the shareholder.
Shareholders holding five percent or more of the voting
shares individually or together with other shareholders
are entitled to receive information on the amount
of remuneration payable to a specific member of the Board
of Directors and/or executive body of the Company if
the following conditions are met:
• The court determines that the member(s)
of the Board of Directors and/or executive body
deliberately misled the Company’s shareholders
to receive gains/income.
• It is proven that the fraudulent actions or omissions
of the member(s) of the Board of Directors and/or
executive body have caused damage to the Company.
Disclosures
The
Company’s
disclosure
practices
are
based
on the following approaches:
• Disclosures are intended to create a positive
perception of the Company, facilitating fundraising,
maintaining trust among shareholders and investors,
and improving operational and financial indicators.
• The information disclosure system ensures that
Company information is accessible while safeguarding
internal confidential information.
• Disclosures provide easy and unrestricted access
to publicly available Company information.
• Information is disclosed on the website
of the financial statements depository and the stock
exchanges’ websites, in accordance with the laws
and the Listing Rules of the stock exchanges.
• Additional disclosure of corporate events is made
on the Company’s corporate website (www.investors.
kcell.kz).
Payment of Dividends
The approval to pay dividends shall be granted
by the General Meeting of Shareholders. Dividends
on ordinary shares may be disbursed based on the annual,
semi-annual,
and/or
quarterly
results,
following
the completion of the audit of the corresponding financial
statements.
No dividends were distributed in 2022. However, in 2021,
dividends totaling 17,578 million Tenge were paid out.
CORPORATE BODIES
Supreme Managing Body
GENERAL MEETING
OF SHAREHOLDERS
Managing body responsible for the development of the Company’s strategy, overall
governance of its operations, and oversight of the Management Board’s activities.
BOARD OF DIRECTORS
Collective executive body responsible for administering the day-to-day operations
of the Company and implementing the strategy determined by the Board of Directors
and the General Meeting of Shareholders.
MANAGEMENT BOARD
Body that monitors the financial and economic activities of the Company, assesses
the effectiveness of internal controls, and oversees risk management.
INTERNAL AUDIT SERVICE
GENERAL MEETING OF SHAREHOLDERS
The following matters fall within the exclusive jurisdiction
of the General Meeting of Shareholders:
• Making changes and amendments
to the Company’s Charter or approving a new version
thereof.
• Approving the Corporate Governance Code (CCG)
and any changes or amendments to it.
• Deciding on voluntary reorganization and liquidation
of the Company.
• Deciding to increase the number of authorized
shares in the Company or change the type of authorized
shares that have not been allocated.
• Determining the conditions and procedure
for the conversion of the Company’s securities, as well
as any modifications.
• Deciding to issue securities convertible into ordinary
shares in the Company.
• Deciding to exchange placed shares of one
type for shares of a different type, and determining
the conditions, deadlines, and procedures for such
an exchange.
• Determining the number of members of the Scrutiny
Commission, their term of office, electing its members,
and terminating their powers prematurely.
• Determining the number of members of the Board
of Directors, their term of office, electing its members,
and terminating their powers prematurely. Also,
determining the amount and conditions of remuneration
and compensation for Board of Directors members
for their fulfilled duties.
• Appointing an auditing firm to audit the Company.
• Approving the annual financial statements
of the Company.
• Approving the procedure for allocating
the Company’s net income for the reporting financial
year, deciding to pay dividends on ordinary shares,
and approving the dividend amount per ordinary share.
• Deciding to pay dividends based on quarterly
or six-month results, allocating retained earnings,
and approving the dividend amount per ordinary share.
• Deciding not to pay dividends on ordinary shares
in the Company.
• Deciding on a voluntary delisting of the shares
in the Company.
• Deciding on the Company’s participation
in the establishment or operations of other legal entities,
or withdrawing from other legal entities’ participants/
shareholders through the transfer or acceptance
of a part or several parts of assets constituting twenty-
five (25) percent or more of all the Company’s assets.
• Determining the form of notice to be given
by the Company to shareholders to inform them
of a General Meeting of Shareholders.
• Approving changes to the methodology (unless
approved by the constituent meeting) for calculating
the price of shares if they are to be bought out
by the Company from an informal market pursuant
to the Law.
• Approving the agenda of the General Meeting.
• Determining the procedure for providing
shareholders with information about the Company’s
activities, unless specified in the Charter.
• Introducing and canceling the “golden share”.
• Deciding on major transactions by the Company,
resulting in the acquisition or alienation of property
worth fifty (50) percent or more of the total book value
of the Company’s assets.
• Approving the Company’s Dividend Policy.
• Addressing any other matters falling within
the exclusive jurisdiction of the General Meeting, as
stipulated by the Law and/or Charter.
The proceedings of the General Meeting of Shareholders
must provide each shareholder with an equal opportunity
to exercise their rights to attend the meeting. Shareholders
may vote in person or through a proxy (based
on a power of attorney issued to a third party). The rules
of procedure for the General Meeting of Shareholders
are designed to allow for comprehensive discussions
on the agenda items and to make reasonable decisions.
52
53
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
Board of Directors
The Board of Directors is a governing body subordinate
to the General Meeting of Shareholders and is responsible
for the overall governance of the Company. It ensures
the strategic administration of the Company and exercises
control over the activities of the Management Board.
The following matters are exclusively within the competence
of the Board of Directors:
1. Determination of the Company’s top priorities
for activities/development, strategic goals, and projects
(development strategy). Monitoring their implementation
and approval of the Company’s development plan.
2. Approval of the Company’s policies or other internal
documents regulating key aspects of the Company’s
activities, unless such policies or documents fall under
the jurisdiction of other bodies of the Company.
3. Decision to convene the annual and extraordinary
General Meetings.
4. Decision regarding the placement/sale of shares,
including the number of shares to be placed/sold,
the method and price of placement/sale, in accordance
with the requirements of the Law.
5. Decision on the Company’s buyout of placed shares
or other securities and the repurchase price.
6. Preliminary approval of the Company’s annual
financial statements.
7.
Approval of the Company’s annual report.
8. Creation and determination of the composition
of the Committees of the Board of Directors, election
of committee members, and approval of committee
provisions.
9. Determination of the terms and conditions
for the issuance of the Company’s notes and derivative
securities, as well as the decision to issue them.
10. Determination of the number of members and term
of office of the Company’s Management Board, election
of the Chairperson and members of the Management
Board, and early termination of their powers.
11. Determination of the size of wages, as well
as the conditions of remuneration and bonuses
for the Chairperson and members of the Management
Board.
12. Approval of the Provision on the Company’s
Management Board.
13. Approval of the model labor contracts to be signed
with the Chairperson and members of the Management
Board.
14. Approval of succession planning programs
for members of the Management Board and other
employees of the Company, according to the approved
list by the Board of Directors.
15. Determination of the number of members and term
of office of the Internal Audit Service, appointment
of the head and members, and early termination of their
powers. Determination of the proceedings, remuneration,
and bonuses for the personnel of the Internal
Audit Service, as well as approval of the Provision
on the Internal Audit Service.
16. Appointment and determination of the term
of office of the Corporate Secretary, early resignation,
and determination of the wage and remuneration
conditions for the Corporate Secretary. Approval
of the Provision on the Corporate Secretary.
17. Determination of the remuneration payable
to the auditing firm for auditing financial statements, as
well as to an appraiser who will appraise the fair market
price of assets contributed as payment for shares
in the Company or subject to a major transaction.
18. Approval of documents regulating the Company’s
internal operations (excluding documents to be adopted
by the Management Board for organizing the Company’s
activities), including the internal document stipulating
terms, conditions, and procedures for auctions
and subscription to the Company’s securities.
19. Decision to create and close subsidiaries
and representative offices of the Company and approval
of the provisions on such subsidiaries and representative
offices.
20.Decision regarding the Company’s purchase/
alienation of ten (10) percent or more of shares/
participatory interests in the authorized capital of other
legal entities.
21. Decision regarding activities falling within
the competence of the General Meeting of Shareholders/
participants of a legal entity, in which the Company holds
ten (10) percent or more of shares/participatory interests
in the authorized capital.
22.Increase in the Company’s liabilities by ten (10)
percent or more of its equity.
23.Determination of information about the Company
or its activities that is deemed an official, trade, or legally
protected secret.
24.Decision on major transactions to be concluded
by the Company, unless such decisions are within
the purview of the General Meeting pursuant to the Law
and this Charter.
25.Decision on transactions to be concluded
by the Company, provided they are interested party
transactions, unless otherwise stipulated by the Law
or the Company’s Charter.
26.Approval of the annual budget and accounting
policies of the Company.
27. Approval of the Company’s corporate structure.
28.Approval of the Company’s key performance
indicators and individual key performance indicators
of the Chairperson and members of the Management
Board.
29.Decision to grant a guarantee on behalf
of the Company for the liabilities of any other legal entity.
30.Decision to raise external funds.
31. Preliminary review of the Company’s draft Charter,
Code of Corporate Governance, Dividend Policy,
including changes and amendments thereto, as well as
changes to the method of determining the price of shares
when they are to be bought out by the Company
in the informal market, which may be presented
to the General Meeting of Shareholders at the Company’s
discretion.
32.Decision on any other matters stipulated by the laws
of the Republic of Kazakhstan and/or this Charter,
excluding matters within the exclusive competence
of the General Meeting.
33.Determination of the number of members and term
of office of the Compliance Control Service, appointment
of its head and members, and early termination of their
powers. Determination of the proceedings, remuneration,
and bonuses for the personnel of the Compliance
Control Service, as well as approval of the Provision
on the Compliance Control Service.
To ensure efficient performance of its functions, the Board
of Directors shall create the following Committees:
• Strategic Planning Committee;
• Personnel and Remuneration Committee;
• Internal Audit Committee;
• Sustainable Development Committee;
• Committees responsible for other issues referred
to in the Company’s internal documents.
Kcell JSC utilizes a dedicated platform that ensures
comprehensive protection of workflow management
and
organizational
processes.
It
also
facilitates
improved
information
interaction
within
the
Board
of Directors and enhances their performance. According
to the provisions of the Company’s Charter, members
of the Board of Directors, Committees, and experts may
attend meetings through conference calls or other means
of communication that allow all participants to hear
and speak with each other.
PRINCIPLES OF APPOINTMENT
TO THE BOARD OF DIRECTORS
Candidates for the position of a member of the Company’s
Board of Directors may be nominated from among:
• individual shareholders;
• persons nominated to the Board of Directors as
representatives of the shareholders;
• individuals who are not shareholders or have
not been nominated/recommended to be elected
to the Board of Directors as shareholders’
representatives.
Candidates for and members of the Board of Directors
should have a suitable career history, competence,
qualifications, and positive achievements necessary to fulfill
their duties. They should also possess an impeccable
reputation in the business and sectoral communities, as
required to ensure the effective functioning of the entire
Board of Directors for the benefit of shareholders
and the Company. The Independent Directors should
constitute at least 30% of the total number of Board
members.
COMPOSITION OF THE BOARD
OF DIRECTORS
The composition of the Board of Directors underwent
the following changes in 2022:
• On April 14, 2022, Independent Director T.K.
Naizabekov resigned from office ahead of schedule.
• On May 19, 2022, Independent Director
D.Zh. Inkarbekova, as well as members of the Board
of Directors representing the shareholder
Kazakhtelecom JSC, K.B. Yesekeyev,
T.T. Khudayberdiev, and S.B. Saudabayev, were
removed from office according to the resolution
of the annual General Meeting of Shareholders.
• On May 19, 2022, the current composition
of the Board of Directors was approved by the resolution
of the annual General Meeting of Shareholders.
As of December 31, 2022, the Board of Directors consisted
of 7 members, including 6 men and one woman. Four
members of the Board of Directors are Independent
Directors.
As of December 31, 2022, Timur Turlov, representing Freedom Finance JSC, indirectly held 5,200,193 shares in Kcell JSC.
54
55
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
COMPOSITION OF THE BOARD OF DIRECTORS AS OF DECEMBER 31, 2022
Alexey Buyanov
Chairman of the Board of Directors, Independent Director
Aliya Kishkimbayeva
representative of Kazakhtelecom JSC
Aleksandr Lezgovko
representative of Kazakhtelecom JSC
Timur Turlov
representative of Freedom Finance JSC
Jere Calmes
Independent Director
Pietari Kivikko
Independent Director
Yermek Ramazanov
Independent Director
CURRICULA VITAE OF THE MEMBERS OF THE BOARD OF DIRECTORS
JERE
CALMES
Independent Director
Mr. Calmes has been a member of the Board of Directors of Kcell JSC since January 15, 2020. On May 19,
2022, he was reelected for a 3-year term at the annual General Meeting of Shareholders.
With over 20 years of experience in the telecommunications, wholesale, and retail industry, Mr. Calmes has
a special focus on emerging markets. Since May 2020, he has served as the CEO and General Director
of Lamoda.
From December 2016 to June 2019, he held the position of General Director for the Russian branch of Metro
Cash & Carry. Prior to that, he held various senior positions in the telecommunications sector, including
Deputy CEO of Tele2, CEO of Tele2 Russia, Managing Director of the Italian mobile service provider Wind
Telecomunicazioni, Managing Vice President and Managing Director of the Moscow office of VEON JSC,
and Director (Customer Services and Credit Control) of the mobile operator Orange Egypt. Additionally, he was
a member of the Management Board of the Ukrainian telecommunications service provider Datagroup JSC,
Managing Director of Fast Lane Ventures, President of the Russian “36.6” pharmacy chain, and General Director
of the chain managing company with the same name. Mr. Calmes also served as an advisor to the Adva Capital
investment fund.
Mr. Calmes holds a Bachelor’s degree in Political Science and Economics from Bates University in Maine, USA.
He has also completed the Executive Development Program (EDP) at the Wharton School of Business.
PIETARI
KIVIKKO
Independent Director
Mr. Kivikko has been a member of the Kcell Board of Directors since May 19, 2022.
He brings a wealth of experience in the field of telecommunications, having held senior positions
at TeliaSonera and Tele2. Additionally, he served as the Managing Director of Paroc Owens Corning Insulation
Materials in Russia. Currently, Mr. Kivikko holds the position of Managing Director at Fexcon Consulting.
Mr. Kivikko holds a Master of Science degree in Accounting, Commercial Law, and Marketing from the School
of Economics and Business Administration at the University of Turku in Turku, Finland.
YERMEK
RAMAZANOV
Independent Director
Mr. Ramazanov has served as an Independent Director of Kcell since December 6, 2021. At the annual General
Meeting of Shareholders on May 19, 2022, he was reelected for a three-year term.
With a wealth of experience in the telecommunications industry, Mr. Ramazanov has previously held positions
in the government and served as an Independent Director for telecommunications companies.
Mr. Ramazanov graduated from the Kyzylorda Institute of Engineers of Agro-Industrial Production named
after Zhakhayev, majoring in Economics. He holds a Master’s degree in Business Administration from
the European University in Geneva and also a Master’s degree in Business Administration from the Kazakh
Economic University named after T. Ryskulov.
TIMUR
TURLOV
Representative of Freedom Finance JSC
Mr. Turlov has been a member of the Kcell Board of Directors since January 25, 2019. He was reelected
for an additional 3-year term at the annual General Meeting of Shareholders held on May 19, 2022.
In addition to his role at Kcell, Mr. Turlov serves as the General Director of Freedom Finance JSC, Director
of Freedom Securities Trading Inc., an Independent Director on the Board of Directors of Freedom Finance
Europe Ltd., Chairman of the Board of Directors of Life Insurance Company Freedom Finance Life JSC,
and Chairman of the Board of Directors of Insurance Company Freedom Finance Insurance JSC.
Mr. Turlov holds a Bachelor’s degree in Economics and Management from the Russian State Technological
University named after Tsiolkovsky.
ALEXEY
BUYANOV
Chairman of the Board of Directors, Independent Director
Chairperson of the Board of Directors, Mr. Buyanov, has been serving as an Independent Director of Kcell JSC
since January 25, 2019.
He was reelected for a 3-year term at the annual General Meeting of Shareholders on May 19, 2022.
Furthermore, during a meeting of the Kcell JSC Board of Directors on the same date, he was reelected as
the Chairman of the Board of Directors.
In addition to his role at Kcell JSC, Mr. Buyanov holds positions as an Independent Director of Kazakhtelecom
JSC and Director of Bengala Investments. From 2002 to 2014, he served as the Senior Vice President and Chief
Financial Officer, as well as a member of the Management Board, of Sistema OJSC, an investment fund listed
on the London Stock Exchange. Subsequently, from 2014 to 2016, he assumed the role of Managing Director
and Head of the Investment Committee at Redline Capital Management S.A.
Mr. Buyanov obtained his degree in applied physics and mathematics from the Moscow Institute of Physics
and Technology (MIPT). He also completed the Oxford Fintech Program at Said Business School, University
of Oxford.
ALIYA
KISHKIMBAYEVA
representative of Kazakhtelecom JSC
Mrs. Kishkimbayeva has been a member of the Kcell Board of Directors since May 19, 2022.
Since 2019, she has held the position of Managing Director (Legal Affairs and Risks) at Kazakhtelecom JSC.
Mrs. Kishkimbayeva graduated from the Adilet Higher Law School with a major in Jurisprudence, and also
completed studies at the English Language Department of the Kazakh State University of World’s Languages.
With a wealth of experience in the telecommunications and oil infrastructure sectors, Mrs.
Kishkimbayeva previously worked at Kcell JSC, PetroKazakhstan Inc., and AralParker KASP CJSC.
ALEKSANDR
LEZGOVKO
representative of Kazakhtelecom JSC
Mr. Lezgovko has been a member of the Kcell Board of Directors since May 19, 2022.
He brings over 30 years of experience in the telecommunications industry. Starting from 1999, he worked
at Kazakhtelecom JSC, where he held the position of Chief Technical Officer from 2007 to 2021.
Mr. Lezgovko is a graduate of the Almaty Power Engineering Institute, with a major in Automatic
Telecommunications.
In 2005, he was honored with the title of “Kurmetti Bailanysshy.”
Additionally, in 2012, he was awarded the “Kurmet” Order.
56
57
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
MINUTES OF THE BOARD
OF DIRECTORS’ MEETINGS DURING
THE REPORTING YEAR
In 2022, the Board of Directors convened for a total of 13
meetings, all of which were conducted through in-person
attendance. During these meetings, the Board of Directors
deliberated upon various aspects of the Company’s
operations and made decisions on the following matters:
• approval of major transactions;
• election and early termination of the Management
Board members’ mandates;
• preliminary approval of the 2022 annual financial
statements;
• convening of annual and extraordinary general
meetings of shareholders in 2022, as well as preparation
of dividend payment proposals;
• approval of interested party transactions;
• consideration of the composition of the Board
of Directors’ Committees.
Additionally, the Board of Directors addressed several
business, commercial, operational, and legal matters
related to the Company’s activities.
PERFORMANCE EVALUATION
OF THE BOARD OF DIRECTORS
The
Board
of
Directors
is
required
to
conduct
a comprehensive performance evaluation of itself, its
Committees, and each Director on a regular basis,
specifically once every three years. The results of this
performance evaluation are to be discussed during
a Board of Directors meeting, and based on these results,
recommendations for enhancing the Board of Directors’
performance are to be prepared.
On February 17, 2022, the “Rules for Measuring
Performance of the Board of Directors and its
Committees,
Chairman,
members
of
the
Board
of Directors, and the Corporate Secretary of Kcell JSC”
(referred to as the “Rules”) were approved by a resolution
of the Board of Directors. Additionally, a decision was
made for the Board of Directors of Kcell JSC to evaluate
its own performance. The findings from the self-
evaluation were reviewed during a meeting of Kcell JSC’s
Board of Directors on April 15, 2022. Based on the results
of the evaluation, relevant recommendations were
provided to enhance the performance of the Board
of Directors.
REMUNERATION FOR MEMBERS
OF THE BOARD OF DIRECTORS
Matters pertaining to the remuneration of Directors shall be
deliberated upon at the General Meeting of Shareholders.
The remuneration amount should be sufficient to attract,
retain, and motivate the Directors, thereby encouraging
their efficient work. The remuneration should correspond
to the time spent on their duties and the quality of their
performance.
The Company is obligated to disclose information regarding
the remuneration of its Directors in accordance with the law.
The size of Directors’ remuneration for the reporting period
must be disclosed in the annual report.
As per the current Remuneration Policy, the Company
provides
remuneration
to
independent
members
of the Board of Directors in two components: a fixed annual
remuneration and an additional annual remuneration.
Additionally, costs incurred by Board members in fulfilling
their duties will be reimbursed.
In 2019, the General Meeting of Shareholders approved
the following remuneration amounts, before taxes,
for Independent Directors: a fixed annual remuneration
of
$75,000;
an
additional
annual
remuneration
of $25,000 for the Chairperson of the Board of Directors;
and an additional annual remuneration of $15,000
for the Chairperson of any Board Committee. Fifty percent
of the fixed and additional annual remuneration for the role
of the Chairperson of the Board of Directors or its
Committees will be paid six months after the Independent
Director assumes office, and the remaining fifty percent will
be paid one year later.
The total remuneration paid to independent members
of the Board of Directors in 2022 amounted to $349.4
thousand or 155.3 million Tenge (before taxes).
Committees of the Board of Directors
There are four committees created and functioning under
the Board of Directors. The committees shall consider,
within their respective areas of expertise, the key
matters related to the Company’s activities and prepare
recommendations for the Board of Directors on these
matters. The current composition of the committees
under the Board of Directors was approved by a resolution
of the Board of Directors dated May 19, 2022.
COMPOSITION OF THE COMMITTEES UNDER THE BOARD OF DIRECTORS
Name of the Committee
Competences of the Committee
Composition of the Committee
as of December 31, 2022
Strategic Planning Committee
Strategic Development of the Company
Alexey Buyanov is Chairman
of the Committee;
Pietari Kivikko;
Timur Turlov;
Aleksandr Lezgovko;
Yermek Ramazanov.
Personnel and Remuneration Committee
HR Policy: Remuneration of Employees;
Personnel Training and Incentives.
Pietari Kivikko is the Chairman
of the Committee;
Alexey Buyanov;
Aliya Kishkimbayeva.
Internal Audit Committee
Matters related to financial statements;
Internal controls and risk management;
Internal and external audits.
Pietari Kivikko is the Chairman
of the Committee;
Alexey Buyanov;
Jere Calmes.
Sustainable Development Committee
Strategic matters concerning sustainable development;
Elaboration and implementation of the Company’s
sustainable development policies.
Yermek Ramazanov is
the Chairman of the Committee;
Jere Calmes;
Aliya Kishkimbayeva.
PROCEEDINGS OF THE COMMITTEES OF THE BOARD OF DIRECTORS
Strategic Planning Committee
In 2022, the Committee held 7 in-person meetings, during which 21 matters were considered, and relevant recommendations
were provided to the Board of Directors on the following topics:
•
Reviewing progress reports on the implementation of the Company’s Development Strategy;
•
Approving the Development Plan;
•
Approving the project titled ‘Deployment of a 5G network’;
•
Approving other strategic projects of the Company.
Committee members actively participated in the annual Strategic Session.
Personnel and Remuneration Committee
In 2022, the Committee held 11 in-person meetings, during which 43 matters were considered, and relevant recommendations
were provided to the Board of Directors on the following topics:
•
Election of members to the Management Board;
•
HR matters pertaining to the Compliance Control and Internal Audit Subdivisions;
•
Changes to the corporate structure;
•
Determination of key performance indicators (KPI) for top officials;
•
Review of the performance of the Chairman, members of the Management Board, and employees accountable to Kcell JSC’s
Board of Directors for 2021, based on the KPI;
•
Consideration of candidates for the new composition of Kcell JSC’s Board of Directors.
Internal Audit Committee
In 2022, the Committee held 7 in-person meetings, during which 30 matters were considered, and relevant recommendations
were provided to the Board of Directors on the following topics:
•
Approval of the quarterly risk management reports;
•
Approval of the risk register and matrix, as well as the determination of the risk appetite level;
•
Approval of internal guidelines governing risk management and internal controls;
•
Approval of the annual audit plan for the Company’s Internal Audit Service;
•
Review of the quarterly reports from the Internal Audit Service;
•
Review of the quarterly operating performance;
•
Appointment of the auditing firm to conduct the audit and determination of the remuneration payable to the auditing firm
for the audit of the financial statements from 2022 to 2024.
•
Additionally, in 2022, the Committee held three meetings with the external auditor, during which the following matters were
discussed:
•
Financial performance of the Company for 2021;
•
External auditors’ report for the first six months of 2022;
•
Planning of the external audit for Kcell JSC’s 2022 statements.
•
Furthermore, the Chairman of the Committee, Pietari Kivikko, regularly held meetings with members of the Company’s
Management Board, Corporate Secretary, Heads of the Internal Audit Service, and Heads of the various departments.
Sustainable Development Committee
In 2022, the Committee held 4 in-person meetings, during which 7 matters were considered, and relevant recommendations
were provided to the Board of Directors on the following topics:
•
Review of reports from the Compliance Control Service;
•
Matters pertaining to the Environmental, Social, and Governance (ESG) agenda in the context of the Company’s activities.
Furthermore, the Chairman of the Committee, Yermek Ramazanov, regularly held meetings with members of the Company’s
Management Board, Head of the Compliance Control Service, and Heads of various departments.
Additionally, members of the Committee actively participated in the workshop titled “Sustainable development and priorities, timing,
and potential outcomes of integrating ESG principles into the Company’s business processes”.
58
59
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
ATTENDANCE OF THE STRATEGIC PLANNING
COMMITTEE’S MEETINGS BY ITS MEMBERS IN 2022
Member
Number of the Committee meetings
Attendance
Alexey Buyanov
7
6
Pietari Kivikko
5
5
Timur Turlov
7
4
Aleksandr Lezgovko
5
5
Yermek Ramazanov
6
6
Timur Naizabekov
0
0
Kuanyshbek Yessekeyev
2
1
Jere Calmes
1
1
ATTENDANCE OF THE PERSONNEL AND REMUNERATION COMMITTEE’S MEETINGS BY ITS MEMBERS IN 2022
Member
Number of the Committee meetings
Attendance
Dinara Inkarbekova
5
5
Alexey Buyanov
11
10
Pietari Kivikko
6
6
Aliya Kishkimbayeva
6
6
Timur Naizabekov
0
0
Timur Khudaiberdiyev
0
0
Timur Turlov
5
5
ATTENDANCE OF THE INTERNAL AUDIT COMMITTEE’S MEETINGS BY ITS MEMBERS IN 2022
Member
Number of the Committee meetings
Attendance
Alexey Buyanov
5
5
Pietari Kivikko
4
4
Timur Naizabekov
0
0
Dinara Inkarbekova
3
3
Jere Calmes
7
7
ATTENDANCE OF THE SUSTAINABLE DEVELOPMENT COMMITTEE’S MEETINGS BY ITS MEMBERS IN 2022
Member
Number of the Committee meetings
Attendance
Dinara Inkarbekova
1
1
Alexey Buyanov
1
1
Yermek Ramazanov
3
3
Timur Khudaiberdiyev
2
1
Jere Calmes
3
3
Management Board
The Management Board of Kcell JSC is a collective
executive body responsible for administering the day-to-
day operations of the Company. The Company recognizes
the crucial role played by the Chief Operating Officer, who
acts as the Chairman of the Management Board.
During
its
proceedings,
the
Management
Board
adheres to the principles of lawfulness, integrity, good
faith,
reasonableness,
consistency,
professionalism,
and impartiality. Its members are committed to safeguarding
the interests of the shareholders to the fullest extent
and are fully accountable to both the General Meeting
of Shareholders and the Board of Directors.
СOMPOSITION OF THE MANAGEMENT
BOARD
The composition of the Management Board underwent
the following changes in 2022:
• on April 15, Chief Legal Officer, a member
of the Management Board of Kcell JSC S. Gasanova was
removed from the office ahead of schedule;
• on April 15, Azamat Dauletovich Uisumbayev was
appointed Chief Executive Officer (Corporate Affairs)
of Kcell JSC
• on April 27, powers of a member of the Management
Board, Chief Technical Officer A. Yeserkegenov were
terminated ahead of schedule;
• on May 11, A. Uzbekov was appointed Chief
Executive Director, Chairman of the Management Board
of Kcell JSC;
• on May 11, Yu. Kharlamov was appointed the Chief
Operating Officer, Deputy Chairman of the Management
Board of Kcell JSC;
• on June 23, K. Strashenko was appointed the Chief
Technical Officer, member of the Management Board
of Kcell JSC;
• on June 23, D. Ibrayev was appointed the Chief
Security Officer, a member of the Management Board
of Kcell JSC;
• on September 15, M. Amardinov was appointed
the Chief Digital Development Officer, a member
of the Management Board of Kcell JSC;
• on September 16, power of Chief Operating Officer,
Deputy Chairman of the Management Board of Kcell
JSC, Yu. Kharlamov were terminated ahead of schedule;
• on December 7, powers of the Chief Financial
Officer, a member of the Management Board
of Kcell JSC, D. Nurpeisova, were terminated ahead
of schedule.
As of December 31, 2022, the Management Board
consisted of 6 members, including 5 men and one woman.
COMPOSITION OF THE MANAGEMENT BOARD AS OF DECEMBER 31, 2022
Askhat Arkhatovich Uzbekov
Chairman of the Management Board, Chief Operating Officer
Maria Vitalyevna Averchenko
member of the Management Board, Chief Commercial Officer
Azamat Dauletovich Uisumbayev
member of the Management Board, CEO (Corporate Affairs)
Kirill Valeryevich Strashenko
member of the Management Board, Chief Technical Officer
Daniyar Kadylkhanovich Ibrayev
member of the Management Board, Chief Security Officer
Malik Alimzhanovich Amardinov
member of the Management Board, Chief Digital Development Officer
CURRICULA VITAE OF THE MEMBERS OF THE MANAGEMENT BOARD
ASKHAT
ARKHATOVICH
UZBEKOV
is the Chairman of the Management Board and also holds the position of Chief Operating Officer
Mr. Uzbekov was elected as the Chief Operating Officer and Chairman of the Management Board of Kcell JSC
on May 11, 2022.
Askhat Uzbekov graduated from Turan University with a major in International Economics in 2000. In 2022,
he was awarded an Executive MBA from the London Business School. Prior to 2005, Askhat Uzbekov worked
in the taxation and audit departments of Ernst & Young Kazakhstan LLP. He then held positions in the Treasury
Department of KazMunaiGas Exploration Production JSC for seven years until early 2012. From 2012
to December 2014, he served as the Chief Financial Officer of KMG EP International (Netherlands).
In January 2015, Askhat Uzbekov joined Kazakhtelecom JSC as the Director of the Finance Department,
the largest telecommunications service provider in the country. In March 2015, he assumed the role of Managing
Director and Chief Treasurer of Kazakhtelecom JSC. In January 2016, in addition to his previous responsibilities,
Mr. Uzbekov took on the role of Financial Controller for the Kazakhtelecom Group. Since September 2016,
he has been serving as the Chief Financial Officer of the Company. He played a direct role in the completion
of the transaction to acquire 75% of the shares in Kcell JSC in 2018.
MARIA
VITALYEVNA
AVERCHENKO
is a member of the Management Board and holds the position of Chief Commercial Officer
Mrs. Averchenko was appointed as the Chief Commercial Officer and became a member of the Company’s
Management Board on April 9, 2021.
Mrs. Averchenko has over 17 years of experience in the telecommunications and banking sectors, including
administration. From 2015 to 2017, she held the position of Chief B2C Commercial Officer at Vimpelcom Ltd
in Moscow, and from 2017, she served as the Director of Partner Relations. Prior to that, she held senior positions
at RTK (MTS retail chain) and Euroset. Mrs. Averchenko graduated from the Krasnoyarsk State Technical
University with a major in Computer and Engineering Graphics Engineering.
60
61
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
Remuneration Information
The total remuneration paid to members of the executive
body in 2022 amounted to 819,068,825.14 Tenge (before
taxes). This amount includes salaries and year-end
bonuses.
Anti-Corruption
The anti-corruption measures implemented
by the Company are outlined in the Kcell JSC Anti-
Corruption Policy, which was approved by the resolution
of Kcell JSC’s Board of Directors on August 5, 2022.
The Company adheres to the following key anti-corruption
principles:
1. Zero tolerance for any form of corruption;
2. Commitment of senior staff and setting the tone
from the top;
3. Engagement of employees;
4. Accountability and inevitability of punishment;
5. Compliance with the laws of the Republic
of Kazakhstan and internationally accepted standards;
6. Adequacy of corruption prevention and combating
procedures;
7.
Efficiency of anti-corruption procedures;
8. Due diligence;
9. Monitoring and control.
In accordance with the Anti-Corruption Policy, the Company
conducts
annual
identification
and
assessment
of corruption risks, as well as develops measures
to mitigate such risks. The purpose of this identification
and assessment is to identify activities and business
processes within the Company that are susceptible to non-
compliance with anti-corruption laws and where there is
a strong possibility of corruption offenses being committed
by the Company’s officers and employees for personal gain
or the benefit of the Company.
Corruption risks are identified and assessed through
anti-corruption monitoring and internal analysis. The anti-
corruption monitoring includes, but is not limited to,
the following measures:
1. Conducting compliance expertise of the Company’s
key internal documents and their drafts to identify
any provisions that may contribute to corruption
(corruptogenic factors) and making recommendations
for their elimination;
2. Monitoring the anti-corruption laws of the Republic
of Kazakhstan, as well as the anti-corruption laws
of foreign countries that affect the Company’s
operations, in order to promptly align internal
documents with changing requirements;
3. Examining reports from individuals and legal
entities regarding any instances of corruption involving
the Company’s officers and employees;
4. Monitoring media publications.
The Company’s structural subdivisions undergo internal
analysis of corruption risks, which includes:
1. Identifying the trigger points in the business
processes that are most susceptible to corruption
offenses.
2. Describing corrupt practices, including:
- сharacteristics of benefits or advantages that
can be obtained through corruption offenses
by the Company or its officers and employees;
- identifying key positions within the Company that
are susceptible to corruption offenses;
- identifying potential forms of corruption payments;
3. Evaluating the presence and effectiveness of internal
control procedures.
Conflict of Interest Management
The principles and procedures for resolving conflicts of interest
within the Company are outlined in the Provision on Settlement
of Conflicts of Interests at Kcell JSC, which was approved
by the resolution of Kcell JSC’s Board of Directors on August
5, 2022.
The Company takes every reasonable effort to prevent
conflicts of interest and identify circumstances that may
cause or contribute to such conflicts. The Corporate Secretary
and Head of the Compliance Control Service are authorized
to request information and explanations from members
MALIK
ALIMZHANOVICH
AMARDINOV
is a member of the Management Board and serves as the Chief Digital Development Officer
Mr. Amardinov was appointed as the Chief Digital Development Officer and a member of the Management Board
of Kcell JSC on September 15, 2022.
Malik Alimzhanovich Amardinov holds two higher education degrees. In 2008, he graduated from
the Academy of Banking at Kazakh University Alatau, majoring in Finance. In 2016, he obtained a degree from
the Kazakhstan Engineering and Technological University, specializing in Computer Engineering and Software.
With a total of 16 years of experience in the IT industry, including 12 years in senior positions within the banking
sector, he brings valuable expertise to his role. His most recent positions were Executive Director and Chief
IT Architect at Fortebank, where he successfully oversaw IT implementation and coordinated over 10 project
teams.
DANIYAR
KADYLKHANOVICH
IBRAYEV
is a member of the Management Board and serves as the Chief Security Officer
Mr. Ibrayev was appointed as the Chief Security Officer and a member of Kcell JSC’s Management Board
starting from June 23, 2022.
Daniyar Kadylkhanovich Ibrayev completed his studies at the Military Institute of the NSC of the Republic
of Kazakhstan (now known as the Academy of the Border Service of the National Security Committee
of the Republic of Kazakhstan) in 2000, specializing in Telecommunications Engineering. In 2007, he obtained
his Bachelor of Jurisprudence degree from the Kazakh Humanitarian and Legal University in Nur-Sultan. From
2020 onwards, Mr. Ibrayev has held various positions at Kcell JSC, initially serving as an Advisor to the Strategic
Development Department, and later assuming the role of Chief Expert in the Security Department.
Prior to joining Kcell JSC, he worked at the Unified Accumulative Pension Fund JSC and held positions
in governmental agencies.
AZAMAT
DAULETOVICH
UISUMBAYEV
is a member of the Management Board and serves as the Chief Executive Officer (Corporate Affairs)
Mr. Uisumbayev was appointed as the Chief Executive Officer (Corporate Affairs) and a member
of the Company’s Management Board on April 15, 2022.
Over the past 12 years, Azamat Uisumbayev has held various positions within the Kazakhtelecom JSC Group,
including the roles of Managing Director - Financial Controller of Kazakhtelecom JSC and Commercial Director
of KT Cloud Lab LLP. Prior to his career in the telecommunications industry, he worked for governmental
agencies in the Republic of Kazakhstan.
Mr. Uisumbayev holds a higher education degree with a major in economics and law. He is a Master’s degree
holder (MRA & MBA) from the Russian Presidential Academy of National Economy and Public Administration
in Moscow. He has successfully completed the “Leaders of Digital Transformation” advanced training course
at the Moscow School of Management Skolkovo. Currently, he is enrolled in the Executive MBA program
at Nazarbayev University.
KIRILL
VALERYEVICH
STRASHENKO
is a member of the Management Board and holds the position of Chief Technical Officer
Mr. Strashenko was appointed as the Chief Technical Officer and a member of the Company’s Management
Board on June 23, 2022.
In 2004, Kirill Valeryevich Strashenko graduated from the Almaty University of Power Engineering
and Telecommunications (AUPET) with a major in Telecommunications Engineering. From 2004 to 2016, he
held various positions at Kcell JSC, starting as a Data Transfer Engineer and eventually becoming the Head
of the Data Transfer System Department. From 2016 to 2018, he served as the Network and IT Infrastructure
Manager and was also appointed as the Joint LTE Network Project Manager, working in collaboration with Kar-
Tel LLP. From 2018 to 2021, he held the position of Deputy Chief Technical Officer. From 2021 to May 2022, he
served as the Network Development Manager. In 2019, he was honored with the prestigious government award,
“Honorable Communication Man.”
62
63
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
About the Company / Corporate Strategy / Management’s Statement of Performance
Risk Management / HR Management / Environmental and Social Responsibility
BASIC INFORMATION OF THE COMPANY’S PROCUREMENTS IN 2022
2022 target
52.00 billion Tenge
Number of contracts signed
694
Number of vendors
311
Value of contracts signed
47.46 billion Tenge
Fulfillment of the procurement plan
97.55%
Savings
3.69 billion Tenge
Portion of procurements performed using competitive methods, in % of the total contract
value
64.1%
Local content share in goods purchased
1.18%
Local content share in works/services purchased
43.8%
Internal Audit
The Internal Audit Service (IAS) is a body of Kcell JSC
responsible for organizing and conducting internal audits
within the Company.
The Internal Audit Service is directly subordinate
and accountable to the Board of Directors.
The mission of the Internal Audit Service is to provide
necessary
support
to
the
Board
of
Directors
and the Management Board in fulfilling their obligations
and achieving the strategic goals of Kcell JSC.
The main goal of the Service’ activities is to provide
the Board of Directors with independent and objective
assurance, as well as guidance to enhance risk
management, internal controls, and corporate governance
systems within the Company.
The key objectives of the IAS are as follows:
• assessing the reliability and effectiveness
of the Company’s internal control system;
• evaluating improvements in the corporate
governance process;
• measuring the efficiency and rationality of resource
utilization and safeguarding methods;
• ensuring credibility, completeness, and impartiality
of the accounting system and reliability of financial
statements;
• assessing the Company’s compliance with the laws
of the RoK and evaluating the adequacy of systems
and procedures for compliance;
• assessing fraud risk and the effectiveness of fraud
risk management.
The IAS operates in accordance with the Provision
on the Internal Audit Service and the Annual Audit
Plan approved by the Board of Directors.
Based on the audit findings, the IAS develops relevant
recommendations, including proposals for improving
internal controls, risk management systems, and business
conduct principles. The Service also provides comments
on matters within its scope of responsibility.
In its operations, the IAS upholds the principles of integrity,
impartiality, confidentiality, and professional competence,
as defined by the Code of Ethics and the International
Standards for the Professional Practice of Internal Auditing
published by the Institute of Internal Auditors.
External Audit
In accordance with the resolution of the extraordinary
General Meeting of Shareholders held on December
13, 2022, Ernst & Young LLP has been appointed as
the auditing firm to audit the Company’s financial
statements for the period of 2022 to 2024.
of the Board of Directors, members of the Management Board,
and employees of the Company regarding any violations
of shareholders’ rights or situations that give rise to conflicts
of interest.
If it is not possible to prevent a conflict of interest at the level
of a specific subdivision, the head of that subdivision must
promptly inform the Chairperson of the Management Board
and the Head of the Compliance Control Service about
the conflict of interest, its underlying reasons, and the measures
that have been taken or may be taken to address it.
The head of the relevant department, in coordination with
the employee designated by the Human Resource Department,
shall determine the procedure for resolving conflicts of interest
among the Company’s employees.
When necessary, the Chairperson of the Management Board
is authorized to establish a working group to resolve conflicts
of interest. The working group should include representatives
from the Compliance Control Service, HR Service, Legal
Subdivision, and the subdivision where the individual involved
in the conflict of interest works, as well as other relevant
parties. The composition of the working group should ensure
the absence of any conflicts of interest that could influence
the decisions made by the group.
The Provision on Settlement of Conflicts of Interests specifies
the following methods for resolving conflicts of interest:
• The Company’s employee may choose to refrain from
participating in decision-making processes that could be
influenced by the conflict of interest;
• Access to specific information may be restricted
for employees involved in conflicts of interest;
• The employee may be reelected or transferred
to another position, subject to their consent, in accordance
with the procedures prescribed by the laws of the Republic
of Kazakhstan, provided that the new role eliminates any
potential conflicts of interest;
• Revision and modification of the employee’s official
duties and functions;
• Dismissal of the employee in accordance with
the procedures prescribed by the laws of the Republic
of Kazakhstan;
• Elimination of the private interest by the employee;
• Implementation of other measures by the Company
or the employee to prevent or resolve conflicts of interest.
The Compliance Control Service is responsible for preventing
business risks, addressing issues, and overseeing compliance
with
statutory
and
ethical
standards.
The
presence
of a compliance system indicates responsible and transparent
operations in line with global practices.
During the reporting year, the Compliance Control Service
implemented the following measures:
• Developed and updated internal compliance
documents;
• Conducted 14 training sessions for the Company’s
employees on anti-corruption laws, business conduct,
and ethics;
• Conducted 8 background checks on candidates
for senior positions within the Company to identify any
affiliations or potential conflicts of interest;
• Addressed 16 requests and complaints received
through the hotline;
• Conducted security screenings on 107 counterparties
in compliance with the Samruk-Kazyna JSC Procurement
Procedure;
• In 2022, 231 employees of the Company completed
the mandatory declaration form regarding the presence
or absence of a conflict of interest, including 21 employees
who reported potential conflicts of interest. All cases were
reviewed by the Compliance Control Service.
Related Party Transactions
In 2022, the Company engaged in transactions with related
parties, involving the purchase of services amounting to 25
billion 620 million Tenge and the sale of services worth 14,122
million Tenge. These related party transactions primarily
involved companies within the Kazakhtelecom JSC Group.
Procurement Practices
Kcell JSC adheres to procurement practices that comply with
the regulatory requirements of SWF Samruk-Kazyna JSC
and the internal documents of the Company. The procurement
processes are managed through the Fund’s e-procurement
system.
During procurement, the Company follows the following
principles:
• minimizing costs;
• timely provision of goods, works, and services of high
quality;
• ensuring openness and transparency
in the procurement process;
• exercising control and taking responsibility for decisions
made.
05
0
RISK MANAGEMENT SYSTEM
66
CLASSIFICATION OF THE KEY RISKS THE COMPANY IS EXPOSED TO
66
The new speeds opportunities
RISK
MANAGEMENT
66
67
RISK MANAGEMENT
RISK MANAGEMENT
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance
HR Management / Environmental and Social Responsibility
RISK MANAGEMENT SYSTEM
The Corporate Risk Management System (CRMS) is
an integral component of the activities of Kcell JSC aimed
at identifying, assessing, and monitoring all existing risks,
as well as taking measures to mitigate such risks.
Kcell JSC’s current risk management model is set up
in compliance with the international risk management
standards COSO ERM and ISO 31000.
The risk management efforts are based on Kcell JSC’s
Risk Management Policy, which establishes the goals,
objectives, and vision of the corporate risk management
system. It defines the basic principles of the risk
management process, the risk management structure, key
components of the risk management system, and ensures
a systematic and consistent approach to implementing
the risk management process.
The
Company’s
Board
of
Directors
bears
overall
responsibility for the risk structure to the shareholders
in the context of risk management.
The goals of the Corporate Risk Management System are
as follows:
• Strategic goals;
• Operating goals;
• Goals related to the preparation of reliable reports;
• Goals related to compliance with applicable laws
and internal requirements.
To ensure the efficient operation of its CRMS, the Company
is governed by the following interconnected components
at all levels of its operations, which correspond
to the business life cycles:
1. Management and culture;
2. Strategy and goal setting;
3. Performance;
4. Monitoring and introduction of changes;
5. Information, communication, and reporting.
The organizational framework of the Company’s CRMS is
represented at several levels and includes the following risk
management process participants:
• The Board of Directors;
• The Internal Audit Committee of the Board
of Directors;
• The Internal Audit Service;
• The Management Board;
• The Risk Management Committee;
• The Company’s Risk Division;
• Structural subdivisions, employees of the Company,
and risk coordinators.
Classification of the Key Risks
to Which the Company is Exposed
The Company identifies the risks of the following types,
which could have a material adverse effect on its activities:
1. Strategic risks;
2. Operational risks;
3. Financial risks;
4. Exchange rate risks;
5. Legal risks;
6. Disaster or catastrophe risks.
I. Strategic risks. Strategic risk is categorized as
potential losses incurred as a result of changes or errors
in the determination and implementation of the Company’s
business
and
development
strategies,
changes
in the political or regional situation, market fluctuations,
or consumer behavior. Risk factors also include growing
price-based competition caused by actions of other
mobile communications providers or newly adopted laws.
The Company seeks to reduce such risks by protecting its
leadership in regions with a high presence and by launching
competitive tariffs and products to increase its share
in the Kazakhstani market.
II. Operational risks. Operational risk is defined as
the probability of loss caused by defects or errors
in internal processes, supply chain, personnel recruitment,
culture, and entity rules. The majority of operational risks
are classified as low risks, and certain measures have been
taken to mitigate them as part of routine risk management
procedures.
An exception to low-risk classification is information
systems and technologies. The Company associates
information systems and technologies with high risks.
Protecting customers’ privacy and managing data are
essential parts of the services provided by the Company.
A data breach can have detrimental consequences
for the business in both the short term and the long
run. Therefore, the Company’s networks are backed up
by the latest information security systems, which include
measures and processes to reduce the risk of cyber
attacks.
III. Financial risks. The Company can be exposed
to financial fragility from different sources. The Risk
Management System aims to minimize potential negative
effects on the Company’s activities caused by fluctuations
in financial markets and other macro- and microeconomic
factors.
Credit risk. The Company’s credit risk policy ensures
that products and services are sold only to customers
and distributors with proper credit scores. If corporate
customers have independent credit ratings, those ratings
are used. Otherwise, a last-minute risk assessment
is carried out to measure the prospective customer’s
creditworthiness,
taking
into
consideration
their
current financial status, credit score, and other factors.
The Company’s management analyzes and follows up
on outstanding trade accounts receivable and overdue
balances, and if customers fail to fulfill their obligations,
mobile communications services are cut off.
The
Company
has
a
highly
diversified
portfolio
of customers consisting of numerous individuals
and legal entities, minimizing credit concentration
risk. Although its income may be exposed to economic
factors, the management does not identify any material
risk of loss. The Company has established partnership
relationships with several banks believed to be exposed
to minimal default risk.
The Republic of Kazakhstan is viewed as an emerging
market and is exposed to risks inherent in such markets.
These risks also apply to the banks where the Company
deposits its cash and cash equivalents and holds its fixed-
term deposits. Therefore, Kcell invests solely in financial
instruments with high credit ratings.
Exchange rate risk. The majority of the Company’s
exchange rate risk stems from fluctuations in the Tenge/
US dollar exchange rate. However, the Company’s profits
are not significantly vulnerable to this factor, despite sales
proceeds from certain services (particularly roaming
services) being recorded in US dollars. US dollars are
predominantly used to purchase equipment, installations,
and inventories.
The Company does not use derivative financial
instruments to hedge exchange rate risk, considering
the
immaturity
of
Kazakhstan’s
stock
market.
The Company complies with rules requiring balancing
assets and liabilities recognized in foreign currencies if
practical and expedient.
IV. Legal risks. Legal risk is defined as the probability
of uncertainty arising from legal actions or ambiguity
in the application or interpretation of contracts, laws,
or regulatory acts.
Therefore, the Company’s legal department ensures
compliance with current laws, monitors changes in laws,
and participates in discussions of bills whenever possible.
V. Disaster or catastrophe risks refer to natural
phenomena or processes that can lead to catastrophic
situations characterized by a sudden drop in population,
infrastructure
and
property
destruction,
and/or
fatalities. The Company takes measures to help minimize
the occurrence of such circumstances, such as fires,
accidents, and incidents resulting from a lack of proper
care for people.
These measures include fire drills, fire-detecting systems,
periodic vehicle maintenance, preventive measures against
seasonal diseases, medical insurance, annual medical
examinations for personnel, diesel generators for power
failure situations, water reserves for employees, and other
preventive measures.
06
0
HR POLICY AND LABOR PRACTICES
70
PERSONNEL STRUCTURE AND HEADCOUNT
70
LABOR REMUNERATION, STAFF EVALUATION AND INCENTIVES
74
EMPLOYEE SOCIAL PROTECTION
75
PERSONNEL TRAINING
76
HEALTH AND SAFETY
77
The new speeds opportunities
HR MANAGEMENT
70
71
HR MANAGEMENT
HR MANAGEMENT
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management
Environmental and Social Responsibility
When hiring employees, the Company seeks
to achieve gender balance
HR Policy and Labour Practices
The HR Policy of Kcell JSC focuses on the efficient
and successful building of a professional team. Kcell JSC is
not only one of the largest telecommunications companies
in Kazakhstan but also an attractive employer for both
young and experienced job seekers.
PRINCIPLES OF KCELL JSC PERSONNEL POLICY
The Company shall notify its employees of any changes
in
labor
relationships
initiated
by
the
Company,
in accordance with the deadlines prescribed by the laws
of the Republic of Kazakhstan:
• Forthcoming layoff of personnel: 1 month prior
to the layoff;
• Expiration of a labor contract: on the last business
day;
• Employee’s failure to pass probation: during
the probation period;
• Change in working conditions: 15 calendar days
prior to the effective date of such change.
In 2022, two complaints were filed by the Company’s
employees and sent to the regulatory authority, specifically
the Almaty City Department of Labor Inspection Municipal
Public Institution. The regulatory authority conducted
an inspection and determined that no violations were found
based on the inspection results.
Personnel Structure and Headcount
As of the end of 2022, the Company had a regular staff
of 2,517 employees, which included 2,247 full-time
employees and 270 part-time employees (substituting
for other employees during maternity leaves, etc.).
The increase in headcount was due to the Company’s
expanding business volumes and the growing number
of services provided to customers.
STRUCTURE OF THE COMPANY’S PERSONNEL AS OF DECEMBER 31, 2022, WITH A BREAKDOWN BY AGE
number of employees as of the end of the year
Employees
18-29
30-39
40-49
50<
total
Part-time
170
82
17
1
270
Full-time
726
1,015
401
105
2,247
Total
896
1,097
418
106
2,517
51,4%
The share of women
in the Company’s staff
332
Number of women,
hired in 2022
The share of men
in the Company’s staff
48,6%
Number of men,
hired in 2022
403
2020
2021
2022
2,120
2,249
2,517
Headcount, in persons
The majority of employees (1,015
individuals) are aged between 30
and 39 years old, while the second-
largest group (896 individuals)
consists of employees aged 18 to 29.
The proportion of older employees is
approximately 20% of the Company’s
total staff count.
DYNAMICS OF THE STAFF NUMBER IN 2020 TO 2022
number of employees as of the end of the year
Principle
Description of the principle
The career growth of employees who have performed exceptionally well while
working at the company and have proven their ability to deliver excellence.
PRINCIPLE
OF MERITOCRACY
The most talented candidates are selected through comprehensive tests, in-depth
examination of the candidate’s experience, and other methods to assess their
professional competence.
PRINCIPLE OF EFFICIENT
HIRING
The HR Policy takes into consideration the current and anticipated needs
of the business, as well as the tone of the labor market.
HR STRATEGIC
PLANNING
The personnel training is organized according to the “70:20:10” principle:
employees’ professional growth is ensured through their actual work experience
(70%), interactions with others (20%), and educational activities (only 10%).
FOCUS ON EMPLOYEES’
PROFESSIONAL GROWTH.
The HR department tracks the needs of the company’s relevant subdivisions
for qualified employees and provides upgrade training for existing employees
in an online mode.
INTEGRATION OF THE HR
SERVICE’S BUSINESS PROCESSES
WITH OTHER SUBDIVISIONS.
72
73
HR MANAGEMENT
HR MANAGEMENT
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management
Environmental and Social Responsibility
STRUCTURE OF THE COMPANY’S PERSONNEL AS OF DECEMBER 31, 2022, WITH A BREAKDOWN BY GENDER
AND REGIONS
number of employees as of the end of the year
women
men
total
women, in %
men, in %
Total, in %
Full-time
1,149
1,098
2,247
51.13
48.87
100
Aksay
1
1
100
100
Aktau
18
15
33
54.55
45.45
100
Aktobe
21
21
42
50.00
50.00
100
Almaty
662
630
1292
51.24
48.76
100
Atyrau
36
18
54
66.67
33.33
100
Zhanaozen
5
1
6
83.33
16.67
100
Zhezkazgan
1
1
100
100
Zhetysai
1
1
100
100
Karagandy
26
22
48
54.17
45.83
100
Kokshetau
13
11
24
54.11
45.83
100
Kostanai
5
14
19
26.32
73.68
100
Kyzylorda
11
13
24
45.83
54.17
100
Astana
93
95
188
49.47
50.53
100
Pavlodar
9
16
25
36.00
64.00
100
Petropavlovsk
6
10
16
37.50
62.50
100
Saryagash
5
5
100
100
Semey
11
14
25
44.00
56.00
100
Taldykorgan
6
9
15
40.00
60.00
100
Taraz
10
22
32
31.25
68.75
100
Temirtau
1
1
100
100
Turkestan
6
11
17
35.29
64.71
100
Uralsk
11
16
27
40.74
59.26
100
Ust-Kamenogorsk
8
15
23
34.78
65.22
100
Shymkent
192
135
327
58.72
41.28
100
Ekibastuz
1
1
100
100
Part-time
145
125
270
53.70
46.30
100
Aktau
5
5
10
50.00
50.00
100
Aktobe
7
4
11
63.64
36.36
100
Almaty
47
29
76
61.84
38.16
100
Atyrau
10
2
12
83.33
16.67
100
Karagandy
3
4
7
42.86
57.14
100
Kokshetau
2
3
5
40.00
60.00
100
Kostanai
6
5
11
54.55
45.45
100
Kyzylorda
3
3
6
50.00
50.00
100
Astana
12
13
25
48.00
52.00
100
Pavlodar
4
1
5
80.00
20.00
100
Petropavlovsk
3
3
6
50.00
50.00
100
Taldykorgan
3
5
8
37.50
62.50
100
Taraz
2
3
5
40.00
60.00
100
Turkestan
2
2
100
100
Uralsk
3
4
7
42.86
57.14
100
Ust-Kamenogorsk
1
1
2
50.00
50.00
100
Shymkent
34
38
72
47.22
52.78
100
Total
1,294
1,223
2,517
51.41
48.59
100
NUMBER OF NEWLY EMPLOYED PERSONNEL IN 2022, WITH A BREAKDOWN BY GENDER AND REGIONS
women
men
total
Full-time
238
314
552
Aksay
1
1
Aktau
3
5
8
Aktobe
5
5
Almaty
143
199
342
Atyrau
7
6
13
Zhanaozen
1
1
Karagandy
5
5
10
Kokshetau
2
2
Kostanai
1
1
Kyzylorda
2
4
6
Astana
18
18
36
Pavlodar
2
1
3
Petropavlovsk
2
1
3
Saryagash
2
2
Semey
5
2
7
Taldykorgan
1
2
3
Taraz
1
7
8
Turkestan
4
2
6
Uralsk
2
2
Ust-Kamenogorsk
2
3
5
Shymkent
43
45
88
Part-time
94
89
183
Aktau
4
4
8
Aktobe
5
3
8
Almaty
30
19
49
Atyrau
8
2
10
Karagandy
2
3
5
Kokshetau
2
2
4
Kostanai
4
4
8
Kyzylorda
2
3
5
Astana
6
10
16
Pavlodar
3
1
4
Petropavlovsk
2
3
5
Taldykorgan
1
1
2
Taraz
2
2
4
Turkestan
1
1
Uralsk
2
2
4
Ust-Kamenogorsk
1
1
Shymkent
21
28
49
Total
332
403
735
74
75
HR MANAGEMENT
HR MANAGEMENT
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management
Environmental and Social Responsibility
LABOR TURNOVER IN 2022
Employees of both
genders
Men
Women
Labor contracts terminated, including:
592 (23.01%)
318 (12.52%)
274 (10.49%)
By the employee
538 (19.70%)
280 (10.26%)
258 (9.44%)
By the employer
36 (2.48%)
25 (1.84%)
11 (0.64%)
As agreed by the parties
18 (0.83%)
13 (0.60%)
5 (0.23%)
Labor Remuneration, Staff Evaluation and Incentives
To
enhance
the
performance
of
the
personnel
and incentivize, retain, and motivate the best employees,
Kcell has implemented a system of key performance
indicators (KPIs). These KPIs are designed to encourage
employees to work efficiently. The personnel incentive
plans, which include bonus payments, need to be reviewed
and approved by the Company’s senior staff.
“Kcell-Business” Bonus Program is structured around
qualitative and quantitative indicators achieved during
a specified period. Depending on the approved programs
for respective positions, functional motivational bonuses
are accrued on a monthly or quarterly basis.
Annual Bonus, based on the results of KPI cards,
is calculated according to the corporate KPI, KPI
of subdivisions, and individual KPI. The weightage
of these indicators varies depending on the employee’s
position. However, employees who receive bonuses
under the “Kcell-Business” Program are not eligible
for the Annual Bonus.
To improve the employee Net Promoter Score (eNPS)
and working conditions, the Company introduced an action
plan in 2022 called the “Happy Job” KPI. This plan consisted
of several measures, including:
• Launch of the HR DOS communications system;
• Organizing football classes;
• Partnering with Samsung to provide employees with
the opportunity to purchase appliances;
• Enhancing the incentives program for overlapping
positions;
• Establishing the Financial Aid Committee;
• Implementing “free Fridays” and “creative reprieve”
days;
• Overhauling the entire Corporate University training
system;
• Establishing the Employee Mutual Aid Center.
Employee Social Protection
The Company offers its employees an extensive social
package, which includes various types of benefits
and privileges provided to employees on a regular basis.
Additionally, financial aid is available to employees in case
of adverse circumstances. The key types of support
provided are as follows:
• One-time financial aid is granted in the event
of the death of an employee or a close relative
of an employee;
• One-time financial aid is provided to employees who
are raising physically challenged children;
• One-time financial aid is available to disabled
employees;
• Financial assistance is provided to minor children
of deceased Company employees;
• Female employees who have been with
the Company for more than 3 years are eligible
for financial aid if they go on maternity leave, with
the exception of the state welfare benefit.
THE SCOPE OF THE SOCIAL PACKAGE AVAILABLE TO EMPLOYEES OF KCELL JSC
For the purpose of maternity and children protection,
the Company provides additional financial support
to employees who have been with the Company
for more than 3 years. This support includes covering
the difference on maternity allowances, calculated
based on the employee’s full average salary, excluding
the welfare benefit received for income loss during
pregnancy, childbirth, or adoption of a newborn child/
children, in accordance with the laws of the Republic
of Kazakhstan on compulsory social insurance.
In 2022, maternity and parental leaves were granted
to a total of 166 employees, consisting of 163 women and 3
men.
Situations when the aid shall be payable
Type of aids/support
Precedent conditions
• is provided to the minor
children of deceased
employees
• if close relatives die
• if an employee dies
• to disabled employees
• to employees raising
physically challenged
children
upon completion
of the probation period
upon completion
of the probation period
upon completion
of the probation period
upon completion
of the probation period
upon completion
of the probation period
FINANCIAL AID
• up to 185 thousand Tenge
per year
upon completion
of the probation period
MEDICAL
INSURANCE
• 10 business days per year
shall be paid for at 80%
of the salary
SICK LEAVE
• transporting is available
to employees who work
from 11:00 p.m. to 06:00
a.m.
• transporting is available
to employees working
outside the city
TRANSPORTING
• Employees may receive
either a corporate
tariff plan for mobile
communications
or compensation,
depending on their position
and involvement in projects
MOBILE
COMMUNICATION
• The Company provides
a gasoline card
to employees who use their
own cars for work-related
purposes and have jobs
that involve frequent travel
GASOLINE
• An additional amount is
provided for taxi expenses
to employees who do not
own cars and have jobs that
require frequent travel
TAXI
76
77
Personnel Training
Ongoing advanced vocational training and professional
growth are essential for the employees’ development
and
crucial
for
the
Company’s
business
growth.
The Company provides both internal and external training
opportunities for its employees.
In 2022, the total expenses related to external trainings
amounted to 85,862,470 Tenge. A total of 983 employees
attended external trainings, with a cumulative training
duration of 7,209 hours. On average, each employee
received 7 hours of training. Among the employees who
attended external trainings, 85.9% were men and 14.1%
were women.
Internal trainings are conducted through the Kcell
Corporate University. In 2022, a total of 123 internal
trainings
were
held,
with
over
1,800
employees
participating. It is worth noting that the trainees expressed
high satisfaction with the training sessions, with over 90%
of them viewing the trainings favorably.
INFORMATION ON INTERNAL TRAININGS CONDUCTED AT KCELL CORPORATE UNIVERSITY
Health and Safety
The Company places significant emphasis on health
and safety matters, striving to achieve critical objectives
in accident prevention, risk minimization, and ensuring
the safety of our employees’ professional activities.
Work-related accidents are thoroughly documented,
and Kcell takes appropriate measures to investigate them
in accordance with the Company’s internal guidelines
and the Labor Code of the Republic of Kazakhstan. These
measures are in line with the applicable laws, specifically
Chapter 20 of the Labor Code of the Republic of Kazakhstan,
and internal guidelines including the Incident Investigation
Provision and Incident Notification Provision.
In 2022, the Company recorded one accident resulting
in minor bodily injury.
Various fire safety measures have been implemented
across the Company’s facilities, including:
• 73 premises equipped with automatic gas
extinguishing systems;
• 2 facilities equipped with water sprinkler fire
suppression, smoke extraction, and air pressurization
systems;
• 40 facilities fitted with an automatic fire-alarm
system;
• 56 mobile communications base stations equipped
with gas extinguishing systems;
• All premises and buildings provided with emergency
fire-fighting equipment.
The maintenance staff at the headquarters and regional
offices have been supplied with protective clothing
and personal protective equipment, including summer
and
winter
clothing,
footwear,
respirators,
gloves,
and safety spectacles, to ensure safe working practices.
Managers and employees have undergone training in safety
and health, industrial safety, working at heights using
industrial climbing techniques, electrical safety, and Fire
Safety Basics, with appropriate documentary evidence
issued to validate completion of the training programs.
Topic of the courses
School
Number
of trainings
delivered
Number
of trained
employees
Average level
of satisfaction
• “Welcome to Kcell”
• “Internal controls system”
• “Responsible business. Code
of Ethics of Kcell JSC”
• “Basics of the mobile
communications”
43
1,106
98 %
ONBOARDING
PROGRAM
(mandatory training
to be completed by all
new employees)
• “Self-Management”
• “Emotional Intelligence”
• “Stress Management”
• “Team Management”
• “Motivation Management”
• “Process Management”
6
30
92 %
SCHOOL
OF LEADERS
• “Master of Presentations (+design
webinar)”
• “Emotional Intelligence”
• “Stress Handling Skills”
• “Time Management Skills.
Procrastination”
• “Speak Beautifully” Webinar
32
643
98 %
SCHOOL
OF PERFORMANCE
(development
of employees’ personal
performance)
• “Basics of Management Activity”
• “Management Cycle. Planning,
Organizing and Control”
• “Employee Incentives”
• “Personnel Training
and Development”
• “Stress and Conflict Management
in Prof. Activity”
• “Communication Skills”
• “Personnel Recruitment
and Employment”
42
200
98 %
SCHOOL
OF MANAGERS
07
0
ENVIRONMENTAL POLICY
80
ENSURING CUSTOMERS’ SECURITY
81
SOCIAL RESPONSIBILITY AND CHARITY
82
The new speeds opportunities
ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY
80
81
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY
About the Company / Corporate Strategy / Management’s Statement of Performance / Corporate Governance / Risk Management / HR Management
Environmental Policy
As a part of the ICT industry, the Company actively
contributes to the development of a sustainable society
by providing services that enable consumers to minimize
their
environmental
impact,
improve
performance,
and reduce costs. We strive to create convenience for our
customers and society while focusing on improving our
environmental
footprint,
ensuring
efficient
resource
consumption, and reducing costs. The key environmental
aspects of our activities include power consumption,
reducing
greenhouse
gas
emissions,
and
waste
management.
In terms of environmental protection, the Company
adheres to the following principles:
• We adopt a consistent and structured approach
to managing environmental impacts and promoting
efficient resource use, including conducting risk
assessments.
• We prioritize environmentally responsible practices
throughout our subdivisions and value chain.
• We aim to develop, use, and promote ecologically
clean technologies and services across all our
operations and throughout the value chain.
• We regularly measure and monitor environmental
indicators, and ensure open, accurate, and timely
disclosure of relevant information.
The Company strictly complies with all applicable laws
of the Republic of Kazakhstan. Our goal is to achieve
sustainable development by minimizing environmental
damage and utilizing natural resources in a rational manner.
To reduce our environmental impact, the Company
invests in the modernization of self-contained systems
and transitions to more environmentally friendly fuel types,
such as electric power. When installing base stations
and equipment, we comply with the laws of the Republic
of Kazakhstan, and during repair works, we prioritize
the use of environmentally safe materials and technologies.
Additionally,
we
organize
voluntary
environmental
events and initiatives. The Company has implemented
an Environmental Management System in line with
the international standard ISO 14001, further demonstrating
our commitment to responsible environmental practices.
Kcell continues to align with international standards
and trends and conducts an analysis and diagnostic
assessment of the Company’s ESG aspects.
Our goal in the near future is to achieve a strong position
in the ESG ratings. To accomplish this, we plan to develop
a Company strategy incorporating ESG principles, review
procedures and internal normative documents.
WATER CONSUMPTION
The Company’s operations do not require or involve
any significant water withdrawals; however, we strive
to ensure responsible water consumption. The total
volume
of
water
used
by
the
Company
during
the reporting period was 28,473 m3. Water recycling is not
implemented in the Company’s operational processes
(related to the provision of telecommunications services
by the Company’s subdivisions). The Company uses water
solely for its amenities, sanitation, and economic needs.
The installed water flow meters are regularly maintained
to ensure proper functionality.
POWER CONSUMPTION AND ENERGY
EFFICIENCY
The Company plans to conduct an energy audit in 2023
to identify potential energy-saving opportunities. Based
on the findings of the energy audit, an implementation
plan will be prepared and approved. The results
of the energy audit will be disclosed in the next reporting
period.
THE TABLE BELOW PRESENTS THE ENERGY CONSUMPTION FOR 2022
Energy resources
Meas. unit
Consumption
Electric power
kWh
238,153,705.00
Heat
Gcal
3,994.17
Motor gasoline
liter
522,630
Diesel fuel
liter
11,008
Natural gas
m3
23,142.00
*Excluding energy resources received from own sources.
GREENHOUSE GAS EMISSIONS
The Company has two stationary sources of airborne emissions that contribute to pollution. The total volume of greenhouse
gas emissions in 2022 was 0.02069 tonnes, which is well below the specified maximum permissible volume of 4.08579 tonnes.
Additional details regarding the emission volumes during the reporting period are provided in the table below.
Pollutant
Volume of polluting emissions,
in tonnes
Specified maximum permissible
emissions of specific pollutants
in the reporting period, in tonnes
Nitric oxides (expressed as NO2)
0.00800
1.58050
Nitrogen dioxide
0.00800
1.58050
Nitrogen oxide
0.00130
0.25680
Carbon (soft black, black carbon)
0.00050
0.09880
Sulfur dioxide
0.00125
0.24700
Hydrogen sulfide
0.00000
0.00000
Carbon monoxide
0.00650
1.28420
Benzapyrene
0.00000
0.00000
Formaldehyde
0.00013
0.02470
Paraffins (Alkanes С12-19)
0.00301
0.59379
Total
0.02069
4.08579
WASTE MANAGEMENT
During its operations, the Company primarily generates
waste in the form of discarded equipment and household
waste. Solid household waste is collected and disposed
of by a licensed specialist contractor responsible
for waste removal and burial. Telecommunication facilities
and office appliances are written off and transferred
for disposal and recovery in accordance with the corporate
standard “Rules of Dismantling and Disposal of Written-
off
Telecommunication
Facilities”.
The
discarded
equipment, cables, and office appliances are handed over
to a licensed specialist contractor authorized to collect,
store, and dispose of non-ferrous and ferrous metals.
The operational service will determine if any components
of the equipment can be used as spare parts.
Ensuring Customers’ Security
Protection of subscribers’ personal data is an essential
aspect of the Company’s activities, as personal information
is increasingly sought-after by intruders in the digital era.
The leakage of subscribers’ data could be very dangerous
and may result in fraud and other cybercrimes.
We regularly check and update our security measures
to ensure their efficiency. The Company aims to grant its
employees minimal access to information and utilizes
various technologies, including secure network protocols
and software to prevent data leakage. We also organize
audits and provide personnel training.
The Company places special emphasis on the development
of its information security and employs qualified full-time
employees who hold cybersecurity certificates (CEH,
CHFI, GIAG Reverse Engineering Malware, OSCP, OSWE).
These measures enable the Company to ensure a reliable
level of personal data protection and create the necessary
conditions to defend against advanced cyber assaults.
Currently, the Company has its own systems to identify
and block fraudulent numbers and restrict incoming
fraudulent calls. The Company combats:
• Various types of telecommunication fraudulent
practices;
• Calling subscriber’s phone number takeovers.
To enhance the system’s efficiency and verify traffic with
numbers from other mobile communications providers,
in 2022, the Company collaborated with Mobile Telecom-
Service LLP and Kar-Tel LLP to introduce an integration
framework for mutual verification of international traffic.
This framework aims to prevent the takeover of phone
numbers initiating calls. This measure successfully
minimized the number of fraudulent calls from Kazakhstani
mobile phone numbers. Since its implementation during
the second half of 2022, approximately 19 million calls
with phone number takeovers have been blocked. In 2023,
the Company plans to develop a technical solution and sign
an agreement to introduce a similar integration framework
with Kazakhtelecom JSC.
82
83
Social Responsibility and Charity
Kazakhtelecom JSC, which holds 51% of the voting
shares in Kcell JSC, is a member of the Sovereign Wealth
Fund Samruk-Kazyna JSC (SWF) Group. The SWF and its
subsidiary organizations implement a unified policy
to provide charitable support through the Samruk-
Kazyna Trust Corporate Fund.
Samruk-Kazyna Trust is the fund within the SWF Group
that focuses on the development of social projects
and implements charitable programs and projects
in the Republic of Kazakhstan. In close cooperation with
the Government of the RoK, Samruk-Kazyna Trust carries
out charitable projects in the following areas:
• Support for individuals and communities
in the social and medical sectors
• Development of the media, cultural community,
and human potential
• Strengthening labor and interethnic relationships,
and investing in society’s sustainable development
• Support for regional and business initiatives
The SWF Group consistently adheres to the principles
of social responsibility, which include creating new jobs,
implementing social programs for employees, sponsoring
and supporting charitable activities, and organizing
environmental and educational events.
Samruk-Kazyna
JSC’s
sponsorship
and
charitable
activities aim to revive spiritual and national values, support
culture, science, and education, facilitate scientific
and technological progress, promote a healthy lifestyle,
provide assistance to underprivileged and low-income
citizens, and support sports.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
86
REPORT OF THE COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE
92
The new speeds opportunities
APPENDIX
86
87
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
A member firm of Ernst & Young Global Limited
«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
Independent auditor’s report
To the Shareholders and the Audit committee of the Board of directors of Kcell JSC
Opinion
We have audited the consolidated financial statements of Kcell JSC and its subsidiaries
(hereinafter, the Group), which comprise the consolidated statement of financial position as at 31
December 2022, and the consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at 31 December 2022 and its
consolidated financial performance and its consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the consolidated financial statements section of our report. We are independent
of the Group in accordance with the International Ethics Standards Board for Accountants’
(IESBA) International Code of Ethics for Professional Accountants (including International
Independence Standards) (IESBA Code), together with the ethical requirements that are relevant
to our audit of the consolidated financial statements in the Republic of Kazakhstan, and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the consolidated financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters. For
each matter below, our description of how our audit addressed the matter is provided in that
context.
A member firm of Ernst & Young Global Limited
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
consolidated financial statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial statements.
The results of our audit procedures, including the procedures performed to address the matters
below, provide the basis for our audit opinion on the accompanying consolidated financial
statements.
Key audit matter
How our audit addressed the key audit
matter
Revenue recognition
Recognition and measurement of revenue from
provision of telecommunication services was
one of the matters of most significance in our
audit due to the risk of improper revenue
recognition as the billing systems employed by
the Group are complex and automated
processes. In addition, effect of accounting
treatment of changing tariff structures and
multi-element arrangements on revenue could
be significant.
The selection and application of revenue
recognition policies, including the application
of IFRS 15 Revenue from contracts with
customers, involve a number of key
judgements and estimates, and therefore
revenue could be subject to misstatement,
whether due to fraud or error, including
untimely recognition.
The Group’s disclosure of information in
respect of the accounting policies on revenue
recognition is included in Note 3 to the
consolidated financial statements, and detailed
revenue disclosures are included in Note 23 to
the consolidated financial statements.
We have considered the relevant IT systems
and the design of controls, and tested the
operating effectiveness of controls over
capturing and recording data in billing systems
related to revenue recognition; authorisation
of changes and accounting treatment of tariff
rates input to the billing systems; and
calculation of amounts billed to the customers.
We performed analytical procedures, including
monthly fluctuations analysis and analysis of
changes in key drivers of revenue, and
compared financial and non-financial data. We
also analysed the timing of revenue
recognition.
We analysed the key judgements and
estimates, and the accounting policy for
compliance with IFRS 15. We considered the
disclosures related to revenue recognition in
light of the requirements of IFRS 15.
88
89
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
A member firm of Ernst & Young Global Limited
Costs capitalization
The Group capitalises significant internal
labour costs and external costs in respect of
major capital projects, including mobile
network upgrades. There is risk in respect of
valuation and allocation of assets, that costs
which do not meet the criteria for
capitalisation in accordance with IAS 16
Property, plant and equipment and IAS 38
Intangible assets are capitalised or that assets
continue to be recognized as non-current
assets despite no longer meeting the relevant
capitalisation criteria.
Due to the relative size of the Group’s mobile
network related property and equipment and
intangible assets in the consolidated statement
of financial position and the area of judgment
around the application of capitalization
criteria, we considered this as one of the
matters of most significance in our audit.
The Group’s policy on the capitalisation of
assets is included in Note 3 to the consolidated
financial statements, and detailed property and
equipment and intangible assets disclosures
are included in Note 7 and Note 8,
respectively, to the consolidated financial
statements.
We obtained an understanding of the process
around the property and equipment cycle and
intangible assets cycle. We have considered
the design and tested the operating
effectiveness of related controls.
We analysed the appropriateness of costs
capitalization policies of the Group.
As part of audit procedures in relation to each
element of capitalised costs we tested
supporting documents on a sample basis and
obtained understanding of the nature of the
costs capitalised. We assessed the timeliness
of the transfer of assets from the
constructions-in-progress to the property and
equipment and intangibles assets. In addition,
we analysed assets recognized as non-current
assets for compliance with capitalisation
criteria.
We considered the related disclosures provided
in the Group’s consolidated financial
statements.
Other information included in the Group’s 2022 Annual report
Other information consists of the information included in the Group’s 2022 Annual report, other
than the consolidated financial statements and our auditor’s report thereon. Management is
responsible for the other information. The Group’s 2022 Annual report is expected to be made
available to us after the date of this auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and
we will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above when it becomes available and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
A member firm of Ernst & Young Global Limited
Responsibilities of management and the Audit committee of the Board of directors for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRSs, and for such internal control as management determines is
necessary to enable the preparation of the consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Audit committee of the Board of directors is responsible for overseeing the Group’s financial
reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
►
Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
►
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group’s internal control.
►
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
90
91
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
A member firm of Ernst & Young Global Limited
►
Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to
continue as a going concern.
►
Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.
►
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit committee of the Board of directors regarding, among other
matters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide the Audit committee of the Board of directors with a statement that we have
complied with relevant ethical requirements regarding independence, and to communicate with
them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate threats or safeguards applied.
92
93
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 31 DECEMBER 2022
In millions of tenge
Notes
31 December
2022
31 December
2021
Assets
Non-current assets
Property and equipment
7
97,724
85,805
Intangible assets
8
43,482
42,284
Investment property
7
2,210
−
Advances paid for non-current assets
4,104
1,930
Right-of-use assets
16
15,084
16,943
Long-term trade receivables
9
4,345
4,148
Cost to obtain contracts
558
472
Deferred tax assets
29
1,598
1,720
Total non-current assets
169,105
153,302
Current assets
Inventories
10
7,980
6,582
Trade receivables
9
26,523
17,751
Other current non-financial assets
11
6,897
10,111
Other current financial assets
12
800
538
Prepaid income tax
30
30
Financial assets at amortized cost
13
14,833
−
Cash and cash equivalents
14
46,248
51,402
Total current assets
103,311
86,414
Total assets
272,416
239,716
Equity and liabilities
Equity
Share capital
6
33,800
33,800
Additional paid in capital
15
1,260
1,260
Retained earnings
103,561
63,211
Total equity
138,621
98,271
Liabilities
Non-current liabilities
Borrowings: non-current portion
15
41,646
48,283
Long-term lease liabilities
16
12,514
15,185
Government grants: non-current portion
22
8,179
5,688
Asset retirement obligation
20
3,808
4,204
Total non-current liabilities
66,147
73,360
Current liabilities
Borrowings: current portion
15
5,597
11,699
Short-term lease liabilities
16
5,323
4,944
Government grant: current portion
22
3,089
2,237
Trade payables
17
34,749
35,705
In millions of tenge
Notes
31 December
2022
31 December
2021
Financial guarantee obligation
18
155
330
Contracts liabilities
19
5,645
3,207
Provisions
21
3,685
3,817
Due to employees
5,708
4,347
Taxes payable other than income tax
1,611
712
Income tax payable
2,086
1,087
Total current liabilities
67,648
68,085
Total liabilities
133,795
141,445
Total equity and liabilities
272,416
239,716
Chairman of the Management Board & Chief Executive Officer
Askhat Uzbekov
Deputy Chief Financial Officer
Damir Mullashev
The accounting policies and notes on pages 96 to 154 are an integral part of
these consolidated financial statements.
The accounting policies and notes on pages 98 to 150 are an integral part of
these consolidated financial statements.
94
95
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
In millions of tenge
Notes
2022
2021
Revenue from contracts with customers
23
219,002
194,081
Income from government grants
22
2,230
2,108
Cost of sales
24
(136,269)
(125,867)
Gross profit
84,963
70,322
General and administrative expenses
25
(16,260)
(14,137)
Selling expenses
26
(2,714)
(3,106)
Impairment of financial assets
9, 12
(6,264)
(2,106)
Impairment of non-financial assets
7, 8
−
(588)
Reversal of tax and related fines and penalties provision
21, 32
−
683
Other operating income
28
1,186
715
Other operating expenses
28
(737)
(1,298)
Operating profit
60,174
50,485
Finance costs
27
(9,270)
(10,326)
Finance income
27
4,350
2,561
Net foreign exchange (loss) / gain
(33)
403
Other non-operating income
−
79
Profit before tax
55,221
43,202
Income tax expenses
29
(14,871)
(10,696)
Profit for the year
40,350
32,506
Other comprehensive income
−
−
Total comprehensive income for the year, net of tax
40,350
32,506
Earnings per share
Basic and diluted, tenge
6
201.75
162.53
Chairman of the Management Board & Chief Executive Officer
Askhat Uzbekov
Deputy Chief Financial Officer
Damir Mullashev
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
In millions of tenge
Share capital
Additional
paid-in capital
Retained earnings
Total equity
Balance at 1 January 2021
33,800
−
48,283
82,083
Net profit for the year
−
−
32,506
32,506
Other comprehensive income
−
−
−
−
Total comprehensive income
−
−
32,506
32,506
Initial recognition of discount (Note 6)
−
1,260
−
1,260
Dividends declared (Note 6)
−
−
(17,578)
(17,578)
At 31 December 2021
33,800
1,260
63,211
98,271
Balance at 1 January 2022
33,800
1,260
63,211
98,271
Net profit for the year
−
−
40,350
40,350
Other comprehensive income
−
−
−
−
Total comprehensive income
−
−
40,350
40,350
At 31 December 2022
33,800
1,260
103,561
138,621
Председатель Правления и Главный Исполнительный Директор
Асхат Узбеков
Заместитель Финансового Директора
Дамир Муллашев
The accounting policies and notes on pages 98 to 150 are an integral part of
these consolidated financial statements.
The accounting policies and notes on pages 98 to 150 are an integral part of
these consolidated financial statements.
96
97
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
In millions of tenge
Notes
2022
2021
Cash flows from operating activities
Profit before tax
55,221
43,202
Adjustments for:
Impairment of financial assets
9,12
6,264
2,106
Impairment of property and equipment and intangible assets
−
588
Finance costs
27
9,270
10,326
Depreciation of property and equipment, investment property and right-of-use
assets
7, 16
18,993
20,157
Amortization of intangible assets
8
11,461
10,621
Write-off of inventory to net realisable value
10
396
179
Write-off of non-financial assets
28
553
−
Income from accounts payable write-off
28
(482)
(211)
Gain on cancellation of lease agreements
−
(14)
Finance income
27
(4,350)
(2,561)
Loss on disposal of property and equipment
28
25
1,134
Reversal of tax and related fines and penalties provision
31
−
(683)
Income from government grants
22
(2,230)
(2,108)
Net foreign exchange (loss)/gain
33
(403)
Operating cash flows before working capital changes
95,154
82,333
Change in inventories
(2,350)
2,601
Change in trade receivables
(14,709)
(3,285)
Change in other current non-financial assets
2,364
(7,045)
Change in other current financial assets
(262)
(522)
Change in cost to obtain contracts
(86)
(287)
Change in trade payables
(4,584)
5,645
Change in other current financial liabilities and provisions
(487)
(334)
Change in contract liabilities
2,368
1,229
Change in taxes payable other than income tax
6,505
9,145
Cash flows generated from operations
83,913
89,480
Income tax paid
(12,902)
(7,609)
Interest received
3,569
2,406
Interest paid
30
(8,652)
(10,221)
Net cash inflows from operating activities
65,928
74,056
Cash flows from investing activities
Purchase of property and equipment
(23,421)
(18,059)
Purchase of intangible assets
(14,254)
(13,102)
Proceeds from disposal of property and equipment
25
96
Proceeds from redemption of financial assets at amortised cost
13
69,350
158,631
In millions of tenge
Notes
2022
2021
Purchase of financial assets at amortised cost
13
(84,163)
(140,018)
Net cash flows used in investing activities
(52,463)
(12,452)
Cash flows from financing activities
Proceeds from loans
30
−
62,500
Repayment of bonds issued
−
(21,754)
Repayment of loans
30
(13,000)
(52,500)
Repayment of principal portion of lease liabilities
30
(5,370)
(4,321)
Dividends paid
6
−
(17,578)
Net cash flows used in financing activities
(18,370)
(33,653)
Net (decrease) / increase in cash and cash equivalents
(4,905)
27,951
Effect of exchange rate changes on cash and cash equivalents
held in foreign currency
(249)
428
Cash and cash equivalents at the beginning of the year
51,402
23,023
Cash and cash equivalents at the end of the year
14
46,248
51,402
NON-CASH TRANSACTIONS
In 2022 the Group received government grants in the total amount of 5,573 million tenge (2021: 10,033 million tenge)
represented by 90% reduction in the annual fee for use of radio frequencies.
The following significant non-cash transactions have been excluded from the consolidated statement of cash flows
In 2022, the Group paid an amount of 21,736 million tenge for property and equipment purchased in prior year (2021: 15,961
million tenge). Property and equipment in the amount of 26,700 million was purchased in 2022 but not paid as at 31 December
2022 (2021: 21,736 million tenge).
Chairman of the Management Board & Chief Executive Officer
Askhat Uzbekov
Deputy Chief Financial Officer
Damir Mullashev
The accounting policies and notes on pages 98 to 150 are an integral part of
these consolidated financial statements.
The accounting policies and notes on pages 98 to 150 are an integral part of
these consolidated financial statements.
98
99
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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, Informatization 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 Astana and Almaty. As at 1 January
2015, the Group provided all locations with a population of over 10,000 people with mobile services using UMTS/WCDMA based
on the terms of the addendum.
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 at the date of the conversion became share capital of the Company and ceased to be
available for distribution to shareholders.
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 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 2022 and 2021 the Company is controlled by Kazakhtelecom JSC. 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.
As at 31 December 2022 and 2021, the shareholders of the Company are presented as follow:
31 December
2022
31 December
2021
Kazakhtelecom JSC
51.00 %
51.00 %
PIONEER TECHNOLOGIES S.A.R.L
14.87 %
14.87 %
First Heartland Jusan Bank JSC
9.08 %
9.08 %
Single accumulative pension fund JSC
7.06 %
7.07 %
Raiffeisenbank JSC
1.54 %
1.54 %
AROYGROUP LLP
1.39 %
0 %
EVEREX LLP
1.16 %
0 %
Other
13.90 %
16.44 %
100.00%
100.00%
As at 31 December 2022 and 2021, the Company has the following principal subsidiary:
31 December
2022
31 December
2021
KazNet Media LLP
100%
100%
The accompanying consolidated financial statements include the financial statements of Kcell JSC and its subsidiary (further
referred to as “the Group”).
The consolidated financial statements were authorised for issue by the Chairman of the Management Board on
14 March 2023.
2. BASIS OF PREPARATION
These consolidated financial statements for the year ended 31 December 2022 have been prepared in accordance with
International Financial Reporting Standards (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 and the notes to these consolidated financial statements. The consolidated financial statements are presented
in Kazakhstani tenge (“tenge”) and all amounts are rounded to the nearest millions, except when otherwise indicated.
GOING CONCERN
The consolidated financial statements have been prepared on a going concern basis, which assumes continuation of the course
of business, realization of assets and settlement of liabilities in the normal course of business.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Company and its subsidiary as
at 31 December 2022. 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.
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when
the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over an investee, including:
•
The contractual arrangement(s) with the other vote holders of the investee;
•
Rights arising from other contractual arrangements;
•
The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary
and ceases 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 control the subsidiary.
100
101
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent
of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments 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 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.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, noncontrolling
interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained
is recognised at fair value.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW AND AMENDED STANDARDS AND INTERPRETATIONS
The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning
on or after 1 January 2022. The Group has not early adopted any standard, interpretation or amendment that has been issued
but is not yet effective.
Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37
An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Group cannot avoid because it has
the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
The amendments specify that when assessing whether a contract is onerous or loss-making, an entity needs to include costs
that relate directly to a contract to provide goods or services include both incremental costs (e.g., the costs of direct labour
and materials) and an allocation of costs directly related to contract activities (e.g., depreciation of equipment used to fulfil
the contract as well as costs of contract management and supervision). 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 had no impact on the consolidated financial statements of the Group as there were no onerous contracts
within the scope of these amendment that arose during the period.
Reference to the Conceptual Framework – Amendments to IFRS 3
The amendments replace a reference to a previous version of the IASB’s Conceptual Framework with a reference
to the current version issued in March 2018 without significantly changing its requirements. The amendments add an exception
to the recognition principle of IFRS 3 Business Combinations 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 Provisions, Contingent Liabilities and Contingent
Assets or IFRIC 21 Levies, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21,
respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date.
The amendments also add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition
at the acquisition date.
These amendments had no impact on the consolidated financial statements of the Group as there were no contingent assets,
liabilities and contingent liabilities within the scope of these amendments that arose during the period.
Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16
The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds
of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating
in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs
of producing those items, in profit or loss.
These amendments had no impact on the consolidated financial statements of the Group as there were no sales of such items
produced by property, plant and equipment made available for use on or after the beginning of the earliest period presented.
IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter
The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation
differences using the amounts reported in the parent’s consolidated financial statements, based on the parent’s date
of transition to IFRS, if no adjustments were made for consolidation procedures and for the effects of the business combination
in which the parent acquired the subsidiary. This amendment is also applied to an associate or joint venture that elects to apply
paragraph D16(a) of IFRS 1.
These amendments had no impact on the consolidated financial statements of the Group as it is not a first-time adopter.
IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial
liability are substantially different from the terms of the original financial liability. These fees include only those paid or received
between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.
There is no similar amendment proposed for IAS 39 Financial Instruments: Recognition and Measurement.
These amendments had no impact on the consolidated financial statements of the Group as there were no modifications
of the Group’s financial instruments during the period.
IAS 41 Agriculture – Taxation in fair value measurements
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.
These amendments had no impact on the consolidated financial statements of the Group as it did not have assets in scope
of IAS 41 as at the reporting date.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance
of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards
and interpretations, if applicable, when they become effective.
IFRS 17 Insurance Contracts
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.
102
103
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
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.
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.
Amendments to IAS 1 Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying
liabilities as 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 classification;
•
Disclosures.
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 require renegotiation.
Definition of Accounting Estimates - Amendments to IAS 8
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 policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is
permitted as long as 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 to help entities provide accounting policy disclosures that are more useful by replacing the requirement
for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies
and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application
permitted. 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.
The Group is currently assessing the impact of the amendments to determine the impact they will have on the Group’s
accounting policy disclosures.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12
In May 2021, the Board issued amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12,
so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences.
The amendments should be applied to transactions that occur on or after the beginning of the earliest comparative period
presented. In addition, at the beginning of the earliest comparative period presented, a deferred tax asset (provided that
sufficient taxable profit is available) and a deferred tax liability should also be recognised for all deductible and taxable
temporary differences associated with leases and decommissioning obligations.
The Group is currently assessing the impact of the amendments.
Lease Liability in a Sale and Leaseback – Amendments to IFRS 16
In September 2022, the Board issued Lease Liability in a Sale and Leaseback (Amendments to IFRS 16).
The amendment to IFRS 16 specifies the requirements that a seller-lessee uses in measuring the lease liability arising in a sale
and leaseback transaction, to ensure the seller-lessee does not recognise any amount of the gain or loss that relates to the right
of use it retains.
The amendment does not prescribe specific measurement requirements for lease liabilities arising from a leaseback. The initial
measurement of the lease liability arising from a leaseback may result in a seller-lessee determining ‘lease payments’ that
are different from the general definition of lease payments in Appendix A of IFRS 16. The seller-lessee will need to develop
and apply an accounting policy that results in information that is relevant and reliable in accordance with IAS 8.
A seller-lessee applies the amendment to annual reporting periods beginning on or after 1 January 2024.
Earlier application is permitted, and that fact must be disclosed. The Group is currently assessing the impact
of the amendments.
FOREIGN CURRENCY TRANSLATION
•
The consolidated financial statements of the Group are presented in tenge, which is the functional currency of the Company
and its 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.
104
105
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Transactions and balances
Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot
rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the official rate established by the “KASE” and published by the National Bank of the Republic
of Kazakhstan (the “NBRK”) at the reporting date. All translation differences are recognized in the consolidated statement
of comprehensive income.
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:
31 December
2022
31 December
2021
US dollar
462.65
431.67
Euro
492.86
487.79
Russian ruble
6.43
5.77
CURRENT VERSUS NON-CURRENT CLASSIFICATION
The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current
classification. An asset as current when it is:
•
Expected to be realised or intended to sold or consumed in normal operating cycle;
•
Held primarily for the purpose of trading;
•
Expected to be realised within 12 (twelve) months after the reporting period; or
•
Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 (twelve) months
after the reporting period.
All other assets are classified as non-current.
A liability is current when:
•
It is expected to be settled in normal operating cycle;
•
It is held primarily for the purpose of trading;
•
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.
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 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.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
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 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.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
•
Level 1 − quoted (unadjusted) market prices in active markets for identical assets or liabilities;
•
Level 2 − valuation techniques for which the lowest level input that is significant to the fair value measurement is directly
or indirectly observable;
•
Level 3 − valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable.
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 financial assets at fair value, and for nonrecurring
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.
106
107
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
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.
PROPERTY AND EQUIPMENT
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 maintenance costs are recognised in profit or loss as incurred. The present value of the expected
cost for the decommissioning of an 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.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:
Years
Buildings and constructions
10-50
Machinery
3-10
Equipment, tools and installations
2-8
Land is not depreciated.
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 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 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.
INVESTMENT PROPERTIES
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment
properties are stated at historical cost less accumulated depreciation and impairment.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:
Years
Buildings and constructions
10-50
nvestment properties are derecognised either when they have been disposed of (i.e., at the date the recipient obtains
control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal.
The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss in the period
of derecognition. In determining the amount of consideration from the derecognition of investment property the Group
considers the effects of variable consideration, existence of a significant financing component, non-cash consideration,
and consideration payable to the buyer (if any).
Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property
to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-
occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated
under property and equipment up to the date of change in use.
INTANGIBLE ASSETS
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 accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding
capitalised development 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.
Intangible assets with finite useful lives are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method
for an intangible asset with 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 of consumption of future economic benefits embodied in the asset are considered
to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. Expenses
on amortization 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 function of the intangible asset.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds 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.
Years
Software and license
3-8
Other telecom licenses
10
Other
8-10
IMPAIRMENT OF NON-FINANCIAL ASSETS
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.
108
109
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining
fair value less costs of 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 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 of 5 (five) years. A long-term growth rate is calculated and applied to project future cash flows after
the fifth year.
Impairment losses of continuing operations are recognised in the consolidated statement of comprehensive income in those
expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment
losses may 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 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.
FINANCIAL ASSETS
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or loss.
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 component or for which the Group has applied the practical expedient, the Group initially measures a financial asset
at its fair value 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 significant financing component or for which the Group has applied the practical expedient are measured
at the transaction price determined under IFRS 15.
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 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 value through profit or loss, irrespective of the business model.
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.
Financial assets of the Group include cash and cash equivalents, trade and other accounts receivable, financial assets
at amortized cost.
Subsequent measurement
For purposes of subsequent measurement financial assets are classified in four categories:
•
Financial assets at amortised cost (debt instruments);
•
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 instruments);
•
Financial assets at fair value through profit or loss.
Financial assets at amortised cost (debt instruments)
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 flows; and
•
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject
to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost includes trade and other receivables.
Financial assets designated at fair value through OCI (equity instruments)
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.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income
in the statement of profit or loss when the right of payment has been established, except when the Group benefits from
such proceeds as a 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.
The Group elected to classify irrevocably its non-listed equity investments under this category.
110
111
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Derecognition
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. 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 flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group
has transferred 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.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement,
the 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 the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises
an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights
and obligations that the Group has retained.
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 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.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk
since initial 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 is required for credit losses expected over the remaining life of the exposure, irrespective
of the timing of the default (a lifetime ECL).
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 provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific
to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments 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. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
FINANCIAL LIABILITIES
INITIAL RECOGNITION AND MEASUREMENT
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans
and borrowings, payables.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The Group’s financial liabilities comprise trade and other accounts payable, loans and borrowings, lease liabilities and financial
guarantees.
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification, as described below:
Loans and borrowings
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 as well as through the EIR amortisation process.
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 EIR. The EIR amortisation is included in finance costs in the consolidated statement of comprehensive income.
This category generally applies to interest-bearing loans and borrowings. Further details are contained in Note 15.
Financial guarantees
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.
Trade and other accounts payable
Liabilities for trade and other accounts payable are recognised at fair value to be paid in the future for goods and services
received, whether or not billed to the Group.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing
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 new liability. The difference in the respective carrying amounts is recognised in the consolidated
statement of comprehensive income.
112
113
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
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.
LEASES
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right
to control 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
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
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 follows:
Years
Buildings and constructions
5-15
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, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section Impairment of nonfinancial
assets.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments
to 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 Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising
the option to terminate. 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.
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 is increased to reflect the accretion of interest and reduced for the lease payments made. In addition,
the carrying amount of lease 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 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
The Group applies the short-term lease recognition exemption to its short-term leases of base station that have a lease
term of 12 months or less from the commencement date and the lessor has unconditional right to terminate contract. Lease
payments on short-term leases are recognised as expense on a straight-line basis over the lease term.
INVENTORIES
Inventories are valued at the lower of cost of acquisition and net realisable value.
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
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under
an insurance 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 is material, provisions are discounted using a current pretax rate that reflects, when
appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Decommissioning liability
Decommissioning liabilities are recognized in respect of the estimated future costs of closure and restoration
and for environmental 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 discounted value of expected liability settlement costs calculated using estimated
cash flows and recognized as part of the initial cost 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 estimated future costs, or in the discount rate applied, are
added to or deducted from the cost of the asset.
114
115
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
EMPLOYEE BENEFIT
Social tax
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.
Besides, the Group withholds 10% of the salary of employees paid as contributions of employees to the accumulating pension
funds. Under the legislation, employees are responsible for their retirement benefits and the Group has no present or future
obligation to further compensate its employees upon their retirement, except as provided below.
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 salaries and transfers them into state or private pension funds on behalf of its employees. Pension contributions are
the responsibility of employees, and the Group has no current or future obligations to make payments to employees following
their retirement. Upon retirement of employees, all pension payments are administered by the pension funds directly.
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
authorised and the distribution is no longer at the discretion of the Group. According to the legislation, distribution is approved
by the shareholders. A corresponding amount is recognised directly in equity.
Non-cash distributions are measured at the fair value of the assets to be distributed with fair value remeasurement recognised
directly in equity.
Upon distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount
of the assets distributed is recognised in the consolidated statement of comprehensive income.
REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer
at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or 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 wireless operators’ network, and roaming revenues charged to other wireless operators for non-Group subscribers
using the Group’s network.
Data services include revenues from 3G, 4G and LTE internet, WAP services and other data services.
Value added services consists of SMS, MMS, info services and providing content of third parties, fax and voice mail services.
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, or activation services and involve consideration in the form of a fixed fee or a fixed fee coupled with
a continuing payment stream. Costs associated with the equipment are recognised when revenue is recognised. The revenue
is allocated to separate product and services on a relative stand-alone selling price method.
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 for separately and revenue is deferred over the total service arrangement period.
In revenue arrangements where more than one performance obligation, transaction price is allocated between the goods
and services 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.
As a practical expedient, the Group does not adjust the promised amount of consideration for the effects of a significant
financing component if the Group expects, at contract inception, that the period between when the Group transfers a promised
good or service to a customer and when the customer pays for that good or service will be one year or less.
1.
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.
2.
Interconnect revenues and costs
The Group charges interconnect per minute fees and fixed monthly payments to other local wireless and fixed line operators
for calls originated outside and terminated within the Group’s network. The Group recognises such revenues when the services
are provided. The Group is charged interconnect fees per minute and fixed monthly payments by other local wireless and fixed
line operators for calls originated within the Group’s network and terminated outside of the network. The Group recognises
such costs when the services are provided.
3.
Data revenue
The data service is recognised when a service is used by a subscriber based on actual data volume traffic or passage of time
(monthly subscription fee).
4.
Roaming revenues charged to the Group’s subscribers
Roaming revenue from the Group’s subscribers for roaming in other operators’ network is charged based on information
provided by other operators to the Group.
5.
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 Group recognises such revenues when the services are provided.
116
117
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
6.
Value added services
Value added services mainly consists of content provided by third parties, different info services, fax and voice mail. When
invoicing the end-customer for third party content service, amounts collected on behalf of the principal are excluded from
revenue.
Roaming discounts
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 traffic. The Group uses various estimates and assumptions, based on historical data and adjusted
for known changes, to determine the amount of discount to be received or granted. Such estimates are adjusted monthly
to reflect newly-available information.
The Group accounts for discounts received as a reduction of roaming expenses and discounts granted as reduction of roaming
revenue. The Group considers terms of the various roaming discount agreements to determine the appropriate presentation
of amount of receivable from and payable to its roaming partners in its consolidated statements of financial position.
Costs to obtain a contract
The Group sells part of payment scratch cards, sim cards, and handsets using dealers. The Group pays a certain commission
to dealers 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 services to the customer. Other commissions to dealers are recognised when the item is sold
to the subscriber.
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 related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset,
it is recognised as income in equal amounts over the expected useful life of the related asset.
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
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group
performs by transferring goods or services to a customer before the customer pays consideration or before payment is due,
a contract asset is recognised for the earned consideration that is conditional.
Trade receivables
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 − initial recognition and subsequent measurement”.
Contract liabilities
A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before
the Group transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs
under the contract (i.e., transfers control of the related goods or services to the customer).
INTEREST INCOME
For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR).
The EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument
or a shorter period, where appropriate, to the net carrying amount of the financial asset. The interest income is recorded as part
of finance income in the consolidated statement of comprehensive income.
DIVIDENDS
Revenue is recognised when the Group’s right to receive the payment is established, which is generally when shareholders
approve the dividend.
EXPENSE RECOGNITION
Expenses are recognized as incurred and reported in the consolidated statement of comprehensive income in the period
to which they relate on the accrual basis.
BORROWING COSTS
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 expensed in the period in which they occur. Borrowing costs consist of interest and other costs that
an entity incurs in connection with the borrowing of funds.
TAXES
Current income tax
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.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit
or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where appropriate.
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.
•
Deferred tax liabilities are recognized for all taxable temporary differences, except:
118
119
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
•
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.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any
unused 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 taxable profit or loss;
•
In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint
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 that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be recovered.
•
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.
•
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are
recognised in 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 taxation authority on either the same taxable entity or different taxable entities which intend either to settle current
tax liabilities and 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
Contingent assets are not recognized in the consolidated financial statements. Where an inflow of economic benefits is
probable, they are disclosed.
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
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.
Transactions with related parties are used to reflect the status of settlements for property, works and services received from
companies or sold to companies that are related parties to the Group. Items of a similar nature are disclosed in aggregate except
when separate disclosure is necessary for an understanding of the effects of related party transactions on the consolidated
financial statements.
CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
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 the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result
in outcomes that require a 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 key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. Existing circumstances and assumptions about future developments, however, may
change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected
in the assumptions when they occur.
JUDGEMENTS
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
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option
to 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 certain not to be exercised.
The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating
whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all
relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement
date, the Group 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 customisation to the leased asset).
Leases − estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate
(IBR) to 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 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 therefore reflects what the Group ‘would have to pay’, which requires estimation when no
observable rates are available (such as for 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 (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).
120
121
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Useful lives of property and equipment and intangible assets
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 along with Kazakhtelecom JSC and Mobile Telecom-Service LLP (“MTS LLP”) developed network
integration plan in order to achieve strategic goals to strengthen and form leading positions in the telecommunication
markets of the Republic of Kazakhstan. According to integration framework, the Group in conjunction with MTS LLP plans
to dismantle certain base stations on locations where there are base stations of both entities. Such business operation
shall provide further savings on capital expenditures and provide a better competitive position in the market. Therefore,
in 2021, the Group reassessed the remaining useful lives of certain telecommunication equipment that is subject
for dismantling earlier than initially planned or otherwise would not be used once integration process is finalized. The Group
performed reassessment from 1 December 2021, which resulted in decrease 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 2022-2025 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 from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices
less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model.
The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is
not yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested.
The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows
and the growth rate used for extrapolation purposes.
Decommissioning liability
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 cost 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 estimated future costs,
or in the discount rate applied, are added to or deducted from the cost of the asset.
In 2021, Kazakhtelecom JSC together with its subsidiaries, Kcell JSC and MTS LLP developed network integration plan as
mentioned 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 forwardlooking 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.
The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is
a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions.
The Group’s historical 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.
For funds in credit institutions (cash and cash equivalent, bank deposits), the Group calculated expected credit losses based
on the 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 2022 provision for expected credit losses was created in the amount of 12,915 million tenge (as at 31
December 2021: 6,651 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
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, 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
Deferred revenues are recognized as contract liabilities and recognized over the expected period of the customer relationship.
In 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.
122
123
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Deferred tax assets
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 2022, net deferred tax assets of the Group were equal to 1,598 million tenge (at 31 December 2021: 1,720
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 prepared in accordance with IFRS. Management has determined a single operating segment being mobile
communication services based on these internal reports.
6. SHARE CAPITAL AND EARNINGS PER SHARE
Share capital of the Group is as follows:
31 December 2022
31 December 2021
Share
Number of shares
Share
Number of
shares
Kazakhtelecom JSC
51.00 %
102,000,000
51.00 %
102,000,000
PIONEER TECHNOLOGIES S.A.R.L
14.87 %
29,745,215
14.87 %
29,745,215
First Heartland Jusan Bank JSC
9.08 %
18,167,753
9.08 %
18,167,753
Single accumulative pension fund JSC
7.06 %
14,116,287
7.07 %
14,144,273
Raiffeisenbank JSC
1.54 %
3,070,664
1.54 %
3,070,664
AROYGROUP LLP
1.39 %
2,788,927
0 %
−
EVEREX LLP
1.16 %
2,315,226
0 %
−
Other
13.90 %
27,795,928
16.44 %
32,872,095
100.00%
200,000,000
100.00%
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.
The calculation of basic and diluted earnings per share is based on the following data:
In millions of tenge
2022
2021
Profit for the year attributable to equity shareholders
40,350
32,506
Weighted average number of ordinary shares
200,000,000
200,000,000
Earnings per share (Kazakhstani tenge), basic and diluted
201.75
162.53
The Group has no dilutive or potentially dilutive securities outstanding.
During the year ended 31 December 2022, the Group did not declare and did not pay any dividends (during year ended 31
December 2021, the Group declared and paid dividends in the amount of 17,578 million tenge). Dividends per share for the year
ended 31 December 2021 was equal 87.89 tenge.
ADDITIONAL INFORMATION DISCLOSED IN ACCORDANCE WITH “KASE” REQUIREMENTS
The cost of ordinary shares, calculated in accordance with the requirements of the “KASE”
According to the requirements of the “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 2022
and 2021 is presented below.
In millions of tenge
31 December
2022
31 December
2021
Net assets, excluding intangible assets
95,139
55,987
Number of ordinary shares in issue
200,000,000
200,000,000
Cost of ordinary share, calculated in accordance with listing requirements
of KASE (Kazakhstani tenge)
475.70
279.94
124
125
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
7. PROPERTY AND EQUIPMENT
Movements of property and equipment for the years ended 31 December 2022 and 2021 were as follows:
In millions of tenge
Land
Buildings
and construction
Machinery
Equipment, tools
and installations
Assets under
construction
Total
Cost
At 1 January 2021
2,122
20,363
235,897
39,069
17,258
314,709
Additions
−
130
117
1,676
22,525
24,448
Provision for dismantling (Note 20)
−
−
135
−
−
135
Transfer between the groups
−
−
9,529
−
(9,529)
−
Disposals
(13)
(143)
(4,729)
(10)
(1,013)
(5,908)
At 31 December 2021
2,109
20,350
240,949
40,735
29,241
333,384
Additions
−
42
−
1,576
27,274
28,892
Transfer to investment property
−
(3,769)
−
−
−
(3,769)
Provision for dismantling (Note 20)
−
−
(702)
−
−
(702)
Transfer between the groups
−
−
13,216
−
(13,216)
−
Disposals
−
−
(759)
(3,111)
−
(3,870)
At 31 December 2022
2,109
16,623
252,704
39,200
43,299
353,935
Accumulated depreciation and impairment
At 1 January 2021
−
(7,432)
(193,635)
(31,022)
(4,511)
(236,600)
Depreciation charge
−
(361)
(11,933)
(3,204)
−
(15,498)
Disposals
−
114
4,554
10
−
4,678
Impairment
−
−
(73)
(85)
(1)
(159)
At 31 December 2021
−
(7,679)
(201,087)
(34,301)
(4,512)
(247,579)
Depreciation charge
−
(361)
(11,115)
(2,580)
−
(14,056)
Transfer to investment property
−
1,554
−
−
−
1,554
Disposals
−
−
759
3,111
−
3,870
At 31 December 2022
−
(6,486)
(211,443)
(33,770)
(4,512)
(256,211)
Net book value
At 31 December 2021
2,109
12,671
39,862
6,434
24,729
85,805
At 31 December 2022
2,109
10,137
41,261
5,430
38,787
97,724
During the year ended 31 December 2022, a building with carrying amount of 2,215 million tenge was transferred
to investment property, because it was no longer used by the Group as it was leased to third and related parties. As of
31 December 2022, fair value of investment property equaled to 2,700 million tenge.
As of 31 December 2022, the Group made prepayments for certain property and equipment mainly represented by equipment
for base stations in the amount of 1.179 million tenge (31 December 2021: 329 million tenge).
As at 31 December 2022, the gross carrying value of property and equipment which has been fully depreciated and still in use,
was 182,092 million tenge (as at 31 December 2021: 173,272 million tenge).
During 2022, the Group has written off the fully amortized property and equipment with gross book value in the amount of 1,070
million tenge (2021: nil tenge).
IMPAIRMENT TEST
The war in Ukraine and related sanctions in Russia and Belarus has affected many countries and resulted in significant
volatility in financial and commodity markets around the world. The Group’s management analyzed external and internal
sources of information, including the current and future impact of the war 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 2022, the Group did not identify impairment factors for all CGUs related with the war
in Ukraine and related sanctions in Russia and Belarus.
8. INTANGIBLE ASSETS
Movements of intangible assets for the years ended 31 December 2022 and 2021 were as follows:
In millions of tenge
Software and licenses
Intangible assets
in development stage
Total
Cost
At 1 January 2021
108,022
472
108,494
Additions
13,604
−
13,604
Disposals
(2,640)
−
(2,640)
At 31 December 2021
118,986
472
119,458
Additions
12,659
−
12,659
Disposals
(2,983)
−
(2,983)
At 31 December 2022
128,662
472
129,134
Accumulated amortization and impairment
At 1 January 2021
(68,292)
(472)
(68,764)
Amortisation charge
(10,621)
−
(10,621)
Disposals
2,640
−
2,640
Impairment
(429)
−
(429)
At 31 December 2021
(76,702)
(472)
(77,174)
Amortisation charge
(11,461)
−
(11,461)
Disposals
2,983
−
2,983
At 31 December 2022
(85,180)
(472)
(85,652)
Net book value
At 31 December 2021
42,284
−
42,284
At 31 December 2022
43,482
−
43,482
126
127
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
As at 31 December 2022, the carrying amount of 3G license was 1,000 million tenge (31 December 2021: 1,333 million tenge)
and its remaining amortization period was 3 years. As at 31 December 2022, the carrying amount of the 4G license was 14,011
million tenge (31 December 2021: 15,744 million tenge) and its remaining amortization period was 8 years.
During 2021, the Group recognized an impairment loss of 429 million tenge, which represents part of billing system that was
in non-operating condition. Loss was recognized in the consolidated statement of comprehensive income as an operating
expense.
As at 31 December 2022, the gross carrying value of intangible assets, which have been fully amortized and still in use, was
39,792 million tenge (31 December 2021: 42,175 million tenge).
During 2022, the Group has written off the fully amortized intangible assets with gross book value in the amount of 2,983 million
tenge (during 2021: nil tenge).
9. TRADE RECEIVABLES
As at 31 December 2022 and 2021, trade receivables comprised of the following:
In millions of tenge
31 December
2022
31 December 2021
Trade receivable from subscribers
35,363
23,262
Trade receivable from interconnect services
1,838
1,129
Trade receivables from roaming operators
358
173
Trade receivables from dealers and distributors
574
748
Trade receivables from related parties (Note 29)
5,650
3,238
Less: allowance for expected credit losses
(12,915)
(6,651)
30,868
21,899
Less: long-term portion of trade receivable from subscribers
(4,345)
(4,148)
26,523
17,751
During the years ended 31 December 2022 and 2021, movements in the allowance for expected credit losses were as follows:
In millions of tenge
2022
2021
Allowance for expected credit losses at the beginning of the year
(6,651)
(9,964)
Charge for the year
(6,264)
(1,914)
Write-off for the year
−
1,117
Sales of trade receivables
−
4,110
Allowance for expected credit losses at the end of the year
(12,915)
(6,651)
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 of 438 million tenge for 438 million tenge.
Below is information as of 31 December 2022 and 31 December 2021 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
31 December 2022
Estimated total gross book value
for default
43,783
24,543
1,964
1,393
1,148
2,782
11,953
Expected credit loss rate
0.11 %
2 %
18 %
32 %
45 %
92 %
Expected credit losses
12,915
26
45
257
368
1,249
10,970
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 2021
Estimated total gross book value
for default
28,550
18,422
1,825
903
580
922
5,898
Expected credit loss rate
0.1 %
2 %
13 %
23 %
49 %
99.6 %
Expected credit losses
6,651
23
41
118
136
454
5,879
As at 31 December 2022 and 2021 the Group’s trade receivables were denominated in the following currencies:
In millions of tenge
31 December
2022
31 December
2021
Tenge
30,781
21,726
US dollars
87
173
30,868
21,899
10. INVENTORY
As at 31 December 2022 and 2021, inventories comprised:
In millions of tenge
31 December
2022
31 December
2021
Handsets and accessories (at lower of cost and net realizable value)
7,407
5,898
Start packages (at cost)
235
207
Marketing materials (at cost)
42
70
SIM-cards (at cost)
108
85
Other materials (at cost)
188
322
7,980
6,582
128
129
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
During 2022, the Group recognised as an expense 396 million tenge (2021: 179 million tenge) for inventories carried at net
realisable value, which is recognised within general and administrative expenses. In addition, during 2022 the Group wrote-off
inventory in the amount of 553 million tenge due to consequences of protests held in Kazakhstan in January 2022 (Note 23).
11. OTHER CURRENT NON-FINANCIAL ASSETS
As at 31 December 2022 and 2021, other current non-financial assets comprised of the following:
In millions of tenge
31 December
2022
31 December
2021
VAT recoverable
3,738
3,578
Advances paid
1,858
3,120
Prepaid expenses
1,090
878
Prepaid taxes other than income taxes
211
2,535
6,897
10,111
12. OTHER CURRENT FINANCIAL ASSETS
As at 31 December 2022 and 2021, other current financial assets comprised of the following:
In millions of tenge
31 December
2022
31 December
2021
Other receivables
706
394
Due from employees
160
336
Less: allowance for expected credit losses due from employees
(66)
(192)
800
538
As at 31 December 2022 and 2021, other current non-financial assets were fully denominated in tenge.
During 2022 the Group has accrued allowance for amounts due from employees in the amount of 66 million tenge
(31 December 2021: 192 million tenge).
13. FINANCIAL ASSETS AT AMORTIZED COST
As at 31 December 2022 financial assets at amortized cost in the amount of 14,833 million tenge, represented by short-term
discount notes of National Bank of the Republic of Kazakhstan (“NBRK”) denominated in tenge. In 2022 and 2021, the Group
acquired short term discount notes at purchase price 84,163 million tenge and 140,018 million tenge, respectively. In 2022
short term discount notes with nominal value in the amount of 69,350 million tenge and interest income in the amount of 650
million tenge was redeemed (2021: 158,631 million tenge and 1,369 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.
As at 31 December 2022 and 2021 financial assets at amortized cost comprised of the following:
In millions of tenge
Maturity date
Yield to maturity
Nominal value
31 December
2022
31 December
2021
NB RK Note
25 January 2023
16.46 %
15,000
14,833
−
14,833
−
14. CASH AND CASH EQUIVALENTS
As at 31 December 2022 and 2021, cash and cash equivalents comprised of the following:
In millions of tenge
31 December
2022
31 December
2021
Bank deposits with original maturity of less than 90 days
36,134
45,018
Cash on current bank accounts
10,111
6,380
Cash on hand
3
4
46,248
51,402
As of 31 December 2022, short-term bank deposits represent overnight deposits in tenge in Altyn Bank JSC at interest
rate 15.6% in the amount of 7,026 million tenge, Halyk Bank JSC at interest rate 15.6 % in the amount of 17,200
million tenge, Citi Bank JSC at interest rate 6.5% in the amount of 38 million tenge, deposits in tenge at First Heartland
Jusan Bank JSC at interest rate 14.85 % in the amount of 10 million tenge. Deposits in USD at Halyk Bank JSC at interest
rate 1.5% in the amount of 11,852 million tenge and First Heartland Jusan Bank JSC at interest rate 2 % in the amount
of 9 million tenge.
As at 31 December 2022 and 2021, cash and cash equivalents were denominated in various currencies as follows:
In millions of tenge
31 December
2022
31 December
2021
Tenge
26,876
34,133
US dollars
19,206
16,651
Euro
117
526
Russian roubles
48
91
Other currency
1
1
46,248
51,402
15. BORROWINGS
As at 31 December 2022 and 2021, borrowings comprised of the following:
In millions of tenge
Currency
Effective
interest rate
Maturity date
31 December
2022
31 December
2021
First Heartland Jusan Bank JSC
Tenge
12.90 %
10 ноября 2024
года
40,208
39,871
VTB Bank JSC
Tenge
11.90 %
15 октября
2023 года
5,002
7,006
Bank of China Kazakhstan JSC
Tenge
10.70 %
1 июня 2024 года
2,033
13,105
47,243
59,982
Less: non-current portion
(41,646)
(48,283)
5,597
11,699
130
131
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Borrowings are repayable as follows:
In millions of tenge
31 December
2022
31 December
2021
Current portion of borrowings
5,597
11,699
Maturity between 1 and 2 years
41,646
7,000
Maturity between 2 and 5 years
−
41,283
Maturity over 5 years
−
−
Total non-current portion of borrowings
41,646
48,283
The Group’s borrowings are denominated in Kazakhstani tenge and represented by unsecured loans. 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 2022 and 2021, there have been no breaches of the covenants.
The Group has not entered into any hedging arrangements in respect of its interest rate exposures.
First Heartland Jusan Bank JSC
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 a nominal 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 a nominal 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.
VTB Bank JSC
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 1 March 2022, the Group partially repaid principal in the amount of 2,000 million tenge.
Bank of China Kazakhstan JSC
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 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 provided
by Kazakhtelecom JSC, the Parent. 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.
During 2022, the Group partially repaid principal in the amount of 11,000 million tenge.
Halyk Bank of Kazakhstan JSC
On 23 April 2020, the Group obtained loan in the amount of 15,000 million tenge within credit line agreement with Halyk
Bank of 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 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 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.
Alfa Bank JSC
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 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% 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 tenge, respectively, ahead of the schedule.
16. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The Group’s right of use assets are represented by buildings and constructions. Set out below are the carrying amounts
of right-of-use assets recognised and the movements during the period:
In millions of tenge
Всего
Cost
At 1 January 2021
29,485
Modification
814
Additions
77
Cancellation
(138)
At 31 December 2021
30,238
Additions
281
Modification
2,797
At 31 December 2022
33,316
Accumulated depreciation
At 1 January 2021
(8,681)
Depreciation charge
(4,659)
Cancellation
45
At 31 December 2021
(13,295)
Depreciation charge
(4,937)
At 31 December 2022
(18,232)
Net book value
At 31 December 2021
16,943
At 31 December 2022
15,084
132
133
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Set out below are the carrying amounts of lease liabilities and the movements during the period:
In millions of tenge
31 December
2022
31 December 2021
At the beginning of the year
20,129
23,666
Interest expenses (Note 27)
2,543
2,772
Payments
(7,913)
(7,093)
Modifications
2,797
814
Additions
281
77
Cancellation
−
(107)
At the end of the year
17,837
20,129
Long-term lease liabilities
12,514
15,185
Short-term lease liabilities
5,323
4,944
The following amounts are recognised in profit or loss:
In millions of tenge
2022
2021
Depreciation expense of right-of-use assets
4,937
4,659
Interest expense on lease liabilities (Note 27)
2,543
2,772
Expenses related to short-term leases
37
45
Total amount recognised in profit or loss
7,517
7,476
The Group had total cash outflows for leases of 7,950 million tenge in 2022 (2021: 7,138 million tenge).
17. TRADE PAYABLES
As at 31 December 2022 and 2021, trade payables comprised of the following:
In millions of tenge
31 December
2022
31 December
2021
Trade payables to third parties
31,529
32,603
Trade payables to related parties (Note 29)
3,220
3,102
34,749
35,705
As at 31 December 2022 and 2021, the Group’s trade payables were denominated in the following currencies:
In millions of tenge
31 December
2022
31 December
2021
Tenge
33,127
33,119
US dollars
87
1,460
Other currency
1,535
1,126
34,749
35,705
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 initially recognised the financial guarantee at fair value in the amount of 592 million tenge through
retained earnings in equity. As at 31 December 2022 and 31 December 2021, 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 2022, financial guarantee obligation equaled to 155 million tenge, which
represents the initial amount less the cumulative amount of income recognised in accordance with IFRS 15 (31 December
2021: 330 million tenge).
19. CONTRACT LIABILITIES
As at 31 December 2022 and 2021, trade contract liabilities comprised of the following:
In millions of tenge
2022
2021
Contract liabilities as at 1 January
3,207
1,978
Deferred during the year
201,634
159,344
Recognised as revenue during the year
(199,196)
(158,115)
Contract liabilities as at 31 December
5,645
3,207
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.
Movements in provision for decommissioning liabilities for the years ended 31 December 2022 and 31 December 2021 were
as follows:
In millions of tenge
2022
2021
Provision for decommissioning liabilities as at 1 January
4,204
4,007
Change in estimate (Note 7)
(702)
135
Unwinding of discount (Note 27)
306
194
Provision for decommissioning liabilities as at 31 December
3,808
4,336
Current portion (Note 21)
−
132
Non-current portion
3,808
4,204
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:
2022 год
2021 год
Discount rate
9.61 %
7.03 %
Inflation rate
15.1 %
5.5 %
Period of fulfillment of obligation
9 лет
10 лет
In 2021, the Group approved network integration project with Parents and MTS LLP, according to which the Group plans
to decommission certain assets in 2022-2025.
21. PROVISIONS
In 2020 the Group accrued 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 derecognised in 2021 due to finalization
of custom audit and receipt of notice with actual amount of fine and penalties.
134
135
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
In millions of tenge
31 December
2022
31 December
2021
Legal claims on contractual obligation
3,685
3,685
Asset retirement obligation: current portion (Note 20)
−
132
3,685
3,817
Movements in provision for decommissioning liabilities for the years ended 31 December 2022 and 2021 were as follows:
In millions of tenge
2022
2021
Provision as at 1 January
3,817
4,502
Reclassification of short-term portion of decommissioning liabilities
−
132
Reversal of fines and penalties provision
−
(683)
Reclassification to long-term portion of decommissioning liabilities
(132)
(18)
Reversal of other provision (Note 28)
−
(116)
Provision as at 31 December
3,685
3,817
22.
GOVERNMENT GRANTS
In millions of tenge
31 December
2022
31 December
2021
Government grants as at 1 January
7,925
−
Received during the year
5,573
10,033
Released to the consolidated statement of comprehensive income
(2,230)
(2,108)
Government grants as at 31 December
11,268
7,925
Government grants current portion
2,237
2,237
Government grants non-current portion
9,031
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 broadband internet. 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 2022 the balance of deferred income recognized
was equal to 11,268 million tenge (As of 31 December 2021: 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 2,230 million tenge.
As of 31 December 2022 there are no unfulfilled conditions or contingencies attached to these grants.
23.
REVENUE FROM CONTRACTS WITH CUSTOMERS
In millions of tenge
2022
2021
Voice and data services
166,865
146,030
Sale of handsets and equipment
45,310
39,027
Value added services
6,646
9,024
Other
181
−
219,002
194,081
Over time
173,511
155,054
At a point of time
45,491
39,027
219,002
194,081
As at 31 December 2022 and 31 December 2021, the contract liabilities in the amount of 5,645 million tenge and
3,207 million tenge, respectively, were represented by deferred revenue.
24. COST OF SALES
In millions of tenge
2022
2021
Cost of handsets, SIM-card and scratch card sales
38,081
32,963
Depreciation and amortization
25,361
26,078
Interconnect fees and expenses
18,559
18,231
Personnel costs
13,346
11,274
Transmission services
10,704
10,245
Repair and maintenance
8,753
8,163
Fees for use of frequency range
7,493
6,931
Electricity
4,875
3,777
Network sharing agreement
3,846
2,829
Mobile service tax
2,442
2,169
Security and safety
321
350
Materials
162
219
Short-term rent expenses
37
45
Other
2,289
2,593
136,269
125,867
25.
GENERAL AND ADMINISTRATIVE EXPENSES
In millions of tenge
2022
2021
Personnel costs
5,331
4,542
Depreciation and amortization
5,093
4,700
Taxes other than income tax
2,810
1,175
Consulting services
779
2,473
Repair and maintenance
396
179
Write-down of inventories to net realizable value
415
335
Representative expenses
236
97
136
137
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
In millions of tenge
2022
2021
Business trips
133
99
Insurance
74
28
Trainings
47
55
Inventories
42
25
Security and safety
7
32
Other
897
397
16,260
14,137
26. SELLING EXPENSES
In millions of tenge
2022
2021
Marketing and advertising
1,562
2,426
Amortization of cost to obtain a contract
466
285
Commissions for dealers and cash collection
410
192
Other
276
203
2,714
3,106
27. FINANCE COSTS / FINANCE INCOME
In millions of tenge
2022
2021
Finance costs
Interest expense on loans and bonds
6,370
7,158
Interest on lease liabilities (Note 16)
2,543
2,772
Unwinding of discount (provision for decommissioning liability) (Note 20)
306
194
Other
51
202
9,270
10,326
Finance income
Interest income on cash balances and deposit
2,939
979
Interest income on financial assets at amortised cost
670
1,058
Penalty income from late payments for contract phones
461
244
Unwinding of issued financial guarantee
175
233
Other
105
47
4,350
2,561
28.
OTHER OPERATING INCOME/OTHER OPERATING EXPENSES
In millions of tenge
2022
2021
Other operating income
Rental income
572
−
Income from accounts payable write-off
482
211
Income from 4G sharing fines
19
−
Income from frequency fee sharing
−
170
Income from reversal of provisions (Note 21)
−
116
Other
113
218
In millions of tenge
2022
2021
1,186
715
Other operating expenses
Write-off of inventories (Note 32)
553
−
4G sharing fines expenses
67
−
Loss on disposal of property and equipment
25
1,134
Frequency fee sharing expenses
−
135
Other
92
29
737
1,298
29. INCOME TAX EXPENSES
In millions of tenge
2022
2021
Current income tax expense
(15,458)
(11,532)
Adjustments in respect of income tax of previous year
709
1,053
Deferred income tax benefit
(122)
(217)
(14,871)
(10,696)
The Group are subject to taxation in the Republic of Kazakhstan. Tax rate for the Group and its subsidiary was 20% in 2022
and 2021.
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 2022 and 2021 is set out below:
In millions of tenge
2022
2021
Profit before taxation
55,221
43,202
Income tax at statutory income tax rate of 20%
11,044
8,640
Non-taxable income
(165)
(436)
Non-deductible expenses
3,767
1,131
Change in unrecognised tax loss carry forward
(1,530)
1,530
Recognition of tax loss carry forward
1,804
(192)
Adjustments in respect of income tax of previous year
(709)
(1,053)
Adjustments in respect of deferred income tax of previous year
660
1,076
Total income tax expenses
14,871
10,696
Non-taxable income is mainly represented by income from reversal of tax and related fines and penalties provision in the amount
of 553 million tenge and interest income on NBRK notes in the amount of 134 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 Kazakhstan are non-deductible.
138
139
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
Deferred tax assets and liabilities are presented in the consolidated statement of financial position as follows:
Consolidated statement
of financial position
Consolidated statement
of comprehensive income
In millions of tenge
31 December
2022
31 December
2021
2022
2021
Deferred tax assets
Expected credit losses
780
322
458
(69)
Accrued bonuses to employees
708
498
210
96
Tax loss carry forward
−
1,804
(1,804)
192
Lease liabilities
551
637
(86)
65
Provision for unused vacation
276
199
77
33
Asset retirement obligation
762
821
(59)
20
Deferred services
82
641
(559)
(152)
Other
322
142
180
(6)
Government grants
2,254
1,585
669
1,585
Unrecognised deferred tax assets
−
(1,530)
1,530
(1,530)
Deferred tax assets
5,735
5,119
616
234
Deferred tax liabilities
Property and equipment and intangible asset
(4,025)
(3,351)
(674)
(497)
Other
(112)
(48)
(64)
46
Deferred tax liabilities
(4,137)
(3,399)
(738)
(451)
Deferred tax assets, net
1,598
1,720
Change in deferred tax assets/(liabilities), net
(122)
(217)
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 2022 the Group derecognised deferred tax assets related to tax loss carried
forward in the amount of 274 million tenge.
30.
RELATED PARTY DISCLOSURES
Parties are generally considered to be related if one party has the ability to control the other party, is under common control,
or can 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.
As at 31 December 2022, the Group recognized an allowance for expected credit losses in the amount of 237 million tenge
in respect of receivables from related parties (31 December 2021: 143 million tenge).
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 (Note 1). Governmental
entities include entities under common control and associates of the Government of the Republic of Kazakhstan.
Related party transactions were made on terms agreed between parties that may not necessarily be at market rate. Sales
and purchases with related parties for three and nine months ended 31 December 2022 and 2021, and the balances with
related parties as at 31 December 2022 and 2021, were as follows:
In millions of tenge
2022
2021
Sales of goods and services
Entities of Samruk Kazyna group
220
197
Entities of Kazakhtelecom group
13,672
13,942
Government entities
230
251
14,122
14,390
Purchases of goods and services
Entities of Samruk Kazyna group
514
447
Entities of Kazakhtelecom group
24,997
24,708
Government entities
109
92
25,620
25,247
Finance expense
Other shareholders
4,480
588
4,480
588
In millions of tenge
2022
2021
Trade receivables (Note 9)
Entities of Samruk Kazyna group
100
36
Entities of Kazakhtelecom group
5,472
3,155
Government entities
78
47
5,650
3,238
Trade payable (Note 17)
Entities of Samruk Kazyna group
34
14
Entities of Kazakhtelecom group
3,186
3,050
Government entities
−
38
3,220
3,102
Borrowings (Note 15)
Other Shareholders
40,208
39,871
Cash and deposit accounts
Other Shareholders
10,244
11,010
140
141
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
COMPENSATION TO KEY MANAGEMENT PERSONNEL
For the years ended 31 December 2022 and 31 December 2021, the total compensation to key management personnel
included in the accompanying consolidated statement of comprehensive income under general and administrative expenses
was 1,445 million tenge and 1,218 million tenge, respectively. Compensation to key management personnel consists of wages
fixed in the employment agreement, as well as remuneration based on the performance for the year.
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 credit risk. In addition, the Group monitors market risk and liquidity risk associated with all financial instruments.
IMPAIRMENT LOSSES ON FINANCIAL ASSETS
Impairment losses on financial assets for the year ended 31 December 2022 and 2021, comprise accruing reserve on expected
credit losses for trade and other receivables in amount of 6,264 million tenge and 2,106 million tenge, respectively (Note 9, 12).
INTEREST RATE RISK
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 2022 and 2021, 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). There is no impact on the Group’s equity.
2022
2021
In millions of tenge
Increase/
(decrease)
in exchange rate
Effect on profit
before tax
Increase/
(decrease)
in exchange rate
Effect on profit
before tax
US dollars
21 %
4,002
13 %
1,997
-21 %
(4,002)
-10 %
(1,536)
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 organizations, foreign exchange transactions
and other financial instruments.
TRADE RECEIVABLES
Financial instruments in which the Group’s credit risk is concentrated are primarily trade receivables. The credit risk associated
with these assets is limited due to the large number of the Group’s customers and the continuous monitoring procedures
for customers and other debtors.
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
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 Group already has comparable credit obligations, a current checking account and can easily
monitor the activities of such banks.
In millions of tenge
Rating
Rating
Cash balance
Balance on deposit
accounts
2022
2021
2022
2021
Citibank Kazakhstan JSC
AA-
BB-
7,499
174
38
1
Jusan Bank JSC
B+
B-
−
10
19
11,000
Credit Suisse (Schweiz) AG
A-
A+
12
1,839
−
−
Halyk Bank Kazakhstan JSC
BB+
BB
1,090
2,824
29,051
14,017
Altyn Bank JSC
BBB-
BBB-
−
488
7,026
20,000
Kaspi Bank JSC
BB-
BB-
199
54
−
−
Bereke Bank JSC
Нет
рейтинга
Нет
рейтинга
4
−
−
−
SB Sberbank JSC
Нет
рейтинга
BBB-
−
38
−
−
Bank CenterCredit JSC
B+
B+
312
30
−
−
Electronic money
Нет
рейтинга
Нет
рейтинга
995
923
−
−
Total
10,111
6,380
36,134
45,018
142
143
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
LIQUIDITY RISK
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 2022
Borrowings
−
1,306
8,807
47,037
−
57,150
Financial guarantee obligation*
−
743
3,910
4,971
−
9,624
Trade payables
−
34,749
−
−
−
34,749
Lease liabilities
−
1,870
5,622
12,397
1,144
21,033
Due to employees
−
5,708
−
−
−
5,708
−
44,376
18,339
64,405
1,144
128,264
At 31 December 2021
Borrowings
−
1,669
15,609
59,320
−
76,598
Financial guarantee obligation*
−
798
4,164
9,624
−
14,586
Trade payables
−
35,705
−
−
−
35,705
Lease liabilities
−
1,815
5,444
17,460
1,515
26,234
Due to employees
−
4,347
−
−
−
4,347
−
44,334
25,217
86,404
1,515
157,470
* Based on the maximum amount that can be called for under the financial guarantee’s contract (Note 17).
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
CAPITAL MANAGEMENT
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise shareholder value.
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 2022 and 2021.
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 liabilities is estimated using
discounted cash flow based on credit rates currently available to the Group with similar terms and average maturities.
The tables below present 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 2022 and 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
31 December 2022
14,897
−
−
14,897
Short-term trade receivables
31 December 2022
−
−
26,523
26,523
Long-term trade receivables
31 December 2022
−
−
4,345
4,345
Other current financial assets
31 December 2022
−
−
800
800
Liabilities for which fair values
are disclosed
Borrowings
31 December 2022
−
−
43,142
43,142
Trade payables
31 December 2022
−
−
34,749
34,749
Financial guarantee obligation
31 December 2022
−
−
155
155
Due to employees
31 December 2022
−
−
5,708
5,708
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
Short-term trade receivables
31 December 2021
−
−
17,751
17,751
Long-term trade receivables
31 December 2021
−
−
3,115
3,115
Other current financial assets
31 December 2021
−
−
538
538
Liabilities for which fair values
are disclosed
Borrowings
31 December 2021
−
−
56,289
56,289
Trade payables
31 December 2021
−
−
35,705
35,705
Financial guarantee obligation
31 December 2021
−
−
564
564
Due to employees
31 December 2021
−
−
4,347
4,347
144
145
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
As at 31 December 2022 and 2021, the carrying amounts of the Group’s financial assets and liabilities presented as follow
In millions of tenge
Carrying
amount
31 December
2022
Fair value
31 December
2022
Unrecognised
gain/(loss)
Carrying
amount
31 December
2021
Fair value
31 December
2021
Unrecognised
gain/(loss)
Financial assets
Cash and cash equivalents
46,248
46,248
−
51,402
51,402
−
Financial assets at amortized
cost
14,833
14,897
64
−
−
−
Short-term trade receivables
26,523
26,523
−
17,751
17,751
−
Long-term trade receivables
4,345
4,345
−
4,148
3,758
(390)
Other current financial assets
800
800
−
538
538
−
Financial liabilities
Borrowings
47,243
43,142
4,101
59,982
56,289
3,693
Trade payables
34,749
34,749
−
35,705
35,705
−
Due to employees
5,708
5,708
−
4,347
4,347
−
Financial guarantee obligation
155
155
−
−
−
−
Total unrecognised change
in unrealised fair value
4,165
3,303
VALUATION TECHNIQUES AND ASSUMPTIONS
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.
CHANGES IN LIABILITIES ARISING FROM FINANCIAL ACTIVITIES
Changes in liabilities due to financial activities for 2022 were as follows:
In millions of tenge
1 January
2022
New leases
Principal
repaid
Interest
accrued
Interest paid
Reclassification
Modifications
31 December
2022
Borrowings: non-current portion
48,283
−
(2,000)
363
−
(5,000)
−
41,646
Borrowings: current portion
11,699
−
(11,000)
6,007
(6,109)
5,000
−
5,597
Long-term lease liabilities
15,185
281
−
−
−
(5,749)
2,797
12,514
Short-term lease liabilities
4,944
−
(5,370)
2,543
(2,543)
5,749
−
5,323
Total
80,111
281
(18,370)
8,913
(8,652)
−
2,797
65,080
Changes in liabilities arising from financial activities for 2021 were as follows:
In millions of tenge
1 January
2021
Loan
obtained
New
leases
Principal
repaid
Interest
accrued
Interest
paid
Reclassifi-
cation
Modifica-
tions
Cancellation
of leases
Discount
recognized
31 December
2021
Borrowings:
non-current portion
49,933
62,500
−
(52,500)
610
−
(11,000)
−
−
(1,260)
48,283
Borrowings: current portion
23,354
−
−
(21,754)
6,548
(7,449)
11,000
−
−
−
11,699
Long-term lease liabilities
19,447
−
77
−
−
−
(5,153)
814
−
−
15,185
Short-term lease liabilities
4,219
−
−
(4,321)
2,772
(2,772)
5,153
−
(107)
−
4,944
Total
96,953
62,500
77
(78,575)
9,930
(10,221)
−
814
(107)
(1,260)
80,111
146
147
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
32.
COMMITMENTS AND CONTINGENT LIABILITIES
OPERATING ENVIRONMENT
Kazakhstan continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market
economy. The future stability of the Kazakhstan economy will largely depend on these reforms, as well as on the effectiveness
of the Government’s actions in the area of economy, financial and monetary policy.
Protests in Kazakhstan
On 2 January 2022 protests started in Mangystau region of Kazakhstan related to significant increase in the liquified natural gas
retail price. These protests spread to other cities and resulted in riots, damage to property and loss of life. On 5 January 2022
the government declared a state of emergency.
During the protests, six Kcell Stores located in Almaty and Almaty region, were looted and two large offices of the Group were
attacked.
The Management of the Group formed operational headquarters due to state emergency announcement for timely decision
making on operational issues for uninterrupted communication of subscribers and facilitate the Government with urgent
actions.
Providing subscribers with continuous cellular communications was a priority of the Group and the Management decided
to support its subscribers including small and medium sized businesses during the state of emergency. During the state
of emergency declared throughout Kazakhstan, and until the end of January 2022, corporate clients of Kcell with a lack
of balance on their account were not limited to communication and access to the Internet.
As a result of the above protests and state of emergency the President of Kazakhstan has made certain public announcements
regarding possible measures including amendments to the tax legislation, introducing measures for financial stability,
controlling and stabilizing the inflation rate and the tenge exchange rate.
On 10 January 2022 the National Security Committee of Kazakhstan reported that the situation in the country has stabilized
and was under control. On 19 January 2022 the state emergency was lifted.
The Group incurred losses from those events in amount of 553 million tenge (Note 28) that represents robbery of inventories
(goods for resale) and damage of stores, which was recognized within other operating expenses in the consolidated statement
of comprehensive income for the year ended 31 December 2022.
Events in Ukraine and Coronavirus pandemic
The events in Ukraine has had a significant negative impact on the global economic outlook. In response to the offensive,
extensive sanctions have been imposed on Russia that largely exclude the country from the international financial
markets and significantly curtail trade in goods. These sanctions are intended to have a negative economic impact
on the Russian Federation. Sanctions were imposed on certain Russian banks, including JSC “Alfa Bank” and PJSC “Sberbank”,
in whose subsidiary located in Kazakhstan the Group held cash as at 31 December 2021 in the total amount of 39 million
tenge. The Group timely transferred funds to other banks. The Group’s business activities and hence its results of operations
and financial position are not significantly impacted by the consequences of the war in Ukraine, as the Group does not operate
any networks in Russia or Ukraine.
Due to geopolitical events around Ukraine and Russia, on 24 February 2022, oil prices exceeded $100 per barrel. However,
after some stabilization in global economy level, on 25 September 2022, oil prices decreased to $90 per barrel. On 28 March
2022, the exchange rate of tenge against the US dollar began to strengthen gradually and stabilized to approximately 470
KZT per 1 USD. On 26 October 2022, the National Bank of the Republic of Kazakhstan decided to raise the base rate by 2.50
percentage points to 16.0% while maintaining the +/-1% band.
Possible future effects on the measurement of individual assets and liabilities due to war in Ukraine and coronavirus pandemic
are being analyzed on an ongoing basis. It is not yet possible to assess with certainty how the Group will be indirectly affected,
in particular by the impact on the global economy. The overall economic outlook has deteriorated significantly as a result
of the extensive sanctions and limitations on trade in goods. Based on experience so far, the Group expects the events
in Ukraine and coronavirus pandemic to only impact business to a limited extent going forward.
CAPITAL COMMITMENTS
The Group generally enters into contracts for the completion of construction projects and purchase of equipment. As at 31
December 2022, the Group had contractual commitments totaling 17,811 million tenge, excluding VAT (as at 31 December 2021:
21,016 million tenge, excluding VAT), which includes capital expenditures in respect to new technical regulation in the amount
of 8,025 million tenge (as of 31 December 2021: 7,586 million tenge) described below.
TAXATION
Tax legislation and regulatory framework of the Republic of Kazakhstan are subject to constant changes and allow for different
interpretations. Instances of inconsistent opinions between local, regional and national tax authorities are not unusual.
The current regime of penalties and 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. As a result, penalties and interest can amount
to multiples of any assessed taxes. Fiscal periods remain open to review by the authorities in respect of taxes for five calendar
years preceding the year of review.
Management believes that as at 31 December 2022 its 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 consolidated
financial statements.
GOVERNMENT GRANT RELATED TO FREQUENCY FEE
The Group has submitted consolidated report on expenditures used to finance broadband projects access to the Internet
in urban and rural areas included capital and operational costs that are necessary for the provision of broadband Internet
access services in urban and rural settlements throughout the territory of the Republic of Kazakhstan. Management believes
that there are no unfulfilled conditions or contingencies attached to these grants.
In case if, based on the results of the audited information, the fact of non-fulfilment by the telecom operator of obligations
to allocate at least released funds from the reduction of the corresponding fee rate to finance broadband Internet access
projects in urban and rural areas is confirmed, the authorized body in the field of communications not earlier than one year after
of the year following the reporting year, recalculates 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 obligations for this reporting year.
148
149
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
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 (new
Technical Regulation of 27 July 2021 No. 85/қе). 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
activities, collection and storage of subscribers’ information (hereinafter − “ORA”).
As of 31 December 2022 the Group partially implemented modernization and expansion of license and port capacity
for the total amount of 4,612 million tenge since 2018. The Group plans to complete expansion in full till 2025 and expect
that total amount of capital expenditures in respect to modernization and expansion will be equaled to 8,025 million tenge.
CUSTOMS INSPECTION
On 13 September 2019, the Customs Control Department (“CCD”) of Almaty issued an order on initiation of custom
audit in relation to the 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 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 regulations,
incorrect determination of the customs value of goods, and if violations are identified, the Group may be brought to administrative
penalty and be liable to pay appropriate customs charges, including import VAT and late payment fees. On 15 October 2020
the Customs Control 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 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 the Group.
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 pay 57 million tenge and to amend the customs declarations. In pursuance of the notice, the Group
paid additional tax charge and late payment penalty and amended the customs declarations.
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).
ARBITRATION AGAINST AMDOCS COMPANIES
Amdocs-Kazakhstan LLP and Amdocs Software Solutions LLC (jointly referred to as “Amdocs”) was to develop, implement
and deliver the Convergent Billing System to Kcell under Master Agreement dated April 2014 between TeliaSonera AB
and Amdocs Software System Ltd (“Master Agreement”), and Supply Agreement, including Addendums (further as “Supply
Agreement”).
In November 2018, the Group notified the Supplier of termination of the Supply Agreement, except for the technical
support services due to the quality of the Converged Billing System and Amdoc’s performance of contractual obligations
were not consistent with the terms of the Supply Agreement and the Group’s requirements. Moreover, there was delay
in delivery and implementation of the OLC (On-line charging) system. In May 2020, the Group notified the Supplier of its
withdrawal from the technical support agreement as well. Amdocs did not agree with the Group’s reasoning for termination
of the Supply Agreement and withdrawal from the technical support agreement.
The contractual relationships between the Group and Amdocs are governed by and construed in accordance with
Swedish law, and any dispute, controversy or claim arising out of that relationship should ultimately be settled
in arbitration in Stockholm in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber
of Commerce (“International Arbitration”).
On 18 December 2020, the Group applied to International Arbitration with a request to initiate arbitration proceedings against
Amdocs. The total amount of the Group’s asserted claims equaled to approximately 25.8 million EUR (equivalent to 12,823
million tenge).
The Group’s request for arbitration was registered with the Arbitration Institute of the Stockholm Chamber of Commerce
(hereinafter - “SCC”) in December 2020. On 29 December 2020, SCC sent a notice to the Amdocs companies of commencement
of arbitration and set a deadline for responding to the request for arbitration.
On 26 January 2021 the response from Amdocs JSC was received and Amdocs agreed to consider the dispute in SCC.
In addition, Amdocs had submitted the counterclaim, at this point in the preliminary amount of 13.9 million USD (equivalent
to 6.046 million tenge) and unpaid fees for extra work L2 and other out of scope service the amount of which was not calculated
and payment related to allegedly the Group’s delays in OLC and Phase 1 – the amount was not calculated.
On 16 and 23 April 2021 organizational sessions of arbitration tribunal were held, as a result of which the parties managed
to agree on the procedural rules and schedule. It is planned that consideration of the case on the merits will take place during
5-16 September 2022, and the tribunal’s decision will be granted in December 2022.
In accordance with the procedural timetable, the next stage of the proceedings, the Group claimed below extended relief (90%
increase of the initial amount):
•
To declare that the Group’s partial termination of the Delivery Contract by notice dated 22 November 2018 was valid
and effective;
•
To order the Respondents to pay – jointly and severally –59.773 million USD (equivalent to 26,001 million tenge)
and to order payment of the pre-award and post-award interest on the above amounts and reimburse the Claimant its
legal and other costs in relation to these proceedings.
On 5 November 2021, Amdocs filed extended counterclaims in the amount of 17.7 million USD (equivalent to
7,699 million tenge), plus interest applicable under Swedish law (8% per annum; from the date of incurrence of the obligation
the dates may differ, depending on stated claims), including reimbursement of costs incurred by Amdocs in connection with
the arbitration proceedings (fees to arbitrators, legal consultants and other costs incurred):
•
To invalidate the partial termination of the Delivery Contract (Contract) initiated by the Group to recognize such termination
as a breach of the Contract terms; to recognize that the Group is liable for damage associated with such a breach;
•
Reimbursement of the arbitration fees paid by Amdocs from the date of the judgement until the date when the amount
claimed is received in full, pursuant to Section 6 of the Swedish Interest Act and reimbursement of fees paid by Amdocs
to their legal consultants and other costs associated with the arbitration from the date of the judgement until the date when
the amount claimed is received in full, pursuant to Section 6 of the Swedish Interest Act.
150
151
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR 2022
Report of the Compliance with the Code of Corporate Governance
On 1 March 2022 Kcell filed the response to Amdocs extended counterclaims and declined all claims submitted
by the defendant. Kcell has also filed the additional claim, according to which shall the Tribunal decide that the Company is
not entitled for contract price reduction, then Kcell claims the right for compensation of funds in the amount of 16 million USD
(equivalent to 7,920 million tenge), overpaid for the supplied solution (BSS). The correspondent expert report with
the estimate of supplied solution was prepared by the independent financial expert and submitted by Kcell to the Tribunal.
Amdocs response to Kcell claims was received on 24 May 2022. Amdocs made no new claims, confirmed the previously filed
claims and agreed with Kcell that the Supply Agreement can be considered as a contract in US dollars and that any claims
under it can only be expressed in US dollars.
On 21 June 2022, Kcell sent the final document with additional arguments and evidence (including testimony and responses
to the arguments listed in Amdocs document dated 24 May 2022).
Kcell received a document from Amdocs on 15 July 2022 containing the final counterclaim amounts. In addition to the previously
announced figures, Amdocs is claiming the payment of a 400 000 USD invoice dated 4 May 2018 under Additional Agreement
3 for the “Final delivery to UAT 20%” stage. So, before the hearing in September, Amdocs’s claims amount to 18 million USD
(equivalent to 8,657 million tenge) plus % (calculated at the rate of 8% according to the Swedish Interest Act. Depending
on the date of obligation, it will be calculated and confirmed based on the hearing outcomes and stated in the arbitration
award).
In-person hearings to consider mutual claims between Kcell JSC and Amdocs-Kazakhstan LLP and Amdocs Software Solutions
LLC connected to the Supply Agreement were held from 5 to 16 September 2022 in Stockholm (Sweden). During the hearing,
Kcell has made the following proposals, which were supported by Amdocs and the tribunal:
•
If the tribunal satisfies, fully or partially, the claims of both parties, the offset principle will be applied;
•
If the tribunal satisfies the claims filed in tenge, apply the exchange rate as of the date of the arbitration award and state
those amounts in US dollars in the tribunal’s decision.
At the request of the parties and with the Tribunal’s approval, the date of filing of final claims by the parties was postponed to 31
October 2022, and the date of filing documents for the recovery of costs related to the arbitration proceedings was postponed
to 11 November 2022.
In December 2022, the Tribunal requested additional time to prepare a decision, citing the technical complexity of the case.
The SCC granted the requested postponement, setting 14 March 2023 as the deadline for the Award.
At year ended 31 December 2022 and 2021, the Group has accrued provision for arbitration against Amdocs in the amount
of 3,685 million tenge (31 December 2021: 3,685 million tenge) (Note 21). As at year ended 31 December 2022 the Management
cannot reliably estimate the probability and amount of additional provision.
33.
SUBSEQUENT EVENTS
There were no significant subsequent events.
APPENDIX 2.
CODE OF CORPORATE GOVERNANCE
COMPLIANCE REPORT
Information regarding compliance with the Code of Corporate Governance of Kcell Joint Stock Company (the “Code”),
approved by the resolution of the General Meeting of Shareholders of Kcell JSC on May 24, 2021 (minutes #18), is provided
below.
Based on the results of 2022, Kcell JSC (the “Company”) successfully adhered to all the principles outlined in the Code.
The provisions of the Code were followed in their entirety.
# para.
of the Code
Provisions of the Code of Corporate
Governance
Complied with/
Is not complied
with /
Partially
complied with
Information of the compliance/
noncompliance with the principles
CHAPTER 1. CORPORATE GOVERNANCE PRINCIPLES
SECTION 1. DEFINITION AND PRINCIPLES
The Company complies with the following Corporate Governance Principles, to the fullest extent:
1.1 PRINCIPLE OF PROTECTION OF THE RIGHTS AND SAFEGUARDING OF INTERESTS OF THE SHAREHOLDERS
1.2 (A) PRINCIPLES OF PROCEEDINGS OF THE BOARD OF DIRECTORS
1.2 (B) PRINCIPLES OF PROCEEDINGS OF THE MANAGEMENT BOARD
1.3 PRINCIPLES OF TRANSPARENCY AND IMPARTIAL DISCLOSURE OF THE INFORMATION OF THE COMPANY’S ACTIVITIES
1.4 PRINCIPLES OF LAWFULNESS AND ETHICS
1.5 PRINCIPLE OF AN EFFICIENT DIVIDEND POLICY
152
153
REPORT OF THE COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE
Audited Consolidated Financial Statements for 2022
1.6 PRINCIPLE OF AN EFFICIENT HR POLICY
The Company complies with the provisions of this Section to the fullest extent, excluding:
41.
41. The Personnel Policy primarily focuses on three
key areas: (a) job retention, wherever feasible
and based on the Company’s performance; (b)
enhancement of working conditions; and (c)
adherence to social protection standards applicable
to the Company’s employees.
Partially
complied with
The Company’s personnel-related activities
are primarily focused on job retention
and enhancing working conditions, as well as
providing social protection for its employees.
These objectives are clearly outlined
in several internal documents of the Company
and effectively implemented. In 2023,
the Company plans to develop and approve
the internal guidelines - HR Policy of Kcell JSC.
1.7 PRINCIPLE OF SUSTAINABLE DEVELOPMENT
44, 45
44. The Company acknowledges the significance
of its influence on the economy, environment,
and society. In its pursuit of enhancing long-term
value, the Company is committed to achieving
sustainable development while carefully
considering the interests of its stakeholders.
45. The Company ensures the alignment of its
economic, environmental, and social objectives
in pursuit of long-term sustainable development.
This commitment encompasses various aspects,
including enhancing long-term value for its
shareholders and investors.
Partially
complied with
In 2022, the Company initiated measures
to enhance its sustainable development
practices. Currently, it is in the process
of obtaining an ESG rating and reviewing
the applicability of ESG practices
to the Company.
For more information, please refer to Section
VII: Environmental and Social Responsibility
in the Annual Report.
SECTION 2. INTERNAL DOCUMENTS OF THE COMPANY
The Company complies with the provisions of this Section to the fullest extent, excluding:
59
59. The specific corporate governance
structures, procedures and practices are subject
to the Company’s Charter and internal documents,
including:
• on the Board of Directors;
• on the Management Board;
• on the Committees (as they are created);
• on risk management;
• on the Internal Audit Service;
• on the Corporate Secretary;
• on disclosures.
Partially
complied with
The provisions governing the Board of Directors
of Kcell JSC, the Management Board of Kcell
JSC, the Committees of Kcell JSC’s Board
of Directors, and the Risk Management have
been approved by the Company and are
currently in effect. In 2023, there are plans
to develop and approve internal guidelines
for the Corporate Secretary, as well as
for information disclosure practices.
SECTION 3. OVERALL CORPORATE GOVERNANCE STRUCTURE
The Company complies with the provisions of this Section to the fullest extent.
CHAPTER 2. PROPER PROCEEDINGS OF THE BOARD OF DIRECTORS
AND THE MANAGEMENT BOARD
SECTION 1. THE BOARD OF DIRECTORS
The Company complies with the provisions of this Section to the fullest extent, excluding:
67. The Board of Directors is responsible
for determining the Company’s development
strategy, including focus areas and desired
outcomes. They establish and monitor key
performance indicators outlined in the development
plan. Additionally, the Board organizes
and oversees the efficient functioning of the risk
management system and internal controls, with
the involvement of the Internal Audit Service. They
approve and monitor the implementation of major
strategic projects within the Board’s jurisdiction.
Furthermore, the Board places special emphasis
on the election, remuneration, succession
planning, and oversight of the Management Board
and its members. They also prioritize corporate
governance and ethics. Collaboration with
the Management team is crucial to ensure effective
decision-making and implementation. The Board
shall ensure the establishment and implementation
of an effective sustainable development system.
The Board of Directors is required to convene
annual meetings to discuss and approve
the Company’s development strategy.
Partially
complied with
The Board of Directors determines
the development strategy of the Company
(focus areas and outcomes), establishes
and monitors the key performance indicators
under the development plan; organizes
and supervises for the efficient functioning
of the risk management system and internal
controls, by engaging the Internal Audit
Service for these purposes; approves
and monitors the implementation of the key
strategic projects, subject to the competence
of the Board of Directors; pays special attention
to matters related to the election, remuneration,
succession planning and supervision
of the proceedings of the Management Board
and the latter’s members, as well as to corporate
governance and ethics; together with
the Management Board, ensures the creation
of a proper sustainable development system
and introduction thereof.
In 2022, the Board of Directors held no meeting
to discuss and approve the Company’s
development strategy.
In August 2022, a strategic session was held
with the participation of members of the Board
of Directors, where the progress in and updates
to the Company’s development strategy were
discussed.
154
155
REPORT OF THE COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE
Audited Consolidated Financial Statements for 2022
100, 101
100. The remuneration amount should be sufficient
to attract, retain, and motivate the Directors, thus
encouraging them to work efficiently.
101. The Company must establish a transparent
Directors’ Remuneration Policy. The remuneration
for Directors should be commensurate with the time
they dedicate to their duties and the quality of their
performance.
Partially
complied with
Since 2019, the Provision on the Size, Terms,
and Conditions of Remuneration and Expense
Reimbursement for Independent Members
of Kcell JSC’s Board of Directors has been
in effect within the Company. This provision
serves as an internal document that outlines
the payment procedures and conditions
for remuneration and compensation
of Independent Directors. However,
the Company currently does not have
a document in place that regulates remuneration
for Board members representing shareholders.
SECTION 2. THE MANAGEMENT BOARD
The Company complies with the provisions of this Section to the fullest extent.
SECTION 3. INTERACTION BETWEEN THE BOARD OF DIRECTORS AND THEY THE MANAGEMENT BOARD;
CORPORATE SECRETARY
The Company complies with the provisions of this Section to the fullest extent..
CHAPTER 3. INTERACTION WITH SHAREHOLDERS AND STAKEHOLDERS
The Company complies with the provisions of this Chapter to the fullest extent.
CHAPTER 4. DISCLOSURES AND TRANSPARENCY
The Company complies with the provisions of this Chapter to the fullest extent.
CHAPTER 5. CONCLUSION
The Company complies with the provisions of this Chapter to the fullest extent.
GLOSSARY
NAMES OF ORGANIZATIONS, SUBDIVISIONS
AND INTERNAL GUIDELINES OF THE COMPANY
Kcell JSC, Kcell, Company – Kcell Joint Stock Company
SWF Samruk-Kazyna JSC – Sovereign Wealth Fund Samruk-Kazyna Joint
Stock Company
GSM Kazakhstan LLP – “GSM Kazakhstan OAO Kazakhtelecom” Limited
Liability Partnership
HR, HR Service (Human Resources) – a HR subdivision
ITU – International Telecommunication Union
Nexign Converged BSS, Nexign – unified billing system Nexign Converged
Business Support System
BNS ASP&R of the RoK – Bureau of National Statistics of the Agency
for Strategic Planning and Reforms of the Republic of Kazakhstan
ISSEK – Institute for Statistical Studies and Economics of Knowledge -
Higher School of Economics, Moscow
CCG – Code of Corporate Governance
CRMS – Corporate Risk Management System
NB of the RoK – National Bank of the Republic of Kazakhstan
RoK – Republic of Kazakhstan
IAS – Internal Audit Service
CIS – Commonwealth of Independent States
USA – United States of America
JSC (in an entity’s name) – Joint Stock Company
LLP (in an entity’s name) – Limited Liability Partnership
TECHNICAL TERMS AND ABBREVIATIONS
AI – Artificial Intelligence
3G, 3G networks (3rd Generation) – third generation mobile networks
4G, 4G networks (4th Generation) – fourth generation mobile networks
4G+, LTE advanced – standard for wireless high-speed data transfer that
ensures a higher data transfer rate versus the basic LTE standard
5G, 5G networks (5th Generation) – fifth generation mobile networks
6G, 6G networks (6th Generation) – sixth generation mobile networks
DevOps (Development & Operations) – a method to automate technological
processes of software development and introduction, ensuring an active
interaction between specialists of different profiles and deep integration
of technological processes.
eSIM (electronic SIM) – electronic SIM-card built in a smartphone
GSM (French Groupe spécial mobile – name of the standard author) – global
standard of the digital mobile cellular communications with channels divided
by time and frequencies
GSM-1800 – GSM network, operating at 1 800 MHz
GPRS
(General
Packet
Radio
Service)
–
technology
of
packet
data transmission via mobile networks
FWA (Fixed Wireless Access) – fixed wireless Internet access
IMT-2020
(International
Mobile
Telecommunications-2020)
–
the designation of the 5G standard under the International Telecommunication
Union specification
IoT – Internet of Things, a concept of the data transfer between devices
to interact with each other or environment
LTE, 4G LTE (Long-Term Evolution) – a standard for wireless high-speed
data transfer based on the 4G mobile networks
MMS – Multimedia Message Service
mMTC (Massive Machine-Type Communications) – technology used
to connect numerous devices (sensors, meters, etc.) to the information
networks
OTT (Over the Top) – method to provide video services through the Internet,
which does not require any direct contact with the telecommunications
service provider’s network
pLTE (Private LTE) – dedicated private mobile networks
SIM-card (Subscriber Identification Module) – a subscriber’s identification
electronic module that is used in mobile communications
SMS (Short Message Service) – short text message
BBA – Broadband Internet Access
MARKETING, FINANCIAL AND ECONOMIC TERMS
AND ABBREVIATIONS
ARPU – Average Revenue per User
CAPEX – Capital Expenses
CFF – Cash Flow from Financing
CFI – Cash Flow from Investing
СFO – Cash Flow from Operating
CPA (Сost per Action) – a model of payment for the Internet advertisement,
when only certain actions of the user on the advertiser’s web-site are paid for
CVM (Customer Value Management) – customer base’s profitability
management
EBITDA – Earnings before Interest, Taxes, Depreciation and Amortization
сNPS – customer Net Promoter Score
eNPS – employee Net Promoter Score
KPI – Key Performance Indicators
M2M (Machine-to-Machine) – technology ensuring direct data exchange
between devices in the network
MAU – Monthly Active Users
MOU (Minutes of Use) – number of minutes of voice data transfer per
subscriber
NCF – Net Cash Flow
ROA – Return on Assets
ROE – Return on Equity
ROS – Return on Sales
VAS (Value-Added Services) – additional paid services
GDP – Gross Domestic Product
dollar – US dollar
CPI – Consumer Price Index
QI – Quantum Index
CIT – Corporate Income Tax
MFS – mobile financial system
CCEA of the RoK – Common Classifier of Economic Activity of the Republic
of Kazakhstan
MEASURING UNITS
un. – unit
Gcal – gigacalorie (heat energy unit that is equal to 109 calories)
kWh – kilowatt*hour (power consumption unit)
m3 – cubic meter
Mbit – megabit (unit of measurement of data size, equal to 106 bits)
MHz – megahertz (unit of measurement of frequency (radio frequency),
equal to 1 million Hz)
mln – million
bln – billion
PByte – petabyte (unit of measurement of data size, equal to 1015 bytes)
p.p. – percentage points
CONTACTS
Address: 51, Alimzhanov Str., Almaty 050004, Republic of Kazakhstan
Web-site: https://investors.kcell.kz
Tel.: (727) 258 27 55
Fax: (727) 258 89 11