38 Closed Joint Stock Company Kyivstar G.S.M.

Transcription

38
Closed Joint Stock Company Kyivstar G.S.M.
Independent auditors’ report
Closed Joint Stock Company
Kyivstar G.S.M.
Consolidated
Financial Statements
As at 31 December 2010
with Independent Auditors’ Report
39
The accompanying notes form an integral part of the consolidated financial statements
Consolidated statement of comprehensive income
43
Consolidated statement of financial position
44
Consolidated cash flow statement
45
Consolidated statement of changes in equity
47
Contents
Notes to the consolidated financial statements
1. Corporate information
48
2. Operating environment, risks and economic conditions in Ukraine
49
3. Basis of preparation
49
4. Changes in accounting policies
50
5. Summary of significant accounting policies
51
6. Critical accounting judgements and key sources of estimation uncertainty
60
7. IFRSs and IFRIC Interpretations not yet effective
62
8. Revenues and expenses
63
9. Income tax
66
10. Property, plant and equipment
69
11. Intangible assets
70
12. Other non-current assets
71
13. Trade and other receivables
72
14. Prepayments
73
15. Reconciliation of allowance accounts
73
16. Deferred expenses
74
17. Cash and cash equivalents
75
18. Share capital
76
19. Interest-bearing loans and borrowings
76
20. Employee benefit liability
77
21. Deferred revenue
79
22. Provisions
80
23. Taxes payable, other than income tax
80
24. Trade and other payables
81
25. Advances received
82
26. Other current liabilities
82
27. Related party disclosure
83
28. Commitments and contingencies
85
29. Fair value of financial instruments
86
30. Financial instruments and risk management
86
31. Earnings per share
89
32. Events after the reporting period
89
41
For the year ended 31 December 2010
(in thousands of Ukrainian Hryvnia, except for earnings per share)
Revenues
Notes
2010
2009
8
11,443,025
11,590,538
Costs of materials and traffic charges
8
(1,939,528)
(2,091,274)
Salaries and personnel costs
8
(866,243)
(935,249)
Other operating expenses
8
(2,078,358)
(2,136,650)
28,552
25,850
8
(64,373)
(82,467)
Other income
Other expenses
Depreciation and amortisation
8
(1,781,469)
(1,754,174)
Impairment losses
8
(3,414)
(118,069)
4,738,192
4,498,505
Finance income
8
227,431
529,958
Finance costs
8
(7,217)
(38,079)
Foreign exchange loss, net
(36,196)
(45,510)
Profit before tax
4,922,210
4,944,874
(1,244,330)
(1,259,477)
Profit for the year
3,677,880
3,685,397
Total comprehensive income for the year, net of tax
3,677,880
3,685,397
344.13
344.84
Income tax expense
9
Earnings per share, UAH
31
Consolidated statement of comprehensive income
Signed and authorised for release on behalf of management of Closed Joint Stock Company Kyivstar G.S.M. on 11 March 2011:
President
Igor Lytovchenko
Chief Financial Officer
Andrew Simmons
Deputy Chief Financial Officer/Chief Accountant
Lesya Samoylovich
43
Consolidated statement of financial position
(in thousands of Ukrainian Hryvnia)
Notes
2010
2009
Property, plant and equipment
10
6,274,153
6,349,031
Intangible assets
11
970,861
1,080,566
Other non-current assets
12
44,493
56,858
Deferred tax asset
9
635,940
307,140
7,925,447
7,793,595
68,990
64,489
320,553
595,702
-
899,492
ASSETS
Non-current assets
Current assets
Inventories
Trade and other receivables
13
Prepaid income tax
Prepaid taxes, other than income tax
401
587
Prepayments
14
74,902
78,362
Deferred expenses
16
92,583
77,912
Other current financial assets
27
3,349,309
-
Cash and cash equivalents
17
1,595,056
1,210,394
5,501,794
2,926,938
13,427,241
10,720,533
2010
2009
TOTAL ASSETS
Notes
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital
18
Retained earnings
656,499
656,499
10,679,975
8,322,298
11,336,474
8,978,797
Non-current liabilities
Interest-bearing loans and borrowings
19
-
51,192
Employee benefit liability
20
37,262
42,231
Provisions
22
52,727
-
89,989
93,423
Current liabilities
19
51,735
694
Employee benefit liability
20
7,566
3,896
Deferred revenue
21
736,659
614,519
Provisions
22
12,986
14,666
Income tax payable
266,911
-
Taxes payable, other than income tax
23
146,961
134,546
Trade and other payables
24
480,288
568,486
Advances received
25
136,207
136,198
Other current liabilities
26
161,465
175,308
TOTAL EQUITY AND LIABILITIES
44
2,000,778
1 648,313
13,427,241
10,720,533
Notes
2010
2009
4,922,210
4,944,874
1,346,803
1,337,770
Operating activities
Profit before tax
Consolidated cash flow statement
Non-cash adjustments to reconcile profit before tax to net cash flows:
Depreciation of property, plant and equipment
8
Impairment of property, plant and equipment and intangible assets
8
3,414
118,069
Amortisation of intangible assets
8
434,666
416,404
Loss on disposal of property, plant and equipment and intangible assets
8
61,477
68,622
Interest income
8
(150,641)
(528,065)
Unwinding of discount on other current financial assets
8
Interest expense related to bank loans
(76,790)
-
3,942
34,381
Other finance costs
8
3,275
3,698
Net gain on derivative financial instrument
8
-
(1,893)
Movements in provisions and defined employee benefit liability
(6,254)
31,651
Unrealised foreign exchange loss
7,392
40,789
Working capital adjustments:
Increase in inventories
(4,501)
(6,159)
Decrease/(increase) in trade and other receivables and prepayments
201,327
(82,134)
Decrease in short-term deposits
-
3,063,312
(Increase)/decrease in deferred expenses
(14,671)
15,315
Increase in trade and other payables and taxes payable, other than income tax
132,890
132,610
Increase/(decrease) in deferred revenue
122,140
(115,812)
Increase in advances received
9
14,745
Decrease in other liabilities
(13,843)
(29,780)
6,972,845
9,458,397
144,821
675,546
Interest received
Interest paid
(3,944)
(70,648)
Income taxes paid
(234,233)
(2,384,247)
Net cash flows from operating activities
6,879,489
7,679,048
45
Notes
2010
2009
Purchase of property, plant and equipment
(1,356,578)
(1,212,587)
Purchase of intangible assets
(480,388)
(234,501)
Reimbursable interest-free financial aid provided to related party
(4,000,000)
-
Proceeds from sale of property, plant and equipment and disposal of assets
under buy-back agreement
114,897
215,681
Net cash flows used in investing activities
(5,722,069)
(1,231,407)
Dividends paid to equity holders of the parent
(743,591)
(9,134,787)
Withholding tax paid on dividends
(21,625)
(260,214)
Repayment of loans and borrowings
-
(973,130)
Payment of financial fees
-
(3,698)
Proceeds from derivative financial instrument
-
32,664
Net cash flows used in financing activities
(765,216)
(10,339,165)
Net increase/(decrease) in cash and cash equivalents
392,204
(3,891,524)
Net foreign exchange difference
(7,542)
33,549
Investing activities
46
Financing activities
Cash and cash equivalents as at 1 January
17
1,210,394
5,068,369
Cash and cash equivalents as at 31 December
17
1,595,056
1,210,394
Attributable to the equity holders of the parent
Share capital (Note 18)
Retained earnings
Total equity
Balance at 1 January 2009
656,499
11,136,901
11,793,400
Profit for the year
-
3,685,397
3,685,397
-
3,685,397
3,685,397
Dividends declared (Note 18)
-
(6,500,000)
(6,500,000)
Balance at 31 December 2009
656,499
8,322,298
8,978,797
Profit for the year
-
3,677,880
3,677,880
-
3,677,880
3,677,880
Dividends declared (Note 18)
-
(765,216)
(765,216)
Distributions to shareholders (Note 27)
-
(554,987)
(554,987)
Balance at 31 December 2010
656,499
10,679,975
11,336,474
Consolidated statement of changes in equity
47
Notes to
the consolidated
financial statements
at 31 December 2010
1. Corporate
information
Closed Joint Stock Company Kyivstar
G.S.M. (hereinafter referred to as ‘Kyivstar’ or ’the Company’) was established
and registered on 3 September 1997 under the laws of Ukraine. The Company is
involved in the design, construction and
operating of a dedicated cellular telecommunication network and provides a wide
range of mobile communication services
in Ukraine.
The Company’s registered legal address is at 51, Chervonozoryanyy Av., Kyiv,
03110, Ukraine. The Company’s head office and principal place of business is at
53, Degtyarivska St., Kyiv, 03113, Ukraine.
Prior to 21 April 2010, 56.52% of the
Company’s shares were owned by Telenor
Mobile Communications AS, an entity affiliated with Telenor ASA (‘Telenor’), and
the remaining 43.48% – by Storm LLC,
an entity affiliated with Altimo Holdings
and Investments Limited (‘Altimo’). On
21 April 2010, Telenor and Altimo legally
consummated a combination of their holdings in Open Joint Stock Company VimpelCom, one of the largest telecommunications operators in the Russian Federation,
and Kyivstar, by creating a jointly owned
telecommunication company, VimpelCom
Ltd. As a result, the Company’s ownership
structure has changed.
As at 31 December 2010 and 2009 the
Company’s direct shareholders and their respective declared interests were as follows:
2010
Interest
Number of shares
Interest
Number of shares
VimpelCom Holdings B.V. (Netherlands)
56.52%
6,040,262
-
-
Storm LLC (Ukraine)
43.48%
4,647,127
43.48%
4,647,124
Telenor Mobile Communications AS (Norway)
-
-
56.52%
6,040,255
Other shareholders
-
-
less than 0.01% 10
100.00%
10,687,389
100.00%
The Company has one wholly owned
subsidiary – Joint Stock Company Staravto, which was established in order to
provide transportation services to the
Company. The Company and its subsidiary are hereinafter together referred to as
48
2009
‘the Group’.
The Company’s ultimate parent is
VimpelCom Ltd., a company headquartered in Amsterdam, the Netherlands.
10,687,389
The Ukrainian economy while deemed
to be of market status continues to display
certain characteristics consistent with
that of an economy in transition. These
characteristics include, but are not limited to, low levels of liquidity in the capital
markets, high inflation and the existence
of currency controls which cause the national currency to be illiquid outside of
Ukraine. The stability of the Ukrainian
economy will be significantly impacted
by the Government’s policies and actions
with regard to administrative, legal, and
economic reforms. As a result, operations
in Ukraine involve risks that are not typical for developed markets.
3. Basis of preparation
The consolidated financial statements
have been prepared on a historical cost
basis, except for certain financial instruments measured in accordance with the
requirements of IAS 39 Financial instruments: recognition and measurement.
These consolidated financial statements
are presented in Ukrainian Hryvnia (‘UAH’)
and all values are rounded off to the nearest thousand, except when otherwise indicated.
Statement of compliance
of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board
(IASB).
The Ukrainian economy is vulnerable to
market downturns and economic slowdowns elsewhere in the world. The global
financial crisis has resulted in a decline in
the gross domestic product, instability in
the capital markets, a significant deterioration in the liquidity of the banking sector, and tighter credit conditions within
Ukraine. Whilst the Ukrainian Government
continues to introduce various stabilisation measures aimed at supporting the
banking sector and providing liquidity
to Ukrainian banks and companies, there
continues to be uncertainty regarding access to capital and its cost for the Group
and its counterparties, which could affect
the Group’s financial position, results of
operations and business prospects.
Whilst management believes it is taking
appropriate measures to support the sustainability of the Group’s business in the
current circumstances, any unexpected
further deterioration in the areas described above could negatively affect the
Group’s results and financial position in a
manner not currently determinable.
2. Operating
environment, risks and
economic conditions
in Ukraine
Basis of consolidation
comprise the financial statements of the
Company and its wholly-owned subsidiary. The subsidiary is fully consolidated
from the date it was incorporated by the
Company. The subsidiary’s financial statements are prepared as at the same reporting date as the Company’s, using consistent accounting policies.
All intra-group balances, income and
expenses and unrealised gains and losses
resulting from intra-group transactions
are eliminated in full.
49
4. Changes
in accounting policies
The accounting policies adopted are
consistent with those of the previous financial year, except for the following new
and amended IFRS and IFRIC interpretations effective as of 1 January 2010:
•IFRS 2 Share-based Payment: Group Cashsettled Share-based Payment Transactions
effective 1 January 2010
• IFRS 3 Business Combinations (Revised)
and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1
July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS 7, IAS 21,
IAS 28, IAS 31 and IAS 39
• IAS 39 Financial Instruments: Recognition
and Measurement – Eligible Hedged Items
effective 1 July 2009
• IFRIC 17 Distributions of Non-cash Assets
to Owners effective 1 July 2009
• Improvements to IFRSs (May 2008)
• Improvements to IFRSs (April 2009)
The adoption of the standards or interpretations is described below:
IFRS 2 Share-based Payment (Revised)
The IASB issued an amendment to IFRS
2 that clarified the scope and the accounting for group cash-settled share-based
payment transactions. The Group adopted
this amendment as of 1 January 2010. It
did not have an impact on the financial
position or performance of the Group.
IFRS 3 Business Combinations (Revised)
and IAS 27 Consolidated and Separate Financial Statements (Amended)
IFRS 3 (Revised) introduces significant
changes in the accounting for business
combinations occurring after becoming
effective. Changes affect the valuation of
non-controlling interest, the accounting
for transaction costs, the initial recognition and subsequent measurement of a
contingent consideration and business
combinations achieved in stages. These
changes will impact the amount of goodwill recognised, the reported results in
the period that an acquisition occurs and
future reported results.
IAS 27 (Amended) requires that a change
in the ownership interest of a subsidiary
(without loss of control) is accounted for as a
transaction with owners in their capacity as
owners. Therefore, such transactions will no
longer give rise to goodwill, nor will they give
rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses
incurred by the subsidiary as well as the loss
of control of a subsidiary. The changes by IFRS
3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and
transactions with non-controlling interests
after 1 January 2010.
50
The change in accounting policy was
applied prospectively. It did not have an
impact on the financial position or performance of the Group.
IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged
Items
The amendment clarifies that an entity
is permitted to designate a portion of the
fair value changes or cash flow variability
of a financial instrument as a hedged item.
This also covers the designation of inflation as a hedged risk or portion in particular situations. The amendment had no
impact on the financial position or performance of the Group in 2010, as the Group
has not entered into any such hedges.
IFRIC 17 Distribution of Non-cash Assets
to Owners
This interpretation provides guidance
on accounting for arrangements whereby
an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends. The interpretation
has no effect on the financial position or
performance of the Group.
Improvements to IFRSs
In May 2008 and April 2009, the IASB
issued omnibus of amendments to its
standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption
of the following amendments resulted in
changes to accounting policies but did not
have any impact on the financial position
or performance of the Group.
Issued in May 2008
• IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations: clarifies that
when a subsidiary is classified as held for
sale, all its assets and liabilities are classified as held for sale, even when the entity
retains a non-controlling interest after the
sale transaction. The amendment is applied
prospectively and has no impact on the financial position or financial performance of
the Group.
Issued in April 2009
• IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations: clarifies that
the disclosures required in respect of noncurrent assets and disposal groups classified
as held for sale or discontinued operations
are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply
if specifically required for such non-current
assets or discontinued operations. The
amendment is applied prospectively and has
no impact on the the disclosures made in the
Group’s consolidated financial statements.
• IFRS 8 Operating Segments: clarifies
that segment assets and liabilities need only
• IAS 7 Statement of Cash Flows: states that
only expenditure that results in recognising
an asset can be classified as a cash flow from
investing activities. This amendment did not
change the presentation of the cash flow
statement in the Group’s consolidated financial statements.
Other amendments resulting from Improvements to the following standards
did not have any impact on the accounting
policies, financial position or performance
of the Group:
5. Summary
of significant
accounting policies
Functional and presentation currencies
The functional and presentation currency of each of the Group’s entities is
Ukrainian Hryvnia.
Foreign currency translation
Transactions denominated in currencies
other than the relevant functional currency (foreign currencies) are initially recorded in the functional currency at the rate
in effect at the date of transaction. Monetary assets and liabilities denominated
in foreign currencies are translated at the
functional-currency rate of exchange in
effect at the reporting date. Non-monetary items that were measured in terms
of historical cost in a foreign currency are
translated using the exchange rate as at
the date of the initial transaction. Nonmonetary items measured at fair value in
a foreign currency are translated using
the exchange rates at the date when the
fair values were determined. The resulting gains and losses are recognised in the
profit and loss.
Revenue recognition and measurement
Revenue is recognised to the extent that
it is probable that the economic benefits
will flow to the Group and the revenue
can be reliably measured. Revenues are
measured at the fair value of the consideration received or receivable, excluding
discounts, rebates and sales taxes. These
taxes are regarded as collected on behalf
on the authorities.
Issued in April 2009
• IFRS 2 Share-based Payment
• IAS 1 Presentation of Financial Statements
• IAS 17 Leases
• IAS 34 Interim Financial Reporting
• IAS 36 Impairment of Assets
• IAS 38 Intangible Assets
• IAS 39 Financial Instruments: Recognition
and Measurement
• IFRIC 9 Reassessment of Embedded Derivatives
• IFRIC 16 Hedge of a Net Investment in a
Foreign Operation
• IFRIC 18 Transfers of Assets from Customers
be reported when those assets and liabilities are included in measures that are used
by the chief operating decision maker. The
amendment did not result in additional disclosures as the Group’s management identified that the Group has only one reportable
segment.
Revenues primarily comprise sales of:
• Services: revenue from air time charges,
interconnection fees, periodic fees, connection and one-time subscription fees, roaming, value added services;
• Customer equipment: telephony handsets,
modems, etc.
Air time revenue
The Company earns air time revenue by
providing its prepaid and post-paid subscribers with access to the cellular network
and routing their calls through the network
and its roaming partners’ networks.
Revenue from interconnection
Revenue from interconnection represents the revenue earned for the termination of calls from other telecommunications service providers’ networks on the
Company’s network.
Air time and interconnection revenue is
recognised in the period when the respective service is rendered.
Periodic fees
Periodic fees include fees for subscription to new tariff plans and fees for
supplementary subscriptions used by
subscribers in particular period, such as
periodic fees for subscription to voicemail,
itemised invoice etc.
Periodic fees are recognised in the period, when the respective service is rendered.
51
Connection and one-time subscription fees
Connection fees are paid by subscribers
for the first time activation of network
service. Revenues from connection are
deferred and recognised over the period
that the fees are earned, which is the expected period of the customer relationship and approximates 4 years (2009: 3
years). The expected period of the customer relationship is based on the past
history of churn and expected development of the Company.
One-time subscription fees mainly consist of one-time fees for various supplementary subscriptions and also include
change of subscription type and transfer
of subscriptions from one location to another. One-time subscription fees that are
linked to other elements in a way that the
commercial effect cannot be understood
without reference to the other transactions are deferred and recognised over the
period that the fees are earned, which is
the subscription validity period or, in case
of no validity period, the expected period
of the customer relationship, which approximates 4 years (2009: 3 years).
Roaming revenues
Roaming revenues include roaming revenues from the services provided to the
Company’s subscribers in the networks of
its roaming partners and roaming revenues from access to the services provided
by the Company in its network to subscribers of the Company’s roaming partners. Roaming revenues are recognised in
the period, when the respective services
are rendered.
Value added services
Value added services include revenues
from outgoing SMS and MMS, circuit of
switched data and packet switched data
(WAP, GPRS, EDGE etc.) Revenues from
value added services are recognised in
the period, when the respective services
are rendered.
Sales of telephony handsets and modems
Revenues from sales of handsets and
modems are normally recognised, when
the related significant risks and rewards
are transferred to the buyer.
Discounts
Discounts are often provided in the form
of cash discount, free or discounted products or services delivered by the Company or by external parties. Discounts
are recorded on a systematic basis over
the period the discount is earned. Cash
discounts or free products are recorded
as revenue reductions. Free products or
services delivered by external parties are
recorded as expenses.
52
Presentation
Where the Company’s role in a transaction is a principal, revenue is recognised
on a gross basis. This requires revenue to
comprise the gross value of the transaction billed to the customer, after trade
discounts, with any related expenditure
charged as an operating cost. Where the
Company’s role in a transaction is that of
an agent, revenue is recognised on a net
basis and represents the margin earned.
The evaluation of whether the Company is
acting as principal or agent is based on an
evaluation of the substance of the transaction, the responsibility for providing the
goods or services and setting prices and
the underlying financial risk and rewards.
Interest income
Interest income is recorded using the effective interest rate, which is the rate that
exactly discounts the estimated future cash
flows through the expected life of financial
instruments or a shorter period, where appropriate, to the net carrying amount of the
financial asset or liability. Interest income is
included in finance income in the statement
of comprehensive income.
Deferred revenue
Cellular service revenue is recognised
on the basis of actual airtime usage by the
end customer. Unused time on sold prepaid cards is recognised as deferred revenue until the related services have been
provided to the subscribers or the prepaid
card has expired.
Loyalty programs
Customer loyalty credits are accounted
for as a separate component of the sales
transaction, in which they are granted.
A portion of the fair value of the consideration received is allocated to the award
credits and deferred, based on estimated
number of award credits that will actually
be earned by the customer. This is then
recognised as revenue over the period
that the award credits are redeemed.
Costs related to connection fees
Initial direct costs incurred in earning
connection fees are deferred over the
same period as the connection revenue,
limited to the amount of the deferred connection fees. Costs incurred consist primarily of the costs of the start packages
and dealers’ bonuses. In some cases costs
associated with connection fees exceed
the respective connection revenues and
the amount of connection costs exceeding the amount of deferred connection
fees is expensed.
Property, plant and equipment is stated
at cost less accumulated depreciation and
any accumulated impairment losses. Cost
includes professional fees and, for qualifying assets, borrowing costs are capitalised.
Depreciation is calculated to reduce the cost
of assets, other than land, to their estimated
residual value, if any, over their estimated
useful lives. Depreciation commences, when
the assets are ready for their intended use.
Repair and maintenance is expensed
as incurred. If new parts are capitalised,
replaced parts are derecognised and any
remaining net book value is recorded to
operating profit (loss) as loss on disposal.
When the expected cost for the decommissioning of the asset after its use is
material to the financial statements, the
present value of the expected cost for the
decommissioning of the asset after its use
is included in the cost of the respective
asset if the recognition criteria for the
provision is met.
Depreciation is calculated on a straightline basis over the estimated useful life of
the asset as follows:
Leasehold improvements are depreciated over their expected useful lives on
the same basis as owned assets or, where
shorter, the term of the relevant lease.
Construction in progress
Assets under construction are capitalised as a separate component of property,
plant and equipment. On completion, the
cost of construction is transferred to the
appropriate category of property, plant
and equipment. Construction in progress
is not depreciated.
Uninstalled equipment
Uninstalled
equipment
represents
equipment purchased by the Group, but
not yet put into operation. Uninstalled
equipment is not depreciated.
Land
Freehold land to which the Group has due
legal title is included in the Group’s statement of financial position at its historical
cost. Freehold land is not depreciated.
Leases
Leases are classified as finance leases
whenever the terms of the lease transfer
substantially all the risks and rewards of
ownership to the lessee. All other leases
are classified as operating leases. The
evaluation is based on the substance
of the transaction. However, situations
that individually would normally lead
the Group to classify a lease as a finance
lease is if the lease term is more than 75
percent of the estimated economic life or
the present value of the minimum lease
Asset category
Useful life (years)
Local, regional & trunk networks
20
Mobile telephone network and switches
3-15
Radio installations
7
Buildings
15-30
Corporate administrative assets
3-4
Depreciation method, estimated useful
life and residual value are evaluated at
least annually and adjusted prospectively,
if appropriate. Residual value is estimated
to be zero for most assets, except for vehicles, which are included in corporate
administrative assets, that the Group does
not expect to use for the assets’ whole
economic life.
An item of property, plant and equipment is derecognised upon disposal or
when no future economic benefits are
expected to arise from the continued
use of the asset 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 item) is included in profit
and loss in the year the item is derecognised.
Advertising costs, marketing and sales
commissions
Advertising costs, marketing and sales
commissions are expensed as incurred,
unless they form part of the costs that are
deferred in relation to deferral of connection fees as described above. Expenditure
on advertising and promotional activities
is recognised as an expense when the
Group either has the right to access the
goods or has received the service.
payments exceeds 90 percent of the fair
value of the leased asset.
The Group may enter into an arrangement that does not take the legal form of
a lease but conveys a right to use an asset
in return for a payment or series of payments. Determining whether an arrangement is, or contains, a lease is based on the
substance of the arrangement and requires
an assessment of whether: (a) fulfilment of
the arrangement is dependent on the use
of a specific asset; and (b) the arrangement
conveys a right to use the asset.
53
The Group as lessee
Property and equipment acquired by
way of finance lease is capitalised and carried at the lower of its fair value and the
present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment
losses. Leased assets are depreciated over
the useful life of the asset. However, if
there is no reasonable certainty that the
Group will obtain ownership by the end
of the lease term, the asset is depreciated
over the shorter of the estimated useful
life of the asset and the lease term.
Operating lease payments are charged to
profit and loss on a straight-line basis over the
term of the relevant lease. Benefits received
and incentives to enter into an operating lease
are also amortised on a straight-line basis over
the lease term. Advance lease payments made
on entering into operating leases or acquiring
leaseholds are amortised to profit and loss
over the lease term in accordance with the
pattern of benefits provided.
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 respective assets. All
other borrowing costs are expensed in the
period they occur. Borrowing costs consist
of interest and other costs incurred in connection with the borrowing of funds.
Intangible assets
Intangible assets acquired are initially
measured at cost. Following initial recognition, intangible assets are carried at
cost less any accumulated amortisation
and any accumulated impairment losses.
Internally generated intangible assets,
excluding capitalised development costs,
are not capitalised and expenditure is reflected in profit and loss in the period, in
which the expenditure is incurred.
Intangible assets, all of which are determined as having finite useful lives, are
amortised over the useful economic lives.
The amortisation period and amortisation
method for intangible assets is reviewed
at least annually, and adjusted prospectively if appropriate.
54
Amortisation is provided using the
straight-line basis over the estimated useful lives of the related assets as follows:
Asset category
Useful life (years)
Licenses
10-15
Network and billing software
5
Gains and 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 as other expenses
in the statement of comprehensive income.
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 such indication exists, or when annual impairment
testing for an asset is required, the Group
makes an estimate of the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s or cashgenerating unit’s fair value less costs to
sell and its value in use and 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. Where the carrying amount of an asset or cash generating unit exceeds its recoverable amount,
the asset is considered impaired and is
written down to its recoverable amount.
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 to sell, recent market transactions are taken into account,
if available. If no such transactions can
be identified, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples or other
available fair value indicators. Impairment
losses of continuing operations are recognised in profit and loss.
Financial assets
Initial recognition and measurement
Financial assets within the scope of IAS 39
are classified as financial assets at fair value
through profit or loss, loans and receivables,
held-to-maturity investments, availablefor-sale financial assets, or as derivatives
designated as hedging instruments in an
effective hedge, as appropriate. The Group
determines the classification of its financial
assets at initial recognition.
Financial assets are recognised initially at
fair value plus, in the case of investments
not at fair value through profit or loss, directly attributable transaction costs.
Purchases or sales of financial assets
that require delivery of assets within a
time frame established by regulation or
convention in the marketplace (regular
way purchases) are recognised on the
trade date, i.e., the date that the Group
commits to purchase or sell the asset.
The Group’s financial assets include cash
and cash equivalents, trade and other receivables and interest-free reimbursable financial aid, all of which are classified as loans
and receivables in accordance with IAS 39.
Subsequent measurement
Loans and receivables are nonderivative
financial assets with fixed or determinable
payments that are not quoted in an active
market. After initial measurement, such financial assets are subsequently measured
at amortised cost using the effective interest rate method, less impairment. Amortised cost is calculated by taking into
account any discount or premium on acquisition and fee or costs that are integral
part of the effective interest rate. The amortisation is included in finance income in
the statement of comprehensive income.
A cash generating unit is the smallest
identifiable group of assets that generates
cash inflows that are largely independent
of the cash inflows from other assets or
groups of assets. Based on the specifics of
the Group’s operations, the management
concluded that the Group has one cash
generating unit, which is the Company’s
network as a whole.
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 recoverable amount is estimated. A
previously recognised impairment loss is
reversed only if there has been a change
in the estimates used to determine the
asset’s recoverable amount since the last
impairment loss was recognised. If that is
the case the carrying amount of the asset is increased to its recoverable amount.
That increased amount cannot 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 profit and loss. After such a reversal the depreciation charge is adjusted
in future periods to allocate the asset’s
revised carrying amount, less any residual
value, on a systematic basis over its remaining useful life.
Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of
IAS 39 are classified as financial liabilities
at fair value through profit or loss, loans
and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial
liabilities at initial recognition.
Financial liabilities are recognised initially at fair value less, in the case of loans
and borrowings, directly attributable
transaction costs.
The Group’s financial liabilities mainly
include trade and other payables and
loans and borrowings.
Subsequent measurement
After initial recognition, interest-bearing
loans and borrowings and trade and other
payables with fixed maturity are subsequently measured at amortised cost using
the effective interest rate method.
Gains and losses are recognised in net profit
or loss when the liabilities are derecognised
as well as through the effective interest rate
method amortisation process.
Amortised cost is calculated by taking
into account any discount or premium on
acquisition and fee or costs that are integral part of effective interest rate. The
effective interest rate amortisation is included in finance costs in the statement
of comprehensive income.
55
Offsetting of financial instruments
Financial assets and financial liabilities
are offset and the net amount reported
in the consolidated statement of financial
position if, and only if, there is a currently
enforceable legal right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets
and settle the liabilities simultaneously.
Fair value of financial instruments
The fair value of financial instruments
that are actively traded in organised financial markets at each reporting date is
determined by reference to quoted market prices or dealer price quotations (bid
price for long positions and ask price for
short positions), without any deductions
for transaction costs. For financial instruments where there is no active market,
fair value is determined using appropriate valuation techniques. Such techniques
may include using recent arm’s length
market transactions; reference to the current fair value of another instrument that
is substantially the same; discounted cash
flow analysis or other valuation models.
Amortised cost of financial instruments
Amortised cost is computed using the
effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes
into account any premium or discount on
acquisition and includes transaction costs
and fees that are an integral part of the
effective interest rate.
Impairment of financial assets
The Group assesses at each reporting
date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset
or a group of financial assets is deemed to
be impaired if, and only if, there is objective
evidence of impairment as a result of one
or more events that has occurred after the
initial recognition of the asset (an incurred
‘loss event’) and that loss event has an impact on the estimated future cash flows of
the financial asset or the group of financial
assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest
or principal payments, the probability that
they will enter bankruptcy or other financial reorganisation and where observable
data indicate that there is a measurable decrease in the estimated future cash flows,
such as changes in arrears or economic
conditions that correlate with defaults.
56
For financial assets carried at amortised
cost, the Group first assesses individually
whether objective evidence of impairment
exists for financial assets that are individually significant, or collectively for financial
assets that are not individually significant.
If the Group determines that no objective
evidence of impairment exists for an individually assessed financial asset, whether
significant or not, it includes the asset in a
group of financial assets with similar credit
risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is, or continues
to be, recognised are not included in a collective assessment of impairment.
If there is objective evidence that an
impairment loss has been incurred, the
amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future
cash flows (excluding future expected credit losses that have not yet been incurred).
The present value of the estimated future
cash flows is discounted at the financial asset’s original effective interest rate. If an
instrument has a variable interest rate, the
discount rate for measuring any impairment
loss is the current effective interest rate.
The carrying amount of the asset is reduced
through the use of an allowance account
and the amount of the loss is recognised in
profit and loss. Interest income continues to
be accrued on the reduced carrying amount
based on the original effective interest rate
of the asset. Loans and receivables together
with the associated allowance are written off
when there is no realistic prospect of future
recovery and all collateral has been realised
or has been transferred to the Group. If, in a
subsequent year, the amount of the estimated impairment loss increases or decreases
because of an event occurring after the impairment was recognised, the previously
recognised impairment loss is increased or
reduced by adjusting the allowance account.
If a future write-off is later recovered, the
recovery is credited to finance costs in the
statement of comprehensive income.
Financial liabilities
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 a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying
amounts is recognised in profit or loss.
Employee benefits
The Group makes defined contributions
to the State Pension fund at the relevant
statutory rates in force during the year,
based on gross salary payments; such an
expense is charged in the period when the
related salaries are earned.
In addition to the above, employees of the
Group are entitled to jubilee and post-employment benefits.
Jubilee benefits are paid out on occasion
of anniversary, while post-employment benefits are paid out as a one-off benefit upon
retirement. The amount of those benefits
depends on the tenure with the Company
and the average salary. The benefits payable
under these arrangements are unfunded.
The expected cost of providing employee
benefits is determined annually using the projected unit credit actuarial valuation method
to calculate the net present value of benefit
obligations at the reporting date. The balance
of employee benefit obligations equals discounted payments to be made in the future
and accounts for staff turnover and relates to
the period to the reporting date. Demographic
information and information on staff turnover
are based on historical data.
Gains and losses resulting from the use of
actuarial valuation methodologies to calculate post-employment benefits are recognised when the cumulative unrecognised
actuarial gains or losses for the plan at the
end of the previous reporting period exceed
10% of defined benefit obligation at that
date. These gains or losses are recognised as
income or expense over the expected average remaining working lives of the employees participating in the plan. Any actuarial
gains or losses relating to jubilee benefits
are recognised in profit or loss in the period
in which they arise.
The past service cost is recognised as an
expense on a straight-line basis over the
average period until the benefits become
vested. If the benefits are already vested following the introduction of, or changes to, a
pension plan, past service cost is recognised
immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses
not recognised reduced by past service cost
not yet recognised.
Derecognition of financial instruments
Financial assets
A financial asset (or, where applicable a
part of a financial asset or part of a group
of similar financial assets) is derecognised
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, and has neither transferred
nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, a new asset is recognised
to the extent of the Group’s continuing involvement in the asset.
In that case, the Group also recognises an
associated liability. The transferred asset
and the associated liability are measured
on the 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.
57
Taxes
Current income tax
Current tax assets and liabilities for the
current and prior periods 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 by the
reporting date.
Deferred income tax
Deferred income tax is provided using
the liability method on temporary differences at the reporting date between the
tax bases of assets and liabilities and their
carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognised for
all taxable temporary differences, except:
• where the deferred tax liability arises from
the initial recognition of goodwill or 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; and
• in respect of taxable temporary differences
associated with investments in subsidiaries,
where 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 income tax assets are recognised for all deductible temporary differences and carry-forward of unused
tax losses, 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 losses can be utilised except:
• where the deferred income 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; and
• in respect of deductible temporary differences
associated with investments in subsidiaries,
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.
58
The carrying amount of deferred income
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 income tax asset to be utilised. Unrecognised deferred income tax assets are
reassessed at each reporting date and are
recognised to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income 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 other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable
right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Value-added tax
Revenues, expenses and assets are recognised net of value-added tax (“VAT”)
except:
• where VAT incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case VAT is recognised as part of the cost of acquisition of
the asset or as part of expense item as applicable; and
• receivables and payables are stated with
the amount of VAT included.
The net amount of VAT recoverable
from, or payable to, the taxation authority
is disclosed in the notes to the consolidated statement of financial position.
Cash and cash equivalents include cash
at banks and on hand and short-term deposits with an original maturity of three
months or less.
For the purpose of consolidated cash
flow statement, cash and cash equivalents
consists of cash and cash equivalents as
defined above, net of outstanding bank
overdrafts.
Provisions
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. Where 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 any provision is presented in the statement of comprehensive
income net of any reimbursement. If the
effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in
the provision due to the passage of time is
recognised as a finance cost.
Contingent assets and liabilities
A contingent asset is not recognised in the
financial statements but disclosed when an
inflow of economic benefits is probable.
Contingent liabilities are not recognised
in the financial statements unless it is
probable that an outflow of economic resources will be required to settle the obligation and it can be reasonably estimated.
They are disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote.
Inventories
Inventories are valued at the lower of
cost or net realisable value for items that
will be sold as a separate products. Inventories that will be sold as part of a transaction with several components, which the
Group expects to earn net income from,
are valued at cost even if the selling price
of the inventory is below cost price. Cost
is determined using the FIFO method.
Current/non-current classification
An asset/liability is classified as current,
when it is expected to be realised (settled) or is intended for sale or consumption
within twelve months after the reporting
date. Other assets/liabilities are classified
as non-current. Financial instruments are
classified based on expected life. Deferred
revenues and respective costs of connection are classified as current.
Events after the reporting date
Events after the reporting date that provide additional information on the Group’s
position at the reporting date (adjusting
events) are reflected in the consolidated
financial statements. Events after the reporting date that are not adjusting events
are disclosed in the notes when material.
59
6. Critical accounting
judgements and key
sources of estimation
uncertainty
Key sources of estimation uncertainty –
critical accounting estimates
Certain amounts included in or affecting
the consolidated financial statements and
related disclosures must be estimated,
requiring management to make assumptions with respect to values or conditions
which cannot be known with certainty at
the time the consolidated financial statements are prepared.
A ‘critical accounting estimate’ is one,
which is both important to the portrayal
of the Group’s financial condition and results and requires management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Management evaluates such estimates on
an ongoing basis, based upon historical
results and experience, consultation with
experts, trends and other methods, which
management considers reasonable in the
particular circumstances, as well as the
forecasts as to how these might change
in the future. However, uncertainty about
these estimates could result in outcomes
that require a material adjustment to the
carrying amount of the asset or liability
affected in future periods.
Revenue recognition
The main part of the Group’s revenues
is earned from mobile services, such as
airtime, one-time connection fees or periodic subscriptions. The Company has
many subscribers and offers a number
of different services with different tariff
plans. The Company also provides discounts of various types, often in connection with different campaigns. Revenues
from one-time subscriptions or connections to the Company’s network are recognised as deferred revenue and released
to the profit and loss in the periods, when
these revenues are earned, based on the
average customer relationship period. The
management regularly reviews its estimates in respect of customer relationship
period, based on the historical experience
and its plans for future development of
the Company. As at 31 December 2010
the management estimated its customer
relationship period to be equal 4 years
(2009: 3 years).
60
Employee benefits
The cost of long-term employee benefits and other post employment benefits
is determined using actuarial valuations.
The actuarial valuation involves making
assumptions about discount rates, future
salary increases and future pension increases. All assumptions are reviewed at
each reporting date. In determining the
discount rate, the management considers
the market yields on government bonds
extrapolated for the period of payments.
The turnover rate is calculated based on
the past experience. Further details about
the assumptions used are given in Note 20.
Provision for decommissioning
In determining the carrying value of the
provision for decommissioning associated
with future dismantling of base stations
from leased sites the Group has to make
assumptions and estimates in relation to
discount rates, probability of prolongation
of operating lease agreements, the expected cost to dismantle and remove the
base stations from the sites and the expected timing of those costs. All assumptions are reviewed at each reporting date.
Deferred tax assets
Deferred tax assets are recognised for
all deductible temporary differences to
the extent that it is probable that taxable
profit will be available against which the
losses can be utilised. Significant management judgment 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. Please refer to Note 9 for additional
information on the Group’s tax position.
Depreciation and amortisation methods
are based on management estimates of
the expected useful life of property, plant
and equipment and intangible assets. Estimates may change due to technological
developments, competition, changes in
market conditions and other factors and
may result in changes in the estimated
useful life and in the amortisation or depreciation charges. Technological developments are difficult to predict and the
Group’s views on the trends and pace of
development may change over time. Some
of the assets and technologies, in which
the Group invested several years ago,
are still in use and provide the basis for
the new technologies. The useful lives of
property, plant and equipment and intangible assets are reviewed at least annually taking into consideration the factors
mentioned above and all other important
factors. In case of significant changes in
estimated useful lives, depreciation and
amortisation charges are adjusted prospectively.
Legal proceedings and claims
The Group is a subject to various legal
proceedings and claims, the outcomes of
which are subject to significant uncertainty. Management evaluates, among
other factors, the degree of probability
of an unfavourable outcome and the ability to make a reasonable estimate of the
amount of loss. Unanticipated events or
changes in these factors may require to
increase or decrease the amount to be accrued for any matter or accrue for a matter that has not been previously accrued
because it was not considered probable or
a reasonable estimate could not be made.
Impairment of non-financial assets
The Group has made significant investments in property, plant and equipment
and intangible assets. These assets are
tested, as described, for impairment annually or when circumstances indicate there
may be a potential impairment. Factors
considered important which could trigger
an impairment evaluation include the following: significant fall in market values,
significant underperformance relative
to historical or projected future operating results, significant changes in the use
of assets or the strategy for the Group’s
overall business, including assets that are
decided to be phased out or replaced and
assets that are damaged or taken out of
use, significant negative industry or economic trends and significant cost overruns
in the development of assets.
Estimating recoverable amounts of assets must in part be based on management’s evaluations, including determining appropriate cash generating units,
estimates of future performance, revenue
generating capacity of the assets, assumptions of the future market conditions and the success in marketing of new
products and services. Changes in circumstances and in management’s evaluations
and assumptions may give rise to impairment losses in the relevant periods.
61
7. IFRSs and IFRIC
Interpretations
not yet effective
Standards issued but not yet effective
up to the date of issuance of the Group’s
consolidated financial statements are
listed below. The Group intends to adopt
those standards when they become effective.
IAS 24 Related Party Disclosures
(Amendment)
The amended standard is effective for
annual periods beginning on or after 1
January 2011. It clarified the definition of
a related party to simplify the identification of such relationships and to eliminate
inconsistencies in its application. The
revised standard introduces a partial exemption of disclosure requirements for
government-related entities. The amended standard will not result in additional
disclosures as the Company is not a subsidiary of a government-related entities.
IAS 32 Financial Instruments: Presentation – Classification of Rights Issues
(Amendment)
The amendment to IAS 32 is effective
for annual periods beginning on or after
1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or
warrants) as equity instruments in cases
where such rights are given pro rata to all
of the existing owners of the same class
of an entity’s non-derivative equity instruments, or to acquire a fixed number of the
entity’s own equity instruments for a fixed
amount in any currency. This amendment
will have no impact on the Group after initial application.
IFRS 9 Financial Instruments: Classification and Measurement
IFRS 9 as issued reflects the first phase of
the IASBs work on the replacement of IAS
39 and applies to classification and measurement of financial assets as defined in
IAS 39. The standard is effective for annual
periods beginning on or after 1 January
2013. In subsequent phases, the IASB will
address classification and measurement of
financial liabilities, hedge accounting and
derecognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 will have
an effect on the classification and measurement of the Group’s financial assets.
The Group expects that the new standard
may have effect on the classification and
measurement of its financial instruments,
however, the exact amount of potential effect has not yet been quantified.
62
IFRIC 14 Prepayments of a minimum
funding requirement (Amendment)
The amendment to IFRIC 14 is effective
for annual periods beginning on or after 1
January 2011 with retrospective application. The amendment provides guidance
on assessing the recoverable amount of
a net pension asset. The amendment permits an entity to treat the prepayment of
a minimum funding requirement as an asset. This amendment will have no impact
on the financial position or performance
of the Group, as the Group’s employee
benefit plans are unfunded.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
IFRIC 19 is effective for annual periods
beginning on or after 1 July 2010. The interpretation clarifies that equity instruments
issued to a creditor to extinguish a financial
liability qualify as consideration paid. The
equity instruments issued are measured
at their fair value. In case that this cannot
be reliably measured, the instruments are
measured at the fair value of the liability
extinguished. Any gain or loss is recognised
immediately in profit or loss. The adoption
of this interpretation will have no effect on
the financial position or performance of the
Group.
Improvements to IFRSs (issued in May 2010)
The IASB issued Improvements to IFRSs,
an omnibus of amendments to its IFRS
standards. The amendments have not
been adopted as they become effective
for annual periods on or after either 1 July
2010 or 1 January 2011.
IFRIC 13 Customer Loyalty Programmes
The amendment clarifies that when
the fair value of award credits is measured based on the value of the awards
for which they could be redeemed, the
amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be
taken into account. The amendment is effective for annual periods beginning on 1
January 2011. The Group expects that the
application of this amendment will not
have significant effect on the financial position or performance of the Group.
The Group expects that the amendments listed below will have no impact on
its financial position, its financial performance or disclosures in the consolidated
financial statements:
• IFRS 3 Business Combinations
• IFRS 7 Financial Instruments: Disclosures
• IAS 34 Interim Financial Reporting
• IAS 1 Presentation of Financial Statements
• IAS 27 Consolidated and Separate Financial Statements
• IFRS 1 First-Time Adoption of IFRSs
• IAS 12 Income Taxes
Revenues
Air time charges
2010
2009
5,924,973
6,194,401
Interconnection revenue
2,084,790
2,417,416
Periodic fees
1,703,262
1,445,167
Value added services
876,376
790,614
Roaming and access to network
430,001
329,594
Roaming revenue (subscribers)
222,621
183,072
Connection and one-time subscription fees
82,671
146,521
Fixed lines
48,524
25,613
Other revenue
69,807
58,140
11,443,025
11,590,538
2010
2009
8. Revenues and expenses
Costs of materials and traffic charges
Interconnection
1,588,590
1,727,902
Cost of materials
188,971
192,269
Roaming expenses
157,860
168,745
Leased line costs
4,107
2,358
1,939,528
2,091,274
2010
2009
663,267
731,614
Salaries and personnel costs
Salaries, holiday pay and other employee benefits
Social security taxes
165,810
157,491
Medical insurance
35,652
37,901
Training
1,514
8,243
866,243
935,249
The average number of employees of the Group in 2010 was 3,689 (2009: 4,331).
63
Repair and maintenance
2010
2009
753,637
780,987
Marketing and sales commission
314,110
412,980
Operating leases of land and buildings
290,126
285,787
Advertising
190,420
224,747
Local taxes and non-refundable VAT
187,213
119,919
Consultancy fees and external personnel
168,857
94,953
Insurance
74,844
79,298
Materials and supplies
22,976
24,415
Bad debts
20,920
32,116
License and research fees
19,493
25,701
Business trip expenses
14,401
17,680
Postage, freight, distribution and telecommunication
7,861
14,776
Bank charges
6,003
9,622
7,497
13,669
2,078,358
2,136,650
2010
2009
Other expenses
Loss on disposal of property, plant and equipment and intangible assets
61,477
68,622
Contributions and donations
2,896
3,543
Other expenses
-
10,302
64,373
82,467
Amortisation, depreciation and impairment losses
Details of amortisation, depreciation and impairment losses are as follows:
64
Intangible assets
2010
2009
2010
2009
1,346,803
1,337,770
434,666
416,404
Impairment losses, net of reversals
3,414
115,743
-
2,326
1,350,217
1,453,513
434,666
418,730
use this equipment in future. Assets identified as no longer in use were written
down to their recoverable amounts, usually zero.
In addition, in 2010 the Group recognised
reversal of impairment losses in respect
of network equipment in amount of UAH
10,662 thousand (2009: UAH 90,590 thousand) as a result of changes in tariff policies and respective plans for future usage
of previously impaired network equipment
in accordance with adjusted capital expenditure budgets for future years.
Finance income
2010
2009
Interest income
150,641
528,065
Total interest income
150,641
528,065
Unwinding of discount on other current financial assets
76,790
-
Net gain on derivative financial instrument
-
1,893
227,431
529,958
2010
2009
Interest charges related to bank loans
3,942
42,519
Total interest charges
3,942
42,519
Other finance costs
3,275
3,698
7,217
46,217
-
(8,138)
7,217
38,079
In 2010 the Group recognised impairment losses on property, plant and equipment in amount of UAH 14,076 thousand
(2009: UAH 206,333 thousand), based
on internal indications of impairment for
various individual components of network
equipment, as the Group did not plan to
Finance costs
Less – interest capitalised
65
9. Income tax
The Group’s income was subject to taxation in Ukraine only. During the years ended 31 December 2010 and 2009 Ukrainian corporate income tax was levied on
taxable income less allowable expenses
at a rate of 25% according to the Law
of Ukraine on Corporate Income Tax. In
2010 Ukrainian Parliament approved the
Tax Code, which superseded the Law of
Ukraine on Corporate Income Tax. New
Tax Code significantly changed the rules
for tax base calculation and provided for
gradual decrease in tax rates from 25% to
16% over the next few years. The Group
has calculated its deferred tax position as
at 31 December 2010 in accordance with
corporate income tax rates as prescribed
by the new Tax Code.
The major components of income tax expense
for the years ended 31 December 2010 and 2009 are:
2010
2009
1,400,636
1,455,683
(156,306)
(196,206)
1,244,330
1,259,477
Current income tax:
Current income tax charge
Deferred tax:
Relating to origination and reversal of temporary differences
Income tax expense
Reconciliations between tax expense and the product of accounting
profit multiplied by the tax rate for the years ended 31 December 2010 and 2009 are as follows:
66
2010
2009
Accounting profit before tax
4,922,210
4,944,874
Income tax at statutory rate of 25% (2009: 25%)
1,230,553
1,236,219
Non-taxable income
(12,966)
-
Non- deductible expenses for tax purposes
31,708
43,100
Reassessment of temporary differences
(49,549)
(19,842)
Effect of changes in tax rules
(54,016)
-
Effect of changes in tax rates
98,600
-
1,244,330
1,259,477
31-Dec-10
Credited to statement
Credited to equity
of comprehensive income
31-Dec-09
-
(26,087)
26,087
Deferred tax liabilities:
Intangible assets (i)
-
Deferred expenses (iii)
20,385
907
-
19,478
Prepayments (iii)
16,639
(330)
-
16,969
Trade and other receivables (v)
3,319
1,613
-
1,706
40,343
(23,897)
-
64,240
148,413
22,578
-
125,835
Deferred tax assets and liabilities relate to the following items in 2010:
Deferred tax assets:
Property, plant and equipment (i)
55,556
55,556
-
-
Other current financial assets (iii)
153,296
(19,198)
172,494
-
Other current liabilities (v)
37,196
34,887
-
2,309
Employee benefits (iii)
7,959
(3,573)
-
11,532
Advances received and deferred revenue
211,779
(iii)
24,101
-
187,678
Inventories (ii)
(2,979)
-
2,979
-
Trade and other payables (iii)
50,944
9,897
-
41,047
Provisions (iii)
8,436
8,436
-
-
Taxes payable, other than income tax (iii)
Net deferred tax asset
2,704
2,704
-
-
676,283
132,409
172,494
371,380
635,940
156,306
172,494
307,140
67
Deferred tax assets and liabilities relate to the following items in 2009:
31-Dec-09
Credited to statement
of comprehensive income
31-Dec-08
-
(4,166)
4,166
26,087
(38,419)
64,506
Deferred expenses (iii)
19,478
(3,829)
23,307
Prepayments (iii)
16,969
(1,342)
18,311
Derivative financial instrument (iv)
-
(9,254)
9,254
-
(8,990)
8,990
1,706
1,706
-
64,240
(64,294)
128,534
125,835
125,835
-
-
(13,272)
13,272
Other current liabilities (v)
2,309
(4,431)
6,740
Employee benefits (iii)
11,532
5,470
6,062
Advances received and deferred revenue (iii)
187,678
(25,716)
213,394
Inventories (ii)
2,979
2,979
-
41,047
41,047
-
371,380
131,912
239,468
307,140
196,206
110,934
Deferred tax liabilities:
Deferred tax assets:
Net deferred tax asset
The nature of the temporary differences
is as follows:
(i) Property, plant and equipment and intangible assets – differences in depreciation
and amortisation patterns and estimates
of the remaining useful lives, differences in
capitalisation principles;
(ii) Inventories – differences in inventories
measurement basis and the periods of recognition;
68
(iii) Advances received and deferred revenue, prepayments and deferred expenses,
employee benefits, trade and other payables, provisions, taxes payable, other than
income tax, other current financial assets –
differences in period of recognition;
(iv) Interest-bearing borrowings and derivative financial instrument – differences
in measurement basis (cost vs. fair values or
amortised cost);
(v) Other liabilities and receivables – differences in measurement and recognition
principles.
The movement of property, plant and equipment is as follows:
Mobile
Local, regiontelephone
Radio instalal & trunk
Buildings
network and lations
networks
switches
Land
Construction
in progress,
Corporate aduninstalled
ministrative
Total
and dismanassets
tled equipment (iii)
678,920
5,016,689
2,382,043
721,932
103,404
566,713
1,884,792
11,354,493
Additions (i)
Disposals
Transfers and reclassifications (ii)
At 31 December 2009
3,160
(32)
18,502
(45,173)
9,593
(19,180)
(2,568)
600
-
6,920
(7,629)
968,648
(640,963)
1,007,423
(715,545)
90,076
324,833
109,989
230,228
-
105,053
(901,183)
(41,004)
772,124
5,314,851
2,482,445
949,592
104,004
671,057
1,311,294
11,605,367
Additions (i)
Disposals
Transfers and reclassifications
At 31 December 2010
2,127
(1,230)
25,656
(182,993)
77,616
(18,738)
(36,821)
2,505
-
10,042
(27,688)
1,244,628
(93,050)
1,362,574
(360,520)
49,440
635,342
139,726
361,693
-
76,628
822,461
5,792,856
2,681,049
1,274,464
106,509
730,039
1,200,043
12,607,421
Cost:
At 1 January 2009
10. Property, plant and equipment
(1,262,829) -
Accumulated depreciation and impairment losses:
At 1 January 2009
87,485
2,099,641
1,093,487
101,549
-
373,905
714,629
4,470,696
Depreciation charge
for the year
35,604
696,412
322,888
78,883
-
125,818
78,165
1,337,770
Impairment (Note 8)
-
-
-
-
-
-
115,743
115,743
Disposals
(21)
(34,825)
(13,979)
(1,003)
-
(4,237)
(586,354)
(640,419)
Transfers and reclas2
sifications (ii)
(53,872)
(34,813)
1,790
-
(48,435)
107,874
(27,454)
At 31 December 2009 123,070
2,707,356
1,367,583
181,219
-
447,051
430,057
5,256,336
Depreciation charge
for the year
39,510
702,017
326,954
84,428
-
129,766
64,128
1,346,803
Impairment (Note 8)
-
-
-
-
-
-
3,414
3,414
Disposals
(1,001)
(120,486)
(13,956)
(28,388)
-
(19,048)
(90,406)
(273,285)
Transfers and reclassi1,004
fications
(27,774)
(71,464)
2,844
-
(31,614)
127,004
-
At 31 December 2010 162,583
3,261,113
1,609,117
240,103
-
(526,155)
534,197
6,333,268
591,435
2,917,048
1,288,556
620,383
103,404
192,808
1,170,163
6,883,797
At 31 December 2009 649,054
2,607,495
1,114,862
768,373
104,004
224,006
881,237
6,349,031
At 31 December 2010 659,878
2,531,743
1,071,932
1,034,361
106,509
203,884
665,846
6,274,153
Net book value:
At 1 January 2009
(i) The amount of borrowing costs capitalised for the year ended 31 December 2009
comprised UAH 8,138 thousand (Note 8). The
weighted average rate used to determine the
amount of borrowing costs eligible for capitalisation was 10.46%. In 2010 there were no acquisitions, construction or production of qualifying assets, to which borrowing costs could be
attributed.
(ii) In 2009 the Company exchanged its
used telecommunication equipment into the
new communication equipment under the
buy-back agreement with Ericsson AB. The
equipment identified for exchange under
this agreement was reclassified from property, plant and equipment to assets held for
sale and disposed by the end of 2009.
(iii) Temporarily dismantled equipment is
continued to be depreciated over the estimated remaining useful life.
69
11. Intangible assets
The movement of intangible assets is as follows:
Licenses
Network
and billing software
Total
At 1 January 2009
409,738
2,290,445
2,700,183
Additions
2,008
292,265
294,273
Disposals
-
(18,264)
(18,264)
At 31 December 2009
411,746
2,564,446
2,976,192
Additions
1,510
326,369
327,879
Disposals
-
(38,012)
(38,012)
At 31 December 2010
413,256
2,852,803
3,266,059
At 1 January 2009
176,108
1,319,052
1,495,160
Amortisation charge for the year
21,091
395,313
416,404
Impairment (Note 8)
-
2,326
2,326
Disposals
-
(18,264)
(18,264)
At 31 December 2009
197,199
1,698,427
1,895,626
Amortisation charge for the year
42,734
391,932
434,666
Disposals
-
(35,094)
(35,094)
At 31 December 2010
239,933
2,055,265
2,295,198
At 1 January 2009
233,630
971,393
1,205,023
At 31 December 2009
214,547
866,019
1,080,566
At 31 December 2010
173,323
797,538
970,861
Cost:
Accumulated amortisation and impairment losses:
Net book value:
70
Acquisition
date
Expiration
date
Net book value Net book value
as at 31 Decem-as at 31
ber 2010
December 2009
License #
Coverage
License
N/A
National
1800 MHz (GSM) frequencies usage licenses
(i)
102,639
121,468
N/A
National
900 MHz (GSM) frequencies usage licenses
(ii)
43,295
53,076
АА №009503 National
900 MHz (GSM) and 1800 MHz (GSM)
cellular license
Apr-01
Oct-11
10,374
18,760
АА №720166 International International communication
Aug-04
Aug-19
5,187
6,075
АА №720167 Inter city
Inter city communication
Aug-04
Aug-19
5,295
6,201
N/A
Other licenses
Mar-01
Apr-24
6,533
8,967
173,323
214,547
National
(i) 1800 MHz (GSM) frequencies usage licenses comprise a number of licenses that
were acquired in the period from February
2001 to January 2007. The validity period
of such licenses varies from 10 to 15 years.
The Group’s major licenses as at 31 December were as follows:
(ii) 900 MHz (GSM) frequencies usage
licenses comprise a number of licenses
that were acquired in the period from June
1999 to October 2008. The validity period
of such licenses varies from 10 to 15 years.
12. Other non-current assets
Other non-current assets as at 31 December were as follows:
Prepayments for property, plant and equipment
2010
2009
30,047
48,725
Prepayments for intangible assets
9,840
597
Other non-current assets
4,606
7,536
44,493
56,858
71
13. Trade and other receivables
Trade and other receivables consisted of the following as at 31 December:
2010
2009
Trade receivables – interconnection and access to network
141,389
330,770
Trade receivables – subscribers
102,590
68,335
Trade receivables – roaming
85,361
97,019
Trade receivables – dealers for prepaid cards and packages
35,630
68,283
Interest receivable
7,933
2,113
Trade receivables – dealers for post-paid subscribers’ advances
168
166
Accounts receivable – for assets under buy-back agreement
-
86,220
Other receivables
21,545
19,650
394,616
672,556
(74,063)
(76,854)
320,553
595,702
Allowance for impairment
Trade and other receivables, net of allowance for impairment as at 31 December were denominated in the following currencies:
2010
2009
UAH
160,135
364,159
EUR
103,463
113,891
USD
56,955
117,652
320,553
595,702
As at 31 December 2010 and 2009 trade and other receivables are non-interest bearing and are settled in the normal course of business.
72
Prepayments as at 31 December were denominated in the following currencies:
2010
2009
UAH
74,597
78,283
EUR
215
79
USD
69
-
RUR
21
-
74,902
78,362
14. Prepayments
15. Reconciliation of allowance accounts
The reconciliation of changes in allowance accounts is as follows:
Trade and other receivPrepayments
ables
Total
As at 1 January 2009
64,851
1,567
66,418
Charge for the year
41,062
-
41,062
Utilised
(21,164)
-
(21,164)
Unused amounts reversed
(7,895)
(1,051)
(8,946)
76,854
516
77,370
Charge for the year
21,929
31
21,960
Utilised
(23,680)
-
(23,680)
(1,040)
-
(1,040)
74,063
547
74,610
73
16. Deferred expenses
As at 31 December deferred expenses consisted of the following:
74
2010
2009
Deferred connection costs
(i)
80,928
68,052
Deferred costs of start packages and scratch-cards
(ii)
11,655
9,860
92,583
77,912
(i) As at 31 December 2010 and 2009 deferred connection costs mainly consisted of
costs of start packages and dealers’ bonuses
for connection of new subscribers, limited
to the amount of deferred connection fees.
(ii) Deferred costs of start packages and
scratch-cards represent costs of start
packages and scratch-cards sold to dealers, but not yet activated by subscribers.
The movement in deferred connection costs is as follows:
At 1 January
2010
2009
68,052
78,954
Deferred during the year
43,907
38,659
Released to the statement of comprehensive income
(31,031)
(49,561)
At 31 December
80,928
68,052
Cash and cash equivalents consisted of the following as at 31 December:
Short-term deposits
2010
2009
1,460,848
1,073,322
Cash at bank
134,182
137,051
Cash on hand
26
21
1,595,056
1,210,394
As at 31 December cash on hand and cash at bank were denominated in the following currencies:
UAH
2010
2009
124,437
128,367
EUR
5,095
4,091
USD
4,676
4,614
134,208
137,072
17. Cash and cash equivalents
As at 31 December short-term deposits split by contractual maturity, currency and interest rate earned was as follows:
Currency
Maturity date
Interest rate p.a.
2010
2009
UAH
0-30 days
8-21%
125,000
40,000
USD
EUR
31-60 days
6.5-21%
745,035
140,000
61-92 days
8-12.5%
330,000
-
1,200,035
180,000
0-30 days
6-9.75%
-
127,760
31-60 days
5.5-11%
54,936
340,121
61-92 days
5.5-6.5%
123,406
-
178,342
467,881
0-30 days
8-10%
-
130,518
31-60 days
3-10%
82,471
294,923
82,471
425,441
1,460,848
1,073,322
75
18. Share capital
authorised and fully paid share capital
comprised 10,687,389 ordinary shares at
a par value of UAH 50 each. The share
capital is stated at cash consideration received. The carrying value of share capital
differs from par by UAH 122,130 thousand
being the currency translation difference,
accumulated till 1 May 2004, when the
Company changed its functional currency
from US dollar to Ukrainian Hryvnia.
Dividends on ordinary shares declared comprised:
2010
Interim dividends for 2008 (UAH 71.60 per share declared)
765,216
765,216
2009
Interim dividends for 2006 and 2007 (UAH 430.41 per share)
4,600,000
Final dividends for 2006 and 2007 (UAH 162.43 per share)
1,736,000
Interim dividends for 2008 (UAH 15.35 per share)
164,000
6,500,000
In 2010 and 2009 the Company fully paid dividends to its shareholders in cash, net of withholding tax.
19. Interest-bearing loans and borrowings
Interest-bearing loans and borrowings consisted of the following as at 31 December:
2010
2009
Current
Interest-bearing borrowings from Dresdner Bank,
(USD-denominated, at 7.75% p. a., matures on 27 April 2012)
51,043
-
Interest accrued
692
694
51,735
694
-
51,192
-
51,192
51,735
51,886
Non-current
Interest-bearing borrowings from Dresdner Bank
(USD-denominated, at 7.75% p. a., matures on 27 April 2012 )
Total interest-bearing loans and borrowings
On 23 November 2010, the Company
entered into the agreement to provide
reimbursable interest-free financial aid
of UAH 4,000,000 thousand to the entity
under common control. As required by the
terms of the loan agreement, for this type
of transactions the Company should have
76
provided Dresdner Bank with a fairness
opinion from an accounting, appraisal or
investment banking firm of international
standing. However, this requirement was
not met. Such non-compliance with the
terms of the loan agreement gives Dresdner Bank the right, by notice to the Com-
pany, to demand at any time the accelerated or immediate repayment of the loan
and accrued interest thereon. Accordingly,
the loan was classified as current liability
as at 31 December 2010 as the Company
did not have an unconditional right to defer
its settlement for at least twelve months.
The Group, pursuant to the terms of personnel motivation programme, has established post-employment benefit pension
plan, covering substantially all of its employees, who achieve regular pension age
and retire from the Group companies. In
addition, the Group pays jubilee benefits
to its employees.
Employee benefit liability as at 31 December consisted of the following:
2010
2009
Post-employment defined benefit liability
27,935
21,851
Jubilee payments
16,893
24,276
44,828
46,127
Less: Current portion
(7,566)
(3,896)
Defined employee benefit liability – non-current portion
37,262
42,231
Post-employment defined employee benefits
As at 31 December 2010 3,675 employees (2009: 4,080 employees) were enti-
20. Employee benefit liability
tled to benefits under post-employment
defined employee benefits.
Changes in the present value of the defined benefit obligation as at 31 December were as follows:
2010
2009
Defined benefit obligation at 1 January
40,340
12,634
Interest cost
3,275
953
Current service cost
2,407
8,316
Benefits paid
(214)
(595)
Actuarial (gain)/loss for the year
(30,487)
19,032
Defined benefit obligation at 31 December
15,321
40,340
Unrecognised actuarial gain/(loss)
12,614
(18,489)
Defined benefit liability at 31 December
27,935
21,851
Classified as
Defined benefit liability – current portion
4,650
1,324
Defined benefit liability – non-current
23,285
20,527
77
Benefit expense
2010
2009
Interest cost
3,275
953
Current service cost
2,407
8,316
Net actuarial losses recognised in the year
616
-
Total expenses recognised in the statement of comprehensive income
6,298
9,269
Net benefit expense was included into Salaries and personnel costs, except for interest cost charged to Finance costs.
Benefit liability
2010
2009
Net liability at 1 January
21,851
13,177
Benefits expense
6,298
9,269
Benefits paid
(214)
(595)
Net liability at 31 December
27,935
21,851
Jubilee payments
As at 31 December 2010 3,496 employees were entitled to jubilee benefits (2009: 3,774 employees).
2010
2009
16,893
24,276
Benefit liability – current portion
2,916
2,572
Benefit liability – non-current
13,977
21,704
Present value of unfunded obligations
Classified as
The principal assumptions used in determining the post-employment defined employee benefits are shown below:
78
2010
2009
Discount rate
8.12%
7.55%
Future benefit increases
6.99%
12.46%
2010
2009
2008
2007
2006
Defined benefit obligation at 31 December
15,321
40,340
12,634
13,856
8,789
Experience adjustment
(5,226)
(1,230)
(549)
965
299
As at 31 December deferred revenue consisted of the following:
2010
2009
Deferred revenue – dealers and subscribers
(i)
548,969
446,178
Deferred connection and one-time subscription fees
(ii)
154,006
134,231
Customer loyalty programs
(iii)
33,684
34,110
736,659
614,519
(i) Deferred revenue – dealers – represents
deferred revenue from unused time on prepaid
cards, which were sold to dealers, but have not
yet been activated by subscribers. Deferred revenue – dealers is recognised in the statement of
financial position until the prepaid cards have
been activated by subscribers or the prepaid
card has expired. Deferred revenue – subscribers – mainly consists of deferred revenue from
unused time on prepaid cards, which were acti-
vated by subscribers. Deferred revenue – subscribers is recognised as revenue in the statement of comprehensive income on the basis of
actual airtime usage by subscribers.
(ii) Deferred connection and one-time subscription fees – mainly consist of fees for
initial connection to the network and oneoff payments for subscription to additional
services. Deferred connection and subscrip-
tion fees are recognised in the statement of
comprehensive income over the periods that
the fees are earned.
21. Deferred revenue
(iii) Customer loyalty programs – represent
various loyalty programs, established by the
Company, whereby enrolled subscribers are
eligible for bonuses, which may then be used
for discount on future calls or purchase of
mobile handsets.
The movements in deferred connection and one-time subscription fees are as follows:
2010
2009
At 1 January
134,231
173,240
Deferred during the year
102,446
107,512
Released to the statement of comprehensive income
(82,671)
(146,521)
At 31 December
154,006
134,231
79
22. Provisions
The movement in provisions is as follows:
At 1 January
2010
2009
14,666
4,891
Arising during the year
(i),(ii),(iii)
59,435
9,775
(ii)
(8,388)
-
At 31 December
65,713
14,666
Less: Current portion
(12,986)
(14,666)
Non-current
52,727
-
(i) As at 31 December 2009 the Company
recognised UAH 5,382 thousand of provision regarding legal proceeding initiated by
its counterparty in respect of consulting and
advertising services provided by the counterparty, but not accepted by the Company. As
at 31 December 2010 the Company increased
its assessment of the provision to UAH 11,993
thousand following the increase in the amount
claimed by plaintiff. The management believes
that the risk of loss of the case is probable.
(ii) As at 31 December 2009 the Group
recognised provision in respect of potential
penalties, which might have arisen on VAT
paid to certain suppliers at 20% rate on
purchase of assets and services in amount
of UAH 9,284 thousand. The Group has revised its assessment of risk exposure based
on information available as at 31 December
2010 and reduced the provision to UAH 993
thousand.
(iii) As at 31 December 2010 the Group recognised UAH 52,727 thousand of provision for
asset retirement obligation in respect of future dismantling costs related to its network
equipment installed on leased sites.
23. Taxes payable, other than income tax
Taxes payable, other than income tax consisted of the following as at 31 December:
2010
80
2009
VAT payable
110,287
108,921
Pension fund for mobile services
24,133
22,224
Frequency fee
11,878
2,403
Miscellaneous other taxes
663
998
146,961
134,546
As at 31 December trade and other payables consisted of the following:
2010
2009
Roaming
206,053
90,076
Technical support services
70,189
72,409
Equipment and construction works
53,413
118,821
Interconnection
29,336
16,231
Content services
26,280
22,215
Dealers
22,700
32,249
Inventory
21,490
8,790
Professional fees
14,726
15,058
Advertising and promotion
13,824
4,046
Rent
7,518
15,785
Software
3,043
146,308
Other payables
11,716
26,498
480,288
568,486
24. Trade and other payables
As at 31 December trade and other payables were denominated in the following currencies:
UAH
2010
2009
230,236
328,454
EUR
153,948
85,074
USD
94,068
154,411
RUR
2,036
547
480,288
568,486
As at 31 December 2010 and 2009 trade and other payables are non-interest bearing and settled in the normal course of business.
81
25. Advances received
As at 31 December advances received consisted of the following:
2010
2009
Advances received from subscribers
106,657
102,286
Advances received from partners
23,407
28,161
Advances received from dealers
5,650
5,215
Other advances received
493
536
136,207
136,198
2010
2009
UAH
135,729
136,198
USD
478
-
136,207
136,198
2010
2009
123,219
134,475
As at 31 December advances received were denominated in the following currencies:
26. Other current liabilities
As at 31 December other current liabilities consisted of the following:
Bonuses accrued
Accrual for unused vacations
37,879
40,174
Accruals for future dealers’ reimbursement
347
653
Other
20
6
161,465
175,308
As at 31 December 2010 and 2009 other current liabilities are non-interest bearing and denominated in UAH.
82
The Group’s transactions with its related parties for the years ended 31 December were as follows:
2010
Revenue
Cost of materiPurchase of
Salaries and
Other operating
als and traffic
Finance income property, plant
personnel costs expenses
charges
and equipment
Entities under common control 615,448
177,436
-
488
76,790
36,199
Other related parties
360,152
-
79,006
69,215
-
-
75,712
-
-
-
537,588
75,712
79,494
146,005
36,199
341,883
Key management personnel of
the Group
957,331
2009
Entities affiliated with Telenor
Mobile Communications AS
Entities affiliated with Storm
LLC
Key management personnel
of the Group
Revenue
Cost of materials
and traffic charges
Salaries and
personnel costs
Other operating
expenses
Finance income
27,176
6,211
-
25,333
-
899,001
558,287
-
9,694
106,458
-
-
72,668
-
-
926,177
564,498
72,668
35,027
106,458
27. Related party disclosure
The outstanding balances from related parties as at 31 December were as follows:
2010
Trade and other
receivables
Prepayments
Cash and cash
equivalents
Other current
financial assets
Total
Entities under common control
50,778
416
-
3,349,309
3,400,503
11,846
3,435
368,850
-
384,131
62,624
3,851
368,850
3,349,309
3,784,634
2009
Trade and other
receivables
Prepayments
Total
Entities affiliated with Telenor Mobile
Communications AS
8,177
-
-
8,177
Entities affiliated with Storm LLC
70,888
4
168,244
239,136
79,065
4
168,244
247,313
The outstanding amounts due to related parties as at 31 December were as follows:
2010
Entities under common control
80,497
24,960
105,457
2009
Entities affiliated with Telenor Mobile Communications AS
12,680
Entities affiliated with Storm LLC
3,530
16,210
83
Terms and conditions of transactions with
related parties
Outstanding balances on settlements
with related parties at the year-end are
unsecured, interest free and settlement
occurs in cash. There have been no financial guarantees received from any related
party. For the years ended 31 December
2010 and 2009, the Group has not recorded any impairment of receivables as
regards to the amounts owed by related
parties.
Revenue and trade receivables
In 2010 the Group sold to domestic
and overseas telecom operators, being the Group’s related parties, roaming services, access to network and interconnection services in total amount
of UAH 957,331 thousand (2009: UAH
926,177 thousand).
Trade receivables as at 31 December
2010 and 2009 due from related parties
are non-interest bearing, unsecured and
are settled in the normal course of business.
Cost of materials and traffic charges and
trade payables
Cost of materials and traffic charges from
related parties include roaming and interconnection services, provided by entities
under common control and other related
parties.
Trade payables to entities under common control and other related parties
comprise amounts due for interconnection and roaming services.
Trade payables to related parties are
non-interest bearing and are settled in
the normal course of business.
Other operating expenses include consulting services provided by entities under
common control and other related parties.
Finance income
In 2010 finance income included UAH
69,215 thousand of interest on short-term
deposits placed in Ukrainian bank, which is
the Company’s other related party (2009:
UAH 106,458 thousand). In addition, UAH
76,790 thousand representing unwinding of
discount on interest-free financial aid provided to the entity under common control
was included in finance income (2009: nil).
Purchase of property, plant and equipment
In 2010 the Group acquired fiber-to–thebuilding (FTTB) equipment from entity
under common control for cash consideration of UAH 36,199 thousand (2009: nil).
On 23 November 2010 the Company provided short-term reimbursable interestfree financial aid of UAH 4,000,000 thousand to the entity under common control.
At initial recognition this facility was stated at fair value of UAH 3,272,519 thousand. UAH 554,987 thousand of loss on
initial recognition at fair value, net of tax
effect, was charged directly to equity as
distributions to shareholders.
As at 31 December 2010 and 2009 some
of short-term deposits and cash in bank
were placed in Ukrainian bank being the
Company’s other related party.
As at 31 December the split of short-term deposits placed with related party bank
by contractual maturity and interest rate earned was as follows:
Currency
Maturity date
Interest rate
2010
2009
UAH
1-3 months
7-21%
365,000
30,000
USD
1-3 months
8.5-9%
-
60,127
EUR
1-3 months
8%
-
68,235
365,000
158,362
Compensation to management personnel
As at 31 December 2010 key management personnel consisted of 48 top executives of the Group (2009: 41). For the years ended
31 December total compensation to key management personnel included in salaries and personnel costs comprised:
84
2010
2009
Short-term employee benefits
75,474
72,461
Long-term employee benefits
238
207
Total compensation to key management personnel
75,712
72,668
(i) Tax risks
Ukrainian legislation and regulations
regarding taxation and other operational
matters, including currency exchange
control and custom regulations, continue
to evolve. Legislation and regulations are
not always clearly written and are subject
to varying interpretations by local, regional and national authorities, and other
governmental bodies. Instances of inconsistent interpretations are not unusual.
Management believes that the Group
has complied with all regulations, and
paid and accrued all taxes that are applicable. Where the risk of outflow of
resources is probable, the Group has accrued provisions based on management’s
best estimate. The Group identified certain possible tax contingencies, which are
not required to be accrued in the financial
statements. Such possible tax contingencies could materialise and require the
Group to pay additional amounts of tax.
As at 31 December 2010 the Group estimates such tax contingencies to be equal
UAH 45,448 thousand.
(ii) Legal matters
In the ordinary course of business, the
Group is subject to legal actions and
complaints. As at 31 December 2010
the Group’s exposure to presented third
parties’ claims is UAH 11,993 thousand
(2009: UAH 5,382 thousand).
Management believes that the ultimate
liability, arising from unasserted claims
and complaints, if any, will not have a
material adverse effect on the Group’s
financial position or the results of its future operations and is less than probable,
accordingly no corresponding accrual was
provided in these consolidated financial
statements.
28. Commitments
and contingencies
(iii) Other capital commitments
As at 31 December 2010 the Group
had outstanding commitments in respect of purchase and construction
of property, plant and equipment in
amount of UAH 209,635 thousand (2009:
UAH 379,576 thousand).
As at 31 December 2010 the Group
had outstanding commitments in respect of purchasing intangible assets in
amount of UAH 49,577 thousand (2009:
UAH 62,769 thousand).
(iv) Lease commitments
Operating lease – the Group as a lessee
The Group has entered into certain leases of land and buildings. These leases have an average life from one to five years with a renewal option included in the contracts. Future minimum rentals payable under non-cancellable operating lease agreements as at 31
December were as follows:
2010
2009
Within one year
165,414
172,807
After one year but not more than five years
144,823
137,140
More than five years
153,197
-
463,434
309,947
(v) Commitment for additional issue of
shares
On 19 October 2010 the Company’s
shareholders approved the restructuring plan, whereby Storm LLC, one of the
Company’s shareholders, will be merged
into Kyivstar and cease to exist as a legal
entity.
Pursuant to the relevant resolutions, on
21 October 2010 Kyivstar and Storm LLC
entered into the accession agreement, according to which Storm LLC will transfer
to Kyivstar all its assets and liabilities,
including the Company’s shares it owns.
At the same time, Kyivstar has issued
the written commitment to VimpelCom
Holdings B.V. and VimpelCom Ltd. to issue additional 7,000,000 of shares with
par value of UAH 50 each in exchange for
their participatory interests in Storm LLC.
After Storm LLC is legally dissolved and
Kyivstar’s additional shares are issued to
VimpelCom Holdings B.V. and VimpelCom
Ltd., the treasury shares, which will be received by Kyivstar from Storm LLC as part
of accession, will be cancelled.
85
29. Fair value of
financial instruments
carrying value of the Group’s financial instruments approximates their fair values.
30. Financial
instruments and risk
management
The Group’s principal financial instruments comprise interest-bearing loans
and borrowings, cash and cash equivalents and other current financial assets.
The Group has various other financial
instruments, such as trade payables and
trade receivables, which arise directly
from its operations.
It is the Group’s policy not to trade with
financial instruments.
The Group is exposed to market risk,
credit risk and liquidity risk.
The Group’s overall risk management
program focuses on the unpredictability
and inefficiency of the Ukrainian financial
markets and seeks to minimise potential
adverse effects on the financial performance of the Group. The Group’s senior
management oversees the management
of these risks and financial risk-taking activities are governed by appropriate policies and procedures so that financial risks
The face values of financial assets and
liabilities with a maturity of less than one
year, less any estimated credit adjustments, are assumed to be their fair values.
The fair value of financial liabilities is
estimated by discounting the future contractual cash flows at the current market
interest rate available to the Group for
similar financial instruments.
are identified, measured and managed in
accordance with Group policies.
The policies for managing each of these
risks are summarised below.
Market risk
Market risk is the risk that the fair value
of future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk comprises three
types of risk: interest rate risk, currency
risk and other price risk. The Group does
not have significant exposure to interest
rate risk as it normally borrows at fixed
rates. Neither it has exposure to other
price risk.
Foreign currency risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The
Group’s exposure to the risk of changes in
foreign exchange rates relates primarily
to the Group’s operating activities (when
the Group’s trade receivables and trade
payables are denominated in foreign currencies) and financing activities (when
interest-bearing borrowings are denominated in foreign currencies).
The exchange rates for foreign currencies, in which the Group’s financial assets and liabilities were denominated, against Ukrainian hryvnia, as declared by the National Bank
of Ukraine as at the dates and periods stated, were as follows:
1 January 2009
86
Russian ruble (‘RUR’)
USD
Euro (‘EUR’)
0.2621
7.7000
10.8555
Average for 2009
0.2465
7.7962
10.8889
31 December 2009
0.2640
7.9850
11.4489
Average for 2010
0.2614
7.9356
10.5329
31 December 2010
0.2612
7.9617
10.5731
liabilities). The sensitivity analyses have
been prepared on the basis that the proportion of financial instruments in foreign
currencies are all constant at 31 December 2010 and 2009.
2010
Increase/ (decrease) in basis points Effect on profit before tax
Change in USD exchange rate
+29.50%
27,780
Change in EUR exchange rate
+27.90%
10,346
Change in RUR exchange rate
+29.70%
(605)
-29.50%
(27,780)
-27.90%
(10,346)
-29.70%
605
2009
Increase/ (decrease) in basis points Effect on profit before tax
+31.30%
120,145
+33.10%
151,713
+34.00%
(186)
-31.30%
(120,145)
-33.10%
(151,713)
-34.00%
186
Liquidity risk
The Group analyses the aging of its assets and the maturity of its liabilities and
plans its liquidity depending on the expected repayment of various instruments.
The Group’s short-term and long-term liquidity needs are funded largely through
cash flow from operating activities.
The following tables demonstrate the
sensitivity to a reasonably possible change
in the corresponding exchange rates, with
all other variables held constant, of the
Group’s profit before tax (due to changes
in the fair value of monetary assets and
The tables below show the maturity profile of the Group’s financial liabilities as at
31 December based on contractual undiscounted payments.
2010
On demand
Less than
3 months
3 to 6 months
6 to 12 months
Total
51,043
-
-
-
51,043
Interest accrued
-
-
692
-
692
-
462,271
15,694
2,323
480,288
51,043
462,271
16,386
2,323
532,023
87
2009
Less than
3 months
3 to 6 months
6 to 12 months
1 to 5 years
Total
-
-
-
51,192
51,192
Interest accrued
-
694
-
-
694
547,507
19,259
1,720
-
568,486
547,507
19,953
1,720
51,192
620,372
Credit risk
Credit risk is the risk that a counterparty
will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is
exposed to credit risk from its operating
activities (primarily for trade receivables)
and from its financing activities, including
deposits with banks and financial institu-
tions, foreign exchange transactions and
other financial instruments.
Financial instruments, which potentially
expose the Group to significant concentrations of credit risk, consist principally
of cash in bank, short-term deposits, other
current financial assets and trade and other receivables.
The Group’s maximum credit risk exposure at 31 December comprised:
2010
2009
1,595,056
1,210,394
Trade and other receivables
51,735
595,702
3,349,309
-
4,996,100
1,806,096
The Group’s cash is primarily held with
major reputable banks located in Ukraine.
Accounts receivable are presented net of
allowances. The Group does not require collateral in respect of trade receivables. Concentrations of credit risk with respect to trade
receivables are limited by the fact that the
Company’s customer base contains significant
number of small customers, which are considered unrelated.
Management has a credit policy in place
and the exposure to credit risk is monitored
on an ongoing basis. Credit evaluations
are performed for all customers requiring credit over a certain amount. Credit
risk arising from financial transactions is
reduced through diversification, through
accepting counterparties with high credit
ratings only and through defining limits
on aggregated credit exposure towards
each counterparty. The Group’s credit risk
exposure is monitored and analysed on a
case-by-case basis, and the Group’s management believes that credit risk is appropriately reflected in impairment allowances recognised against assets.
As at 31 December 2010 and 2009, the ageing of the Group’s trade and other receivables
and other current financial assets was as follows:
Total
Past due, but not impaired
Neither past due,
Less
than
Fully impaired nor impaired
30-60 days 60-90 days
30 days
More than
120 days
2010
3,669,862
74,063
3,645,030
6,087
4,828
2,479
2,386
9,052
2009
595,702
76,854
541,378
48,206
2,349
389
239
3,141
Capital management
The Group considers shareholders’ equity as
primary capital source. Also the Group can incur debt either through shareholder loans or
through external funding. The Group’s objectives when managing capital are to safeguard
the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders as
88
90-120 days
well as to provide financing of its operating
requirements, capital expenditures and sustain the Group’s development strategy.
Management monitors on a regular basis the Group’s capital structure and may
adjust its capital management policies
and targets following changes in its operating environment, market sentiment or
its development strategy.
Basic earnings per share amounts are
calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding
during the year.
Basic earnings per share for the years ended 31 December is as follows:
Net profit attributable to ordinary equity holders of the
parent for basic earnings
Weighted average number of ordinary shares for basic
earnings per share
Basic earnings per share, UAH
2010
2009
3,677,880
3,685,397
10,687,389
10,687,389
344.13
344.84
31. Earnings per share
As at 31 December 2010 and 2009 there
are no potential ordinary shares. There have
been no transactions involving ordinary
shares or potential ordinary shares between
the reporting date and the date of issue of
these consolidated financial statements.
32. Events after
the reporting period
(i) Reorganisation of Storm LLC
Pursuant to the accession agreement referred to in Note 28, on 18 January 2011
Storm LLC transferred 4,647,127 of Kyivstar’s ordinary shares into the Company’s
depository account.
89
Notes

38 Closed Joint Stock Company Kyivstar G.S.M.

Transcription

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