2013 Year Report and consolidated financial statements

Transcription

Annual Report 2013
European
standards
of Ukrainian
communications
Kyivstar in 2013
Corporate
social
responsibility
Consolidated
financial
accounting
KYIVSTAR IN 2013
ON THIS REPORT
ON THE COMPANY
HIGHLIGHTS
RESULTS
QUALITY PROGRAMME
SERVICE
CORPORATE SOCIAL RESPONSIBILITY
MOBILE HEALTH
SAFE INTERNET
PROMOTION OF READING IN UKRAINE
PRESERVATION OF HISTORICAL AND CULTURAL HERITAGE
HELPING PEOPLE WITH SPECIAL NEEDS
ENVIRONMENTAL CARE
COOPERATION WITH LOCAL COMMUNITIES
WORK THAT INSPIRES
CARE FOR EMPLOYEES’ PERSONAL DEVELOPMENT
OPTIMAL BALANCE OF WORK AND PERSONAL LIFE
CARE FOR EMPLOYEES’ HEALTH AND SOCIAL PROTECTION
YOUTH EMPLOYMENT
CONSOLIDATED FINANCIAL ACCOUNTING
Annual Report 2013
ON THIS REPORT
For Kyivstar, 2013 was a very busy year, filled
with events and projects. This was due both
to changes in the company and the specific
nature of Ukraine’s telecom market. Thus,
the penetration of mobile services in Ukraine
in 2013 exceeded 130%, while consumption
structure changed, with growth in demand
for mobile Internet services and data transfer.
Unfortunately, in Ukraine the development of
these services is artificially held back due to
lack of mass access to 3G technology.
On a saturated market business success
is guaranteed by a quick response to
the customer’s needs and the change in
competitive environment. That is why in
2013 Kyivstar started a transformation of
all operational processes with a view to
creating a customer-centric operating model
and ensuring a radical improvement of
customer experience. To give the company’s
employees an opportunity to see all servicing
processes through the customer’s eye,
Kyivstar launched Feel Yourself a Customer,
a programme for managers. Top managers
and marketing directors switched from
company to commercial tariff plans. You can
find more details in Chapter 11 Top-Notch
Service. Quality is an important component of
customers’ positive experience, which is why in
2013 Kyivstar paid great attention to improving
and upgrading the network infrastructure.
A separate chapter in this Report gives the
findings of a technology audit of the Kyivstar
network which was carried out by Ukrainian
and international experts.
In 2013 Kyivstar completely updated the
tariff range for both prepaid and contract
subscribers. Kyivstar Freedom is a tariff range
with an eye for interests and needs of all the
segments of the subscription base, which
offers plenty of opportunity for economy. Also
in 2013 Kyivstar lifted mobile Internet traffic
fees, updated proposals for international calls
and roaming, and offered innovative multimedia and digital content services. You can
find more details about the company’s new
tariffs and products in Services.
Thanks to the introduction of new tariff offers
and services which are more sensitive to the
consumer’s profile, the subscribers were able
to increase the volume of services. Meanwhile,
the average customer’s monthly bill shrunk.
Growth was especially conspicuous in mobile
and fixed Internet services. The subscription
base also grew in 2013, while the profitability of
Kyivstar’s business (EBITDA margin) remained
at a high 48.5%. In one of the chapters you will
find more details about the company’s financial
performance. Kyivstar continues providing topnotch quality services to its customers.
2013 was also a turning point in terms of
approaches to corporate social responsibility
projects. Now the company is using to the full
extent the opportunities telecommunications
offer in charitable activities and in helping
the community. This change resulted in the
rise of several innovative projects: mHealth,
e-reading, Vkraina, etc. You can read
more about them in Chapter 2 Synergy of
Telecommunications and Society.
Traditionally, the Annual Report is concluded
with a detailed analysis of Kyivstar’s operating
and financial activities, carried out by an
independent audit firm.
KYIVSTAR TODAY
Kyivstar is Ukraine’s biggest telecommunications
operator, number one in mobile connections and
Internet, and also an undisputable leader in the
development of mobile and fixed Internet.* Our
customers include more than 25m individual
subscribers, 726,000 households, and nearly every
other commercial company in Ukraine. Kyivstar’s top
quality GSM network covers all cities and towns of
Ukraine, more than 28,000 villages, all major national
and regional highways, and most of river and coastal
areas.
Created by Ukrainian citizens and European investors,
Kyivstar has been and will remain a staunch supporter
of introducing advanced connection technology
in Ukraine, with top standards of quality. Since its
rise Kyivstar has invested more than 32bn UAH
into developing telecommunications in Ukraine,
paying over 35bn UAH in tax to Ukrainian state.
An important aspect of the company’s activity is the
development of local communities, implementation
of charitable initiatives and social programmes. In
particular, in 2013 the company developed a series of
mobile first aid applications, provided 254 schools
with access to free high-speed Internet, and created
a unique portal Vkraina aimed at propagating
knowledge about the formation of Ukrainian state.
Kyivstar has worked in Ukraine for 17 years and
is the country’s largest tax-payer in the sphere of
transportation and communications, one of the best
employers and the most socially responsible domestic
businesses.
*Sources: E&C; AC&M
KYIVSTAR’S SHAREHOLDERS
100% of Kyivstar’s shares are held
by the international Telecom group
VimpelCom Ltd. (headquartered in
the Netherlands). VimpelCom Ltd.
is the world’s sixths largest Telecom
operator with 221m subscribers,
which provides top-rate communication
services in 17 countries on
4 continents. Since 1996 the
company’s shares have been listed at
the New York Stock Exchange. Most
voting shares belong to international
investors: 9% are placed with
NASDAQ, 43% belong to Telenor
(Norway’s largest telecommunication
company, the most of whose shares
belong to the Norwegian government),
and 48% are in the hands of
LetterOne Telecom, an investment
firm registered in London and affiliated
with Alpha Group Consortium. The
firm’s boss is a Norwegian national Jo
Lunder.
VimpelCom is known to thoroughly
follow the requirements posed by local
legislation and state administration at
all times and in all markets, as well
as to adhere to the legislation of the
Netherlands, European Union, and US.
VimpelCom’s corporate vision is based
on the following principles: keeping
focus on local markets and empower
people to act as a global provider
(Focus locally. Empowering people.
Connecting globally). The Group’s
strategy is to invest in growth and offer
a better customer experience with a
view to creating value for customers in
all the countries where it is present.
KYIVSTAR AS PART OF VIMPELCOM LTD.
KYIVSTAR AMONG EUROPE’S LARGEST TELECOMMUNICATIONS
COMPANIES
KYIVSTAR IS ONE OF FIVE MOST EFFECTIVE
COMPANIES WITHIN VIMPELCOM LTD.
10%
operating
revenue
ONE OF
TOP FIVE
by EBITDA
margin of 12%
active mobile
subscribers
SECOND
LARGEST
TOP-10 companies of Central and Eastern Europe in the field of high technology,
telecommunications and media*
10%
1
employees
by volumes of
traffic use (MoU)
220˚
240˚
260˚
280˚
Country
Revenue in 2013 (€ m)
FOXCONN Cz
Czech Republic
3,723
2
Orange Polska
Poland
3,068
3
Magyar Telekom
Hungary
2,139
4
O2 Czech Republic
Czech Republic
1,872
5
Flextronics International
Hungary
1,630
6
Polkomtel
Poland
1,586
7
T-Mobile
Poland
1,578
8
Asseco
Poland
1,400
9
Ericsson Eesti
Estonia
1,353
10
200˚
Company
Kyivstar
300˚
320˚
340˚
Ukraine
0˚
20˚
40˚
1,209
60˚
80˚
* the results of a survey by Deloitte, an international audit and consultancy firm, 2014
160˚
180˚
80˚
80˚
Spitzbergen (N)
Grönland (DK)
Island
60˚
Russia
Canada
Ukraine
Italy
40˚
Azoren (P)
Algeria
Kazakhstan
Uzbekistan
Georgia
Tajikistan
Armenia
Kyrgyzstan
Pakistan
40˚
Bangladesh
Laos
Cambodia
20˚
0˚
60˚
The Central
African
Republic
20˚
0˚
Burundi
-20˚
Namibia
Samoa
Zimbabwe
Tonga
-40˚
-20˚
-40˚
Kerguelen (F)
-60˚
-60˚
HIGHLIGHTS OF THE YEAR 2013
JANUARY
its intention to terminate providing mobile connection
services as of September 2013. Kyivstar offers Golden
Thanks to its cooperation with VimpelCom International,
Kyivstar reached an agreement on considerable discounts Telecom’s subscribers the same set of services in its own
network on favourable terms.
for inter-operator traffic and decreased the costs of
roaming in the CIS, Europe, Asia, and the Middle East.
FEBRUARY
254 secondary schools from 50 cities of Ukraine join
the social programme Safe Internet for Schools. Kyivstar
provides the schools with unlimited broadband access
and protection against web threats.
Launch of a new social programme Mhealth (Mobile
Health). My Little Star, a mobile application for future
parents, becomes the first development in the framework
of the project.
MARCH
JUNE
Start of a new commercial trend, namely, mobile financial
services. The subscribers are offered Mobile Money, a
new service allowing to make payments from their mobile
phone.
JULY
Start of implementation of a new operating model with a
view to improvement of the entire customer service and
creating an optimal customer experience.
AUGUST
Start of an innovative project smart.kyivstar.ua, an
electronic library for mobile phones, smartphones, and
tablets.
Implementation of Ukraine’s first innovative technology
of wideband audio or HD Voice, allowing to render all
shades of emotion and intonation thanks to voluminous
and clear sound.
APRIL
Extension of capacity of the optical DWDM network.
Introduction of data transfer channels with the capacity of
Implementation of the project Vkraina, a collection of
digital geographical maps of Europe in the 16th-–18th
centuries showing Ukraine. The collection is available to
users of mobile phones, tablets, and personal computers.
MAY
Golden Telecom LLC, a Ukrainian company within the
international telecom group VimpelCom Ltd., announces
100 Gbit/s.
SEPTEMBER
Unprecedented reduction of mobile Internet tariffs.
Unlimited Internet access with most tariff plans.
Completion of all necessary legal formalities for
reorganisation of private JSC Ukrainian Radio Systems
through a takeover by private JSC Kyivstar.
OCTOBER
Introduction of the new Free Kyivstar tariff range.
Subscribers receive bundles of voice, SMS and mobile
Internet services without daily subscription fees.
In collaboration with the specialists from the Filatov
Institute of Eye Diseases the world’s first mobile app for
prevention of eye diseases is developed.
NOVEMBER
Kyivstar launches a programme for its managers Feel
Yourself a Customer. The programme aims at improving
the quality of service and refining the processes of
customer experience management.
DECEMBER
A survey of Kyivstar mobile connection quality is carried
out. The Kyivstar network scores nearly 100% by all
branch standards, leading in most of them among other
mobile operators in Ukraine.
FINANCIAL AND OPERATING ACTIVITIES
1. INCREASE IN NUMBERS OF SUBSCRIPTIONS.
2. DROP IN COST OF SERVICES.
3. GROWTH OF CONSUMPTION AND INTERNET REVENUES.
4. LAUNCHING MOBILE FINANCIAL SERVICES.
5. INVESTMENTS IN PREPARATION OF THE NETWORK FOR 3G/LTE.
MOBILE PHONE SUBSCRIBERS
DECREASE IN AVERAGE REVENUE PER
USER (ARPU) IN MOBILE COMMUNICATIONS
INCREASE IN MOBILE INTERNET
CONSUMPTION VOLUMES
25,7 m
8 502 TB
41,3 UAH
25.6 42 25.4 25 m
25.2 25 41 24,7 m
24.8 24.6 40 Column2 39 Column3 38 36 2011
2012
2013
35 FIXED BROADBAND INTERNET
SUBSCRIBERS
2012
2013
DECREASE IN AVERAGE PRICE
PER MINUTE (APPM)
613 000
9.4 9.2 397 000
0.088 UAH
9 8.8 8.6 2011
2012
2013
8.4 2012
5 673 TB
3 315 TB
2011
2013
2012
2013
NET OPERATING REVENUE
13.3 bn UAH
13.0 bn UAH
0.094 UAH
762 000
800 700 600 500 400 300 200 100 0 37,5 UAH
37 24.4 24.2 Column1 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 12.9 bn UAH
TOP-NOTCH QUALITY NETWORK
IN 2013 KYIVSTAR SCORED ALMOST 100%
QUALITY BY ALL BRANCH STANDARDS,
LEADING IN MOST OF THEM
177 billion
minutes
9,800 TB
data
1,840 million
SMS
40 million
MMS
THE NATIONAL MULTI-SERVICE DIGITAL
KYIVSTAR NETWORK:
• 50,000 kilometres of fibre-optic communication lines;
• 620 Gbit/s external channel capacity;
• 70 commutators of technological level (MSS) and 105
mediagateways (MGW);
• 15,000 base stations;
• 170,000 tranceivers.
HIGH-QUALITY COMMUNICATIONS,
INNOVATIONS IN 2013:
• SMS AntiSPAM: network protection against spam and
suspicious traffic;
• HD Voice: a technology enabling to improve the quality of voice
transmission;
• 9 channels X 100 GB/s: network capacity expansion;
• 30% of the radio network is based on All IP.
1,7 BN UAH WAS INVESTED IN QUALITY OF
THE NETWORK AND SERVICES.
KYIVSTAR NETWORK QUALITY
According to Omnis, a science and technology centre, the quality of services provided by Kyivstar
exceeds branch standards, and by a number of indices rates best on the telecom market.
STABILITY OF CONNECTION
NORMALISED DELIVERY TIME FOR SMS
(LIMIT BRANCH FAILED CONNECTIONS RATE UP TO 10%)
(LIMIT LEVEL UP TO 30S)
Kyiv
Cities with up to
350,000 residents
Towns with up to
20,000 residents
Villages (up to
5,000 residents)
Roads
Kyivstar
1,49
1,98
2,19
2,14
1,73
2,40
MTS
4,27
5,02
5,12
4,82
5,54
2,99
Life
1,68
2,34
1,77
2,01
2,58
Kyiv
Cities with up to
350,000 residents
Towns with up to
20,000 residents
Villages
Roads
Kyivstar
0,43
0,79
0,69
1,18
1,33
MTS
1,27
2,01
1,21
2,87
Life
0,68
0,97
1,13
5,53
CONNECTABILITY
http://nkrzi.gov.ua/images/upload/96/4446/34f5f93a82c0dd259e5accf04ce12482.pdf
(LIMIT BRANCH DROPPED CALL RATE UP TO 5%)
Kyiv
Cities with up to
350,000 residents
Towns with up to
20,000 residents
Villages (up
to 5,000 residents)
Roads
Kyivstar
0,21
0,24
0,19
0,47
0,80
MTS
0,32
0,95
0,58
1,37
1,75
Life
0,40
0,20
0,37
1,25
1,28
SETTING UP AN IP CONNECTION FOR HTTP
(LIMIT NORMALISED LEVEL UP TO 10S)
Kyiv
Cities with up to
350,000 residents
Towns with up to
20,000 residents
Villages (up
to 5,000 residents)
Roads
Kyivstar
1,72
1,82
1,52
1,80
1,79
MTS
2,71
2,61
2,34
2,46
2,74
Life
2,26
2,35
2,48
2,43
2,51
KYIVSTAR NETWORK QUALITY STUDY BY THE
STANDARDS OF ERICSSON NETWORK QUALITY
BENCHMARKING GSM RADIO NETWORK
Performance and quality indices in the Kyivstar network
Average performance 2013
Kyivstar
Globally
Calls with good voice quality, percentage (SQI Good)
95,57%
89,69%
Probability of dropped connection (TCH Drop Rate)
0,67%
1,12%
Average EDGE data transfer speed
121,1 kbit/s
97,24 kbit/s
At some controllers in the network, particularly in Kyiv, data transfer speed reached
163 kbit/s, which is an extremely high figure for 2G networks globally.
* Servey according to the «Omnis» data from 8th of August 2013
TOP-NOTCH SERVICE
In 2013 Kyivstar began a transformation of
its operating model, reducing excessive
hierarchical links and creating unified
functional teams. The company became even
closer to the customers, defining three major
principles of management:
Understanding – creating products and
processes based on customer needs and values.
Simplicity – intuitive use of services, customerfriendly format and interface.
Reliability – customers’ confidence in
transparency and stability of communication
tariffs, their confidence in connectivity at all
times.
LAUNCHING “FEEL YOURSELF
A CUSTOMER,” A PROGRAMME
FROM KYIVSTAR
In 2013 85 staff members took part in the
programme, including 21 department heads and
directors.
OBJECTIVE: to obtain a first-hand experience
as a customer of Kyivstar.
Tasks: switch from company to commercial
tariff plans; regularly visit the Call centre and
Customer Service Centres; propose solutions for
improvement of service.
Results:
• simplification of the connection procedure for
corporate subscriber groups;
• implementation of free router replacement for
the users of Home Internet;
• faster reimbursement of miscalculated
payments to customers;
• modification of the procedure of informing
customers about promo-actions and new
services;
• simplification of choice of promotional tariffs for
international roaming.
MODEL CALL CENTRE
KYIVSTAR CALL CENTRE MEANS:
Kyivstar Call Centre is a multiple winner of
international Crystal Headset Award and the best
provider of online services to customers.
4.65 points on a scale of 5: this is how customers
value or experts’ efforts.
CURIOUS FACTS
1 500
strong staff
33m telephone
consultations
a year
more than 9,000
phone calls a day
POPULAR ESTIMATION OF PERFORMANCE – 4.65 POINTS
ON A SCALE OF 5.
Kyivstar Call Centre is the largest in Ukraine,
employing more than 1,500 staff.
In 2013 the company gave 33m consultations.
9,000 calls a day.
123,000 consultations were offered to customers via
online chats and digital channels.
98% of online chat calls are answered by Kyivstar
within the first 20 seconds.
Kyivstar’s corporate bloggers on social networks
consulted and advised 11,000 subscribers.
Over 1.5m subscribers use My Kyivstar, an
independent account management system.
THE BEST PLACE TO START:
In 2013, 500 Ukrainian university students and
graduates completed a training at Kyivstar Call Centre.
MOBILE COMMUNICATION SERVICES
• 25.7m subscribers
• over 75% tariff packages
• reduction of average bill to 36.5 UAH
• new proposals for all segments: Kyivstar Freedom,
Maximal 3000, Favourite Country.
In 2013 Kyivstar made a total tariff overhaul for all segments.
The new tariff plan Kyivstar Freedom offers ample possibilities
for calls, sms, and mobile Internet at competitive prices on the
pay-as-you-go basis:
• 0.00 UAH subscription charge;
• 0.00 UAH per MB;
• 200 minutes for on-net calls per day;
• 100 SMS per day.
Price of the service package varies from 0.00 to 0.95 UAH
depending on the region.
By the end of 2013, more than 10% of all subscribers were using
Kyivstar Freedom.
Favourite Country service offers a considerable cut in prices for
international telecommunication.
Calls to the US, Canada, China, Russia only at 0.12 UAH per
minute.
Calls to Western Europe at 0.59 UAH per minute.
100,000 subscribers have used the Favourite Country service.
Maximal 3000, a service for corporate subscribers:
• Unlimited calls to any numbers;
• Unlimited Internet and sms;
• Advance credit services.
25, 7 MILLION SUBSCRIBERS.
ABOUT 504 MINUTES PER MONTH PER
SUBSCRIBER.
36.5 UAH, AN AVERAGE
SUBSCRIBER’S MONTHLY BILL.
MOBILE INTERNET
SERVICES
45% of subscribers use mobile Internet
• 50% growth in Internet traffic volume
• 50% growth in the number of smartphones
• free Internet traffic
Mobile Internet is the second most popular service after voicemail, with 11.3m users, or
almost 45% of the entire subscription base.
In 2013 Kyivstar was the first company on Ukraine’s telecom market to cancel traffic rates.
Mobile Internet costs up to 2 UAH per day, with unlimited traffic.
Popular services for mobile Internet users:
Free Kyivstar for Tablets (Modems) is a tariff plan offering high-speed unlimited Internet at a
mere 2 UAH per day.
Unlimited Internet: a monthly prepaid package at 0.9 UAH per day.
Day Online: unlimited Internet at 1.9 UAH.
ACCORDING TO E&C, A CONSULTANCY, KYIVSTAR IS
UKRAINE’S LEADING MOBILE INTERNET PROVIDER. THE
USERS OF KYIVSTAR MOBILE INTERNET MAKE UP 46.5%
OF THE ENTIRE CONSUMER POOL OF THIS SERVICE IN
UKRAINE
GROWTH OF SMARTPHONES IN
THE NETWORK
Type
Number of devices
% of 2012
Android
2, 474 689
146%
Bada
179 471
0%
iOS
454 391
60%
Symbian
1 303 143
-17%
Windows
Mobile
172 383
30%
Total
4 584 077
50%
Before 2013
1 MB = 10 UAH
After 2013
1 MB = 0 UAH
MOBILE FINANCIAL SERVICES AND DIGITAL CONTENT
In 2013 Kyivstar became the first mobile operator to provide mobile commerce services.
MOBILE MONEY is an innovative
service allowing subscribers to pay for goods
and services and receive cash via their
mobile phone.
75,000 subscribers use this service, making
300,000 transactions per year.
In 2013 multi-media services and digital
content enjoyed stable demand with Kyivstar’s
subscribers:
MUSIC CLUB: access to a catalogue
of music tracks from a mobile device for
unlimited streaming or downloading.
3m users.
13.2m music tracks streamed.
APPCLUB: mobile games and useful
apps, available for unlimited downloading. No
charge for Internet traffic.
3m users.
8m apps downloaded.
VIDEO CLUB: an online portal for
streaming or downloading videos to cater for
all tastes.
288,000 active users.
717,000 videos downloaded.
SMART.KYIVSTAR: a library
in a mobile phone
463,000 customers.
272,000 books read.
INTERNATIONAL COMMUNICATION AND ROAMING
• launch of unique services for all segments;
• tariff reduction;
• 45% – increase of mobile Internet in roaming;
• 40% – growth of voice traffic in Europe
Since 2013 Kyivstar has enjoyed more advantageous terms for
roaming, provided by the company’s partner firms, and brought
down the prices for services in all segments.
EuroVisa offers calls to 15 European countries at a
70% discount. The price of 1 minute in roaming has sunk to 3.6
UAH.
SuperVisaSmart offers 150% reduction on mobile internet
tariffs in 8 countries in Europe and Asia.
The price of 1 MB in roaming has dropped to 0.8 UAH.
In 2013 the list of most popular countries in terms of roaming
included Armenia, Georgia, Italy, and Kazakhstan.
Due to reduced tariffs, the use of traffic there grew by a factor of
five.
HOME INTERNET
• 47,000 apartment blocks connected to the Internet.
• 762,000 subscribers chose Home Internet service.
• Subscription fee for the Home Internet service reduced by 33%.
• Revenues grew by 24%.
CONNECTIONS IN 2010-13
GROWTH OF PROFITS
762 000
800 700 600 500 400 300 200 100 0 613 000
397 000
200 000
2010
2011
2012
2013
408 m. UAN
450 400 350 300 250 200 150 100 50 0 275 m. UAN
158 m. UAN
89 m. UAN
2010
2011
2012
2013
In 2013 the demand for broadband Internet services continues to grow.
The number of households connected to the Home Internet service
grew by 24%.
IN 2013 KYIVSTAR MADE THE HOME INTERNET SERVICE EVEN
MORE AFFORDABLE. FOR SUBSCRIBERS IN 26 CITIES THE
MONTHLY FEE WAS REDUCED BY 33%.
NEW SERVICES FROM HOME INTERNET:
• Fast IP-address.
• Video portal.
• Week of Trust: the subscriber can continue using the service even if
his account has run empty.
• A router for 1 UAH.
• Turbo Week, a service for boosting access speed up to 100 MB/s.
SUBSCRIBERS OF THE HOME INTERNET SERVICE RECEIVE
MONTHLY BONUSES WITH WHICH THEY CAN PAY FOR MOBILE
CONNECTION.
PARTNERSHIP IN BUSINESS
Kyivstar Business focuses on creating unique proposals for corporate
customers, to help them accomplish business tasks more efficiently with the
help of opportunities offered by telecommunications.
NEW SERVICES FROM KYIVSTAR BUSINESS IN 2013
Virtual Mobile Switchboard ensures interaction between staff of distant
offices.
My Advertisement allows to create and place ads on the Internet and in
press.
Business Internet 3G is an opportunity to use high-speed data
transmission in a partner network without a fee for traffic.
M2M solutions is the creation of Ukraine’s first online platform to monitor
М2М SIM cards in real time.
New, optimal tariff plans include unlimited calls between the company’s
staff, incorporated minutes for calling other nets, affordable and safe mobile
Internet.
In 2013 Kyivstar started the practice of individual business consulting for
existing and prospective customers, representatives of big companies
and small and medium businesses. Customers can get advice and
recommendations concerning application of telecommunications to
accomplish business objectives via a variety of channels:
Kyivstar Business Digest carries reviews of new products and best-sellers
of business literature and offers an insight into the expertise of domestic and
international business people.
Business Hub, a cycle of get-togethers for Ukrainian business owners and
Western experts in the sphere of economics and social sciences.
Individual consultations for business owners. As a customer, call the
free number (067) 4667466 to talk to the company’s expert who will help
find a telecom solution for your business’s specific goals, as well as choose
an optimal tariff for a given company, taking into consideration its structure.
Business Solutions video portal offers more than 50 comprehensive
telecom solutions which can be projected onto a variety of companies and
industries.
CORPORATE SOCIAL
RESPONSIBILITY
SYNERGY OF TELECOMMUNICATIONS
AND SOCIETY
2013
INVESTMENTS FOR
SOCIAL DEVELOPMENT
Kyivstar corporate social responsibility stands for
a business conducted in harmony with society,
voluntary commitments of the company and active
participation in social and economic development of
Ukraine. The responsibility of the company is based
on its mission, vision, values and Great Customer
Care idea. Kyivstar path of successful business
inevitably runs through consistent promotion of social
development of the country.
In 2013, Kyivstar invested more than 1,690 bn UAH
in the development of state-of-the-art infrastructure
and top-class services.
The total amount of taxes and levies to state budget
exceeds 4.351 bn UAH.
The company has allocated 30 m UAH for social
protection of employees.
OVER 1.5 M UAH
HAS BEEN INVESTED IN CHARITY PROJECTS:
PROTECTING CHILDREN
ONLINE SAFETY
PROVIDING SCHOOLS WITH
ACCESS TO THE INTERNET
MOBILE
APPLICATIONS
FOR PREVENTING
DISEASES
TARGETED ASSISTANCE TO CHILDREN’S
ESTABLISHMENTS AND GERIATRIC
CENTRES
THE COMPANY HAS ALLOCATED
30 M UAH FOR SOCIAL PROTECTION
OF EMPLOYEES.
CARING FOR THE
ENVIRONMENT.
CULTURAL AND EDUCATIONAL
PROGRAMMES
mHEALTH FOR PARENTS AND CHILDREN
In 2013 Kyivstar started a new stage
of social involvement: development of
medical mobile applications, meant to
help Ukrainians take care of their own
health and that of their nearest and
dearest, using telecommunications
media. So arose the innovative mHealth
programme.
In the framework of Mobile Health,
a social initiative, Kyivstar’s experts
have developed the following mobile
applications:
• My Little Star;
• My Little Star. Year One;
• I Can See Well.
Each mobile app is accessible to
subscribers of all telecom operators.
While using these apps, Kyivstar
subscribers need not pay for Internet
access.
Mobile medical applications are of
special importance for families residing
in remote areas or those who cannot
visit doctors frequently. Now they can
get advice and medical consultation via
their mobile phones.
Kyivstar’s mobile applications for
preventing diseases have gain popularity
in 35 countries. In Ukraine they have
been used by more than 70 thousand
subscribers.
MY LITTLE STAR
In 2013 Ukraine saw its first mobile app My Little Star for expectant parents, developed with involvement of expert Ukrainian
obstetricians and gynaecologists
By downloading My Little Star, an expectant mother can keep her own maternity record and get detailed information on foetal
development stage by stage. She will also get timely reminders about her antenatal appointments, healthy lifestyle and diet
during various stages of pregnancy, etc.
MY LITTLE STAR. YEAR ONE
This is the second free mobile service for Ukrainian families, developed by Kyivstar in the framework of the Mobile Health social initiative.
My Little Star. Year One is a mobile app which will help parents take care of infants from birth to 12 months old. This app will assist mothers in daily planning of their
activities and remind about feeding times. It informs parents about the infant’s development and gives advice on breast feeding and vaccination, thus helping in raising
a healthy and active baby.
My Little Star. Year One has synchronising options for the whole family’s telephones, so even grandparents can get information on the baby’s development.
These two apps, My Little Star and My Little Star. Year One can be installed on smartphones running IOS and Android, or selected from App Store and Google Play.
The new mobile applications are already helping more than 17 thousand women in Ukraine.
I CAN SEE WELL, A MOBILE APP FOR
PREVENTING VISION PROBLEMS
A free mobile app for prevention of eye diseases became an important contribution to the register of helpful services. It was developed by Kyivstar experts in
collaboration with the specialists from the Filatov Institute of Eye Diseases and Tissue Therapy at the National Academy of Medical Sciences of Ukraine.
I Can See Well is the first Ukrainian mobile service for disease prevention and improvement of vision in children and adults. The app offers easy-to-do exercises
for the eyes which can be done at any convenient time.
CLINICAL RESEARCH FINDINGS
At the 13 congress of Ukrainian ophthalmologists the doctors of the Filatov Institute
demonstrated the results of clinical research into the efficiency of eye gymnastics
presented as a mobile app I Can See Well.
VISUAL ACUITY IN THOSE APP USERS WHO EXERCISED REGULARLY HAS
SHOWN AN AVERAGE INCREASE OF 10%.
SAYS VIRA SERDIUCHENKO, MD, director
of the Laboratory for Binocular Vision
Disorders at the Filatov Institute of Eye
Diseases and Tissue Therapy:
“this application for mobile devices is a
complex of gymnastic exercises for the eyes.
Animated characters and the soundtrack
evoke the children’s interest and boost
their activity during exercising. Examination
performed immediately after exercises
showed significant increase in visual acuity,
10% on average, in children with various
types of refraction.”
MOBILE HEALTH PROJECT
WAS ACKNOWLEDGED
BEST INNOVATION OF
2013 IN THE FRAMEWORK
OF THE NATIONAL
COMPETITION OF
BUSINESS CASES IN
CORPORATE SOCIAL
RESPONSIBILITY.
Says NATALIA PASIECHNIKOVA,
Merited Doctor, Corresponding
Member of the NAMSU:
“The importance of the created mobile
service lies in the possibility to convey
information from our experts by up-todate methods to all population strata all
over Ukraine.
I Can See Well provides an option
for self-diagnosis, as well as sets of
exercises for children and adults.
I Can See Well gives an opportunity
to check your vision for symptoms of
some of the most common diseases
and arrange a timely appointment with
an eye specialist. A set of exercises
helps children and adults release the
tension in eyes and prevent eye fatigue.
Exercises for children are made in the
form of games, which makes them not
only useful, but also fun.
SAFE INTERNET FOR UKRAINIAN SCHOOLS
For years Kyivstar has been
implementing its social programme
Children’s Safety on the Internet.
Providing Ukrainian schools with
broadband Internet access and educating
children, parents, and schoolteachers
about safety rules for surfing the World
Wide Web are an important part of this
programme.
Kyivstar’s employees volunteer to give classes on online
safety in schools. Thus, in 2013 they gave 50 such classes
for 900 schoolchildren.
During school summer holidays Kyivstar volunteers visit
recreation camps, where they use games to acquaint children
with the rules of safe Internet. The trainings are developed to
suit the needs of a young audience.
In 2013 the company’s volunteers visited 7 children’s
recreation camps, where they held game seminars on
safe Internet for more than 1,500 children aged 10 to 15.
KYIVSTAR’S MOBILE LIBRARY PROMOTES READING IN UKRAINE
In March 2013 Kyivstar launched an innovative project, a mobile digital library
smart.kyivstar, aimed at boosting popular interest in reading and gaining new
knowledge. Books are available from smartphones, tablets, and conventional
mobile telephones.
All the content of the mobile library is licensed. The mobile library was created
with an eye to pupils and students’ educational needs. They get unlimited free
access to the works of Ukrainian modern and classical writers from the school
literature curriculum..
The most popular books in the mobile library of Ukrainian literature are:
• Kobzar (“The Bard”) by Taras Shevchenko
• Zakhar Berkut by Ivan Franko
• Lisova pisnia (“The Forest Song”) by Lesia Ukrainka
• Fata Morgana by Mykhailo Kotsiubynsky
• Kaidasheva simia (“The Kaidash Family”) by Ivan Nechui-Levytsky
The Mobile Library contains 2000 licensed books.
20% of the content is available in free access.
The Library has now more than 70 thousand readers.
KYIVSTAR INITIATED THE FIRST SUBSTANTIAL SOCIOLOGICAL
SURVEY “BOOK READING IN UKRAINE”
More than 1,000 respondents from across
the country took part in
the survey. The cross
section revealed that
51% of all adults read
at least one book in
the last three months.
Among the books
Ukrainians buy the
share of fiction and
children’s literature has
grown, while that of research, educational and
reference literature has
shrunk (52% fiction vs
5% research literature).
The results of the survey show the need in
handy and affordable
digital devices. Indeed,
13% of Ukrainians
aged 15 to 59 had read
e-books for the last
three months.
The results of the survey were presented to
the participants of the
Publishers’ Forum in
Lviv, which took place on
12-15 September 2013.
The survey became
one of the most largescale cross sections of
readers’ preferences in
Ukraine.
ADVANTAGES OF READING
BOOKS AT
SMART.KYIVSTAR:
LICENSE
LICENSED CONTENT
SAFE ENVIRONMENT ON THE
INTERNET
UNHINDERED FREE
ACCESS TO LITERARY
CLASSICS FROM SCHOOL
CURRICULA
NO FEE FOR USING
MOBILE INTERNET
DURING READING
HELPING THE NATION TO PRESERVE ITS CULTURAL HERITAGE
VKRAINA – UKRAINE’S
HISTORY
ON SMARTPHONES
K
yivstar supports social initiatives which encourage
Ukrainians to learn more about their country by means
of up-to-date telecommunication media. In 2013 this
operator designed a comfortable interface for studying the
history of Ukraine: Vkraina, an application for mobile phones
and tablets, and a web-site on the Internet.
The multi-media Internet resource Vkraina has a collection
of more than 200 geographical maps of Europe of the 16th17th centuries showing Ukraine. The maps are available in
a convenient format. Each map reflects Europeans’ ideas of
the territory of Ukraine, with all the diversity of its composition,
borders, and names: from Ptolemy’s ideas of ancient Sarmatia
to the detailed description of Ukraine on the maps of Guillaume
Levasseur de Beauplan, a French military engineer.
The collection is available to users of mobile phones and
personal computers. For users of tablets and smartphones,
Kyivstar and Microsoft Ukraine have co-developed a special
mobile application for browsing ancient maps, finding historical
places on them, and so on.
Vkraina.com is a felicitous combination of up-to-date
telecommunication media and Ukraine’s historical heritage,
aimed at popularization of knowledge among a broader
audience. The project covers an obscure topic of cartography of
Ukrainian lands.
In 2013 more than 300 thousand Ukrainians improved their knowledge of Ukraine’s historical past
with the help of the multi-media project Vkraina.
CARE FOR PEOPLE WITH SPECIAL NEED
Kyivstar’s social policy is directed at helping both
broad strata of Ukraine’s population and the most
vulnerable groups.
Kyivstar renders systematic aid to 25 boarding
schools and specialised establishments for orphaned
children and children with special needs, with a total
of 3,000 inmates. The company also takes care of 8
geriatric homes, housing 2,000 war and labour veterans and lonely seniors.
Kyivstar’s charity projects aim at providing opportunities for study and vocational training to orphan children and young people with special needs, which will
facilitate their adaptation in society.
Kyivstar’s volunteers are welcome guests among their
charges: they help settle everyday problems, redecorate homes and clean up the premises, organize
concerts and performances.
In 2013 establishments for children with special needs
and geriatric homes received a total of 230,000 UAH
as help from Kyivstar.
In Vinnytsia Kyivstar paid to equip a medical rehabilitation room at Gymnasium No.6 for children with
locomotor disorders.
In Kharkiv Pravo Vyboru, a rehabilitation centre for
disabled children, was presented with a unique educational game complex, where children with special
needs can develop various physical skills and improve
their emotional state.
Cherkasy. Donetsk and Kharkov have got
a successful INVA-taxi service for wheelchair users. Kyivstar has sponsored
vehicles with a special lift and provided
dispatchers and drivers with free mobile
connection and smartphones.
The introduction of INVA-taxi opens up new opportunities for socialisation, education, and development to
disabled city residents. In one year INVA-taxis served
8,621 calls.
Kyivstar has developed a good tradition of creating a fairy-tale atmosphere around Christmas and
New Year for children from the boarding schools in
its charge. The company does its best to take care
of more boarding schools for orphans and children
deprived of parental care. Kyivstar has been providing
aid since 2004, as part of the Ukraine-wide charitable initiative “For the people, for
the country.” We believe
that such care warms up
children’s hearts and
inspires faith in humanity.
ENVIRONMENTAL CARE
Kyivstar treats the environment
responsibly and reduces the
use of natural resources due
to modernization of equipment
and improvement of business
processes.
INNOVATIVE APPROACH
The company introduces up-to-date technology in
many sections of its business to increase its energy
efficiency.
Modernisation of the network, installation of new,
compact, energy efficient equipment, upgrade of
commutation network equipment: these are the
company’s key achievements in 2013.
In particular, due to the upgrade of base stations
and installation of energy efficient equipment the
company was able to save more than 250,000
KWh in one year.
Kyivstar is implementing up-to-date solutions
for providing customer assistance and service
consultations. These include online chats, social
networks, digital channels, as well as a special
mobile application My Kyivstar. This enables
increasingly more customers to settle service issues
without visiting service centres, which helps unload
traffic in cities and saves customers’ time.
In 2013 140,000 customers got assistance and
advice from Kyivstar via social networks and digital
channels. Nearly two million customers made use
of the self-service system My Kyivstar.
Kyivstar’s offices in all oblast centres of Ukraine
are equipped with Cisco Telepresence, video
conferencing equipment, due to which the company
was able to reduce trips to other regions, replacing
them with video communication.
KYIVSTAR VOLUNTEERS MAKE THE COUNTRY GREENER
Care for environment makes up an important part of
Kyivstar’s eco-volunteering agenda.
The company’s employees plant trees, clean up
parks, streets and premises of geriatric centres and
orphanages.
More than 10,300 trees were planted on Earth Day
in 18 Ukrainian cities. 500 volunteers took part in
this action.
The strategy of economical use of resources allows
cooperation with users of the company’s services. For
several years the company has held the action “Say
no to paper receipts, save a tree.” Every year in the
framework of this action Kyivstar’s volunteers plant
trees across the country.
110 subscribers saying no to paper receipts in their
mail during one year means saving one tree. In 2013
more than 60 thousand corporate clients chose
mail receipts instead of paper ones. That made 545
trees Kyivstar volunteers planted in different cities.
KYIVSTAR CARES FOR URBAN ENVIRONMENT
The beauty of the native land and careful protection of
architectural monuments make indispensable part of
Kyivstar’s everyday practices.
The company made it a rule to install exclusive
architectural objects, representing the best aspects of
the local community, in the cities where it is active.
Ingenious art objects by Kyivstar now decorate many
Ukrainian cities. In Odesa it is the Heart in Love, in
Dnipropetrovsk the Family Bench, in Lviv the Flower
Clock; there is an art gallery named Zaporizhia, a City
That Inspires; Kirovohrad has an installation The Open
Heart, Zhytomyr has an Art Alley, and Mariupol boasts
of its art object known as Time-Tested Values.
In 2013, Kyivstar made a gift to Dnipropetrovsk: an art
installation Lovers’ Bridge, which helped the citizens
keep the wedding tradition of “love locks.” The Lovers’
Bridge can hold more than 2,000 little locks.
The Art Alley became Kyivstar’s holiday present to
Zhytomyr. This 30-meter-long alley, executed in modern
blacksmith techniques, decorates the city’s central
street.
In 2013, together with the Lviv City Council, Kyivstar
launched the project “Mapping Lviv’s Tourist Routes.”
35 uniform plaques for tourists with brief information
in Ukrainian and English were mounted to the walls of
buildings in Lviv.
Among the first ones to get a tourist sign were the
architectural ensemble of St. George’s Cathedral, the
John Baptist Church, the Solomia Krushelnytska Opera
and Ballet Theatre, the Maria Zankovetska Theatre, the
City Hall, the Andrei Sheptytsky National Museum, the
Pinzel Museum, the Museum of Traditional Architecture
and Lifestyle, the Lviv Art Gallery, the Potocki Palace,
etc.
The iconic City Hall of Ivano-Frankivsk shines thanks
to illumination, a gift from Kyivstar for the city’s 350th
anniversary.
WORK THAT
INSPIRES
4710
WORK THAT INSPIRES
The company ows its success first of all to the effort of its thousands-strong
personnel. Today Kyivstar employs 4,710 staff, 17% of whom have been working for
it for more than a decade. Men and women make up 60.1% and 39.9% of the staff,
respectively. The marketing department makes up 36% of the staff, the technical
department, 37%, other services, 27%.
STAFF
36 %
MARKETING
DEPARTMENT
37 % 27 %
TECHNICAL
DEPARTMENT
60,1% –
MEN
OTHER
SERVICES,
39,9 –
WOMEN
4,163
KIDS
2114 – GIRL
2049 – BOY
269 OF WHOM WERE BORN IN 2013.
IN 2013 WE CELEBRATED 118 WEDDINGS, IN 8 COUPLES BOTH THE
BRIDE AND GROOM WORK FOR KYIVSTAR.
Attention to workplace quality and employees’ intellectual development and perfection, as well as maintaining the optimal balance
of work and personal life are the key principles of the company’s
personnel policy.
5 CARE FOR EMPLOYEES’ PERSONAL DEVELOPMENT
In 2013, more than 70% staff attended refresher courses and
personal development trainings. To this end, Kyivstar organised
260 training events and allocated some 5,000 classroom hours.
The study and training costs are fully covered by the company.
NUMBER OF EMPLOYEES WHO HAVE PARTICIPATED
IN VARIOUS PROJECTS:
%
45 40 35 30 25 20 0 15 5 10 0 5 5 0 0 5 0 – functions training – 23%
5 0 – personal development training – 11%
– programmes for managers – 7%
– master classes and lectures – 16%
– orkplace training programmes – 43%.
Curricula are based on the principles of individual approach and
identification of employees’ needs and take into account their
requests concerning the content and format of training events.
OPTIMAL BALANCE OF WORK AND PERSONAL LIFE
Kyivstar creates all possibilities to enable its staff to harmoniously combine working and personal life.
Employees can set their own schedule or work remotely.
Remote out-of-office work, or “virtual office,” has become widespread among the staff and is now a
trend in personnel management.
In 2013, each quarter 10 to 20% of Kyivstar employees worked remotely, and nearly 40% chose for a
flexible schedule.
Virtual office comes especially handy in unfavourable weather conditions or when transportation is
difficult. Thus, in December 2013 nearly 30% of the staff in Kyivstar’s Central Office worked from
virtual office.
CARE FOR EMPLOYEES’ HEALTH AND SOCIAL
PROTECTION
2,9
m. UAN
Kyivstar guarantees three kinds of insurance to each staff member:
1) health insurance;
2) life and accident insurance;
3) 10-year cumulative insurance (life insurance with the right to the cumulative
amount at the expiration of the 10-year period).
Health insurance is an indispensable part of Kyivstar staff members’ social
package.
Each staff member can have a health checkup at any time, and if necessary, they
can undergo scheduled inpatient treatment and diagnosis with the use of the most
up-to-date health technology.
Kyivstar’s staff members can get health service in more than 1,000 clinics, health
institutions and pharmacies in 99 Ukrainian cities.
All employees of Kyivstar have uniform insurance packages, regardless of their
job.
In 2013, more than 70% employees used their insurance policies.
The company’s expenditure for all kinds of personnel insurance in 2013 totalled
30 m UAH.
The company is well aware of the importance of supporting its staff and always
comes to the rescue in any situation, even the most complicated.
In 2013, 4,500 staff members received the company’s welfare health benefits.
590 employees requested aid under special circumstances: wedding, childbirth,
medical treatment for family members, etc., and received 2.9 m UAH in financial aid.
10 staff members who retired received a total of 750,000 UAH in severance
benefits.
HELPING YOUNG
PEOPLE INTO WORK
Every year Kyivstar welcomes young specialists and university
graduates and invites them to work in its various departments.
In 2013, the company employed 500 young specialists with no
job experience in its call centers. For them, Kyivstar became a
launchpad of their professional careers.
In 2013 the company started an internship programme for the
young. Admission to internship is carried out through competition
among undergraduates. Students get an opportunity to work for
a year in various departments of the company and gain practical
knowledge and experience. Kyivstar pays out salaries to its interns,
and on completion of internship employs those who demonstrated
top results.
In 2013 more than 200 students from various Ukrainian schools
of higher education took part in competitions to get enrolled in
Kyivstar’s internship programme.
Interns gained practical knowledge in the following areas:
• project- and IT process management;
• maintenance and development of business analysis systems,
analytical systems, and data warehouses;
• maintenance and running of server platforms and corporate
network;
• financial systems maintenance;
• development and maintenance of billing and CRM (Customer
Relationship Management) systems, etc.
Once in Kyivstar, students find themselves in a global company,
which is part of the international Vimpelcom, and get acquainted
with its business processes and up-to-date telecommunication
technology.
KYIVSTAR ALWAYS STRIVES
TO BE THE BEST, KEEP
ITS WORD, UNDERSTAND,
INSPIRE, AND BRING JOY. WE
WORK FOR UKRAINE AND
FOR THE PEOPLE.
CONSOLIDATED
FINANCIAL
REPORT
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF JOINT STOCK COMPANY KYIVSTAR
We have audited the accompanying consolidated financial statements of Joint Stock Company Kyivstar and its
subsidiary (the Group), which comprise the consolidated statement of financial position as at 31 December
2013, and the consolidated statement of comprehensive
income, consolidated statement of changes in equity
and consolidated cash flow statement for the year then
ended, and a summary of significant accounting policies
and other explanatory information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair
presentation of these consolidated financial statements
in accordance with International Financial Reporting
Standards, and for such internal control as management
determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS’ RESPONSIBILITY
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether opinion.
the consolidated financial statements are free from material misstatement.
OPINION
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial poAn audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the con- sition of the Group as at 31 December 2013, and its
solidated financial statements. The procedures selected financial performance and cash flows for the year then
depend on the auditor’s judgment, including the assess- ended in accordance with International Financial Reportment of the risks of material misstatement of the consoli- ing Standards.
dated financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers EMPHASIS OF MATTER
internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements We draw attention to Note 2 to the consolidated finanin order to design audit procedures that are appropriate
cial statements, which describes the political unrest in
in the circumstances, but not for the purpose of express- Ukraine that started in November 2013 and escalated
ing an opinion on the effectiveness of the entity’s internal in 2014. The events referred to in Note 2 could adversecontrol. An audit also includes evaluating the approprily affect the Group’s results and financial position in a
ateness of accounting policies used and the reasonable- manner not currently determinable. Our opinion is not
ness of accounting estimates made by management, as qualified in respect of this matter.
well as evaluating the overall presentation of the consolidated financial statements.
23 April 2014
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2013
(in thousands of Ukrainian Hryvnia, except for earnings per share)
Notes
2013
2012
(restated)
Revenues
9
13 091 150
13 132 296
Cost of materials, traffic charges and other direct costs
9
(2 735 931)
(2 663 526)
Salaries and personnel costs
9
(906 615)
(973 538)
Other operating expenses
9
(3 102 557)
(2 797 266)
12 266
23 702
Other income
Other expenses
9
(164 361)
(203 773)
Depreciation and amortisation
9
(1 637 194)
(1 530 541)
Impairment losses
9
(77 218)
(28 556)
4 479 540
4 958 798
Finance income
9
140 577
604 147
Finance costs
9
(5 095)
(4 485)
6 530
371
4 621 552
5 558 831
(778 513)
(1 242 476)
3 843 039
4 316 355
Re-measurementgains on defined benefit plans,
net of tax
11 596
-
Signed and authorised for release on behalf of management of
Joint Stock Company Kyivstar on23 April 2014:
Other comprehensive income for the period, net of tax
11 596
-
President Igor Lytovchenko
Chief Financial Officer
Ibrahim Karam
Deputy Chief Financial Officer/
Chief Accountant
Lesya Samoylovich
Foreign exchange gain, net
Profit before tax
Income tax expense
10
Profit for the year
Other comprehensive income not to be reclassified
to profit and lossin subsequent periods:
Total comprehensive income for the year, net of tax
Earnings per share, UAH
30
3 854 635
4 316 355
293,47
329.71
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
(in thousands of Ukrainian Hryvnia)
Notes
2013
2012
(restated)
ASSETS
Non-current assets
Property, plant and equipment
11
7 032 518
7 213 795
Intangible assets
12
1 127 311
1 166 258
Other non-current assets
13
39 946
65 849
Pre-paid income tax
10
421 326
-
Deferred tax asset
10
201 512
177 330
8 822 613
8 623 232
35 356
69 270
Current assets
Inventories
Trade and other receivables
14
389 149
415 832
Pre-paid income tax
10
855 813
432 624
Pre-paid taxes, other than income tax
26 534
16 374
Prepayments
45 521
88 132
Deferred expenses
16
98 918
108 548
Cash and cash equivalents
17
640 960
1 483 464
29 196
23 543
-
18 711
2 121 447
2 656 498
689
24 378
2 122 136
2 680 876
10 944 749
11 304 108
Other current financial assets
Other current assets
Assets of disposal group classified as held for sale
TOTAL ASSETS
29
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
Notes
2013
2012
(restated)
EQUITY AND LIABILITIES
Equity
Share capital
18
1 009 249
1 009 249
Share premium
18
102 338
102 338
Additional capital
18
132 682
132 682
7 824 466
8 078 637
(370 398)
(370 398)
8 698 337
8 952 508
19 165
42 729
50 035
58 216
-
26 356
69 200
127 301
4 028
8 804
750 617
696 979
Retained earnings
Treasury shares
18
Non-current liabilities
Employee benefit liability
Provisions
20
Other non-currentfinancial liabilities
Current liabilities
Deferred revenue
19
Provisions
20
40 543
287
Taxes payable, other than income tax
21
199 723
174 303
Trade and other payables
22
839 436
1 002 720
Advances received
23
172 601
151 805
Other current liabilities
24
TOTAL EQUITY AND LIABILITIES
170 264
189 401
2 177 212
2 224 299
10 944 749
11 304 108
CONSOLIDATED CASH FLOW STATEMENT
Notes
2013
4 621 552
53 638
(45 092)
5 558 831
Increase in advances received
20 796
2 995
(19 137)
11 440
6 491 542
6 920 658
Interest received
145 826
160 113
Interest paid
(31 972)
(1 984)
(1 636 268)
(836 786)
4 969 128
6 242 001
(Decrease)/increasein other current
liabilities
Depreciation of property, plant and
equipment
9
1 440 087
1 370 511
Impairment of property, plant and
equipment and intangible assets
9
77 218
28 556
Amortisation of intangible assets
9
197 107
160 030
Loss on disposal of property, plant
and equipment, intangible assets and
assets of disposal group classified as
held for sale
9
158 575
198 799
Interest income
9
(140 577)
(162 956)
Unwinding of discount on other current
financial assets
9
-
(441 191)
Interest expense
9
-
1 787
Other finance costs
9
5 095
2 698
-
(1 167)
Movements in provisions and employee benefit liability
9 620
(56)
Unrealised foreign exchange loss
2 780
(3 343)
Decreasein inventories
33 914
53 681
Decreasein trade and other receivables, prepayments and other assets
67 127
95 023
Decrease/(increase) in deferred expenses
9 630
(2 337)
(45 883)
92 449
Working capital adjustments:
(Decrease)/ increase in trade and other payables, other current assets and
taxes payable, other than income tax
2012
(restated)
Increase/ (decrease) in deferred
revenue
Non-cash adjustments to reconcile
profit before tax to net cash flows:
Stock-based compensation expense
2013
(restated)
Operating activities
Profit before tax
Notes
2012
Income tax paid
Net cash flows from operating activities
CONSOLIDATED CASH FLOW STATEMENT (continued)
Notes
2013
2012
(restated)
Investing activities
Purchase of property, plant and equipment
(1 582 005)
(1 763 353)
(149 386)
(290 008)
Reimbursable interest-free financial aid repaid
by related party
-
222 000
Cash received from purchase of assets of
JSC Ukrainian Radiosystems
-
89 245
Proceeds from sale of property, plant and equipment and
assets of disposal group classified as held for sale
32 199
10 806
Outflows torestricted cash
(5 653)
-
(1 704 845)
(1 731 130)
(4 099 832)
(3 977 392)
(33)
(32)
Repayment of loan
-
(51 223)
Proceeds from issue of shares
-
105 088
(4 099 865)
(3 923 559)
(835 582)
587 312
(6 922)
3 346
Purchase of intangible assets
Net cash flows used in investing activities
Financing activities
Dividends paid to equity holders of the parent
Withholding tax paid on dividends
Net cash flows used in financing activities
Net (decrease)/increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents as at 1 January
17
1 483 464
892 806
Cash and cash equivalents as at 31 December
17
640 960
1 483 464
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
\Attributable to the equity holders of the parent
Share capital
(Note 18)
Share premium(Note 18)
Additional
capital
Retained
earnings
Treasury
shares
Total
equity
1 006 499
-
-
10 613 770
(370 398)
11 249 871
Profit for the year (restated)
-
-
-
4 316 355
Total comprehensive income for the year, net of tax(restated)
-
-
-
4 316 355
-
4 316 355
2 750
102 338
-
-
-
105 088
Dividends declared (Note 18)
-
-
-
(3 977 424)
-
(3 977 424)
Share-based payment transactions
-
-
-
(1 167)
-
(1 167)
Contribution from shareholders (Note 18)
-
-
132 682
-
-
132 682
Distributions to shareholders (Note 18)
-
-
-
(2 872 897)
-
(2 872 897)
1 009 249
102 338
132 682
8 078 637
(370 398)
8 952 508
Profit for the year
-
-
-
3 843 039
-
3 843 039
Other comprehensive income
-
-
-
11 596
-
11 596
-
-
-
3 854 635
-
3 854 635
Dividends declared (Note 18)
-
-
-
(4 099 865)
-
(4 099 865)
Other changes
-
-
-
(8 941)
-
(8 941)
1 009 249
102 338
132 682
7 824 466
(370 398)
8 698 337
Balance as at
01 January 2012
Additional issue of shares (Note 18)
Balance as at
31 December 2012(restated)
Balance as at
31 December 2013
4 316 355
1. CORPORATE INFORMATION
Joint Stock Company Kyivstar (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 and home internet 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.
The Company currently has 3 branches located in
Kiev, Odessa and Lviv. During 2013 the Company
closed 3 branches in Dnepropetrovsk, Kharkov and
Simferopol and combined their administrative functions in other branches.
As at 31 December 2013 and 2012 the Company’s
direct shareholders and their respective declared
interests were as follows:
Interest
Number of
shares
VimpelCom Holdings B.V. (Netherlands)
73,804%
13 094 562
VimpelCom Ltd. (Bermuda)
0,004%
700
Treasury shares
26,192%
4 647 127
100,000%
17 742 389
The Company has one wholly owned subsidiary –
subsidiary 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 ‘the Group’.
In August 2013 the Company finalised legal accession ofJoint Stock Company “Ukrainian Radiosystems”(hereinafter referred to as ‘URS’), in which the
Company owned 100% of shares (Note 8).
The Company’s ultimate parent is VimpelCom Ltd., a
company headquartered in Amsterdam, the Netherlands.
2. OPERATING ENVIRONMENT, RISKS, POLITICAL AND ECONOMIC CONDITIONS IN
UKRAINE
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.
In November 2013, the Ukrainian Government declined
to sign the association agreement with the European
Union, which resulted in protests and signs of political
unrest. In January-February 2014, the political unrest
escalated and resulted in the President and majority of
Government officials being dismissed by the Parliament.
The Parliament has initiated certain political reforms, has
appointed a transitional Government and is forming a
set of anti-crisis measures. On 21 March 2014 Ukraine
has signed political part of European Union Association
Agreement.
In March 2014, people in the Autonomous Republic
of Crimea voted in a referendum in favour of seceding from Ukraine and becoming a part of the Russian
Federation. The Crimean parliament declared the
independence. While the referendum and declaration
of independence have been ruled unconstitutional by
the Ukraine’s Constitutional Court, the President of the
Russian Federation and the representatives of Crimea
signed an agreement on the accession of Crimea to
the Russian Federation, which has been ratified by
the constitutional court and the Parliament of the Russian Federation.
The Group servespre-paid and contract subscribers
located in the Crimea, which generated almost 2%
of the Group’s revenues in 2013. As at 31 December
2013, the carrying value of the Group’s property, plant
and equipment located in the Crimea is UAH 200,240
thousand.
Furthermore, from 1 January 2014 to 23April 2014, the
Ukrainian Hryvnia devaluated against major foreign
currencies by approximately 44%, and the National
Bank of Ukraine imposed certain restrictions on purchase of foreign currencies at the inter-bank market.
The international rating agencies have downgraded
sovereign debt ratings for Ukraine. The combination of
the above events has resulted in a deterioration of liquidity and much tighter credit conditions where credit
is available.
Management is monitoring these developments in the
current environment and taking actions where appropriate. Further negative developments in the political,
macroeconomic or international trade conditions may
adversely affect the Group’s operating results and
financial position in a manner not currently determinable.
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
The consolidated financial statements of the Group
have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB).
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the
financial statements of the Company and its wholly-owned subsidiary, subsidiary companyStaravto. The
subsidiary is fully consolidated from the date it was incorporated by the Company. The subsidiary’s financial
statements are preparedat 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.
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 becoming effectiveas
at 1 January 2013:
– IAS 1 Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income
– IAS 19 Employee Benefits (Revised 2011)
– IFRS 7 Financial Instruments: Disclosures– Offsetting Financial Assets and Financial Liabilities
– IFRS 10 Consolidated Financial Statements and IAS
27 Separate Financial Statements
– IFRS 12 Disclosure of Interests in Other Entities
– IFRS 13 Fair Value Measurement
The nature and impact of each applicable new standards and amendment is described below:
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS- PRESENTATION OF ITEMS OF OTHER COMPREHENSIVE INCOME (OCI)
The amendments to IAS 1 change the grouping of
items presented in other comprehensive income
(OCI). Items that could be reclassified (or ‘recycled’)
to profit and loss at a future point in time (for example, net gain on hedge of net investment, exchange
differences on translation of foreign operations, net
movement on cash flow hedges and net loss or gain
on available-for-sale financial assets) would be presented separately from items that will never be reclassified (for example, actuarial gains and losses on
defined benefit plans). The amendment affects the
presentation only and has no impact on the Group’s
financial position or performance.
IAS 19 EMPLOYEE BENEFITS (REVISED 2011)
The IASB has issued numerous amendments to IAS
19. Firstly, the corridor method is removed and, therefore, all changes in the present value of the defined
benefit obligation and in the fair value of plan assets
arerecognized immediately as they occur. Secondly,
the amendment eliminatesthe current ability for the
Group to recognise all changes in the defined benefit
obligation and in plan assets in profit and loss. Thirdly, the expected return on plan assets recognized in
profit and loss is calculated based on the rate used to
discount the defined benefit obligation.
The Group had made changes in the accounting
policy according to IAS 19 (Revised 2011), but did
not apply IAS 19 (Revised 2011) retrospectively as
required by transitional provisions set out in the
revised standard, because the effect on the consolidated financial statements is immaterial.
IAS 19 (Revised 2011) also requires more extensive
disclosures, but these have not been provided, as
the amount of defined employee benefit liability as
at 31 December 2013 is immaterial for the Group’s
consolidated financial statements.
IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES – OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
These amendments require the Group to disclose
information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures
would provide users with information that is useful
in evaluating the effect of netting arrangements on
an entity’s financial position. The new disclosures
are required for all recognized financial instruments
that are set-off in accordance withIAS 32 Financial
Instruments: Presentation. The disclosures also apply
to recognized financial instruments that are subject to
an enforceable master netting arrangement or similar
agreement, irrespective of whether they are set off
in accordance with IAS 32. The amendment affects
presentation only and has no impact on the Group’s
financial position or performance. Please refer to Note
28 for more details.
IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS AND IAS
27 SEPARATE FINANCIAL STATEMENTS
IFRS 10 replaces the portion of IAS 27 Consolidated
and Separate Financial Statements that deals with
consolidated financial statements. It also addresses
the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single
control model that applies to all entities including
special purpose entities. The changes introduced by
IFRS 10 require management to exercise significant
judgement to determine which entities are controlled
and therefore are required to be consolidated by a
parent, compared with the requirements that were in
IAS 27. Based on the analyses performed, IFRS 10
had no impact on the currently held investments of
the Group.
IFRS 12 DISCLOSURE OF INTERESTSIN OTHER ENTITIES
IFRS 12 includes all of the disclosures that were
previously in IAS 27 related to consolidated financial
statements, as well as all of the disclosures that were
previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries,
joint arrangements, associates and structured entities.
A number of new disclosures are required according
to IFRS 12. The Group analysed the requirements of
IFRS 12 and concluded that no additional disclosures
in its consolidated financial statements are required.
IFRS 13 FAIR VALUE MEASUREMENT
IFRS 13 establishes a single source of guidance
under IFRS for all fair value measurements. IFRS 13
does not change when an entity is required to use fair
value, but rather provides guidance on how to measure fair value under IFRS,when fair value is required
or permitted. The new standard had no material impact on how the Group measures fair value or on the
resulting fair value amounts included in these consolidated financial statements. Please refer to Note 27 for
more details.
Several other amendments and interpretations apply
for the first time in 2013. However, they do not impact
the Group’s consolidated financial statements.
5. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
FUNCTIONAL AND PRESENTATION CURRENCIES
The functional and presentation currency of the Company and its subsidiary 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 the transaction first qualifies
for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot exchange rate at the reporting
date.The resulting gains and losses are recognized in
profit and loss. Non-monetary items that were meas-
ured in terms of historical cost in a foreign currency
are retranslated using the exchange rate atthe date of
the initial transaction.
Non-monetary items measured at fair value in a foreign currency are translatedusing the exchange rates
at the date when the fair valueswere determined. The
resulting gains and losses are recognized in line with
the recognition of gain or loss on change in fair value
of the item (i.e., translation difference on items whose
fair value gain or loss is recognized in other comprehensive income or profit and loss is also recognized
in other comprehensive income or profit and loss,
respectively).
REVENUE RECOGNITION AND MEASUREMENT
Revenue is recognized 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 of the authorities.
Revenues primarily comprise provision (sales) of:
– services: revenue from air time charges, interconnection fees, periodic fees, connection and one-time
subscription fees, FTTB internet, fixed lines revenues,
roaming and value added services;
– customer equipment: telephone handsets, modems, etc.
AIR TIME CHARGES
The Company earns air time revenue by providing
its pre-paid and post-paid subscribers with access to
the cellular network and routing their calls through its
network and networks of its roaming partners.
INTERCONNECTION
Revenue from interconnection represents the revenue
earned for the termination of calls from other telecommunication services providers’ networks on the Company’s network.Air time and interconnection revenue
is recognized 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 also include fees for transfer of money
between subscribers’ balances, extra money services
and write-offs of unused advancesof disconnected
subscribers etc.Periodic fees are recognized in the
periodwhen the respective service is rendered.
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 recognized over the
period when the fees are earned, which is the expected period of customer relationship and approximates 9years for contract subscribers and 3years
for pre-paidsubscribers (2012: 9 years and 4 years,
respectively). The expected period of 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 fees for change of subscription type and
transfer of subscriptions from one location to another.
One-time subscription fees are deferred andrecognized over the period when the fees are earned, which
is the subscription validity period or, in case of unlimited validity period, the expected period of customer
relationship, which approximates 9years for contract
subscribers and 3years for pre-paid subscribers
(2012: 9 years and 4 years, respectively).
FTTB INTERNET
Revenue from FTTB services represents fixed monthly charges for the internet access provided to the
Company’s subscribers. Such revenue is recognized
in the period when the respective service is rendered
to subscribers.
FIXED LINES
Revenue from fixed lines services represents monthly
charges to the Company’s subscribers for access to
the fixed telephone lines network and for routing the
subscribers’ calls through this network. Such revenue
is recognized in the period when the respective service is rendered to subscribers.
ROAMING AND ACCESS TO NETWORK
Roaming revenuesand revenues from access to network include(i) charges for services provided to the
Company’s subscribers in the networks of its roaming
partners,(ii) charges for services provided by the Company in its network to subscribers of the Company’s
roaming partners and (iii) charges for access to the
Company’s network by the foreign operators without
termination of calls. Such revenues are recognized in
the period when the respective services are rendered.
VALUE ADDED SERVICES
Value added services include charges for outgoing SMS and MMS, circuit of switched data, packet
switched data (WAP, GPRS, EDGE etc.) and sale of
content to subscribers. Revenues from value added
services are recognized in the period when the respective services are rendered.
CUSTOMER EQUIPMENT SALES
Revenues from sales ofcustomer equipment are recognized when the related significant risks and rewards
are transferred to the buyer.
DISCOUNTS TO ROAMING PARTNERS
Discounts are often provided in the form of cash
payments calculated based on the terms of the agreement with roaming partner and billing data on the
roaming traffic for the period. Discounts are recognized in the period when the discount is earned as a
reduction of revenue of corresponding period.
PRESENTATION
Where the Company’s role in a transaction is a principal, revenue is recognized on a gross basis. In this
case revenue comprises 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 recognized on a net basis
and represents the margin earned. The evaluation
of whether the Company is acting as principal or an
agent is based on the analysis of the substance of
transaction, the responsibility for providing the goods
or services and setting prices,as well as the underlying financial risks 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 consolidated statement of comprehensive income.
DEFERRED REVENUE
Cellular service revenue is recognized on the basis of actual airtime usage by the end customer. Unused time on sold
pre-paid cards is recognized as deferred revenue until the
related services have been provided to the subscribers or
the pre-paid 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 redeemed by the customer. This
is then recognized as revenue over the period that the
award credits are redeemed.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment isstated 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 derecognized
and any remaining net book value is recorded as loss on
disposal.
When the expected cost of decommissioning of an asset
after its use is material to the financial statements, the
present value of the expected cost of decommissioning
of an asset after its use is included into the cost of the
respective asset, if the recognition criteria for a provision
are met. Subsequent increases in decommissioning
liability as a result of change in assumptions (i.e. period
till dismantling, cost of dismantling etc.) are recognized in
the additions to property, plant and equipment. Subsequent decreases in decommissioning liability as a result
of change in assumptions are recognized in transfers and
reclassifications in property, plant and equipment.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset as follows:
DEFERRED CONNECTION COSTS
Initial direct costs incurred in earning connection fees
are deferred over the same period as 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
connection costs exceed the respective connection
fees. Such excess is expensed as incurred.
ADVERTISING COSTS, MARKETING
AND SALES COMMISSIONS
Advertising costs, marketing and sales commissions
are expensed as incurred, unless they form a part of the
costs that are deferred in relation to connection fees as
described above. Expenditureon advertising and promotional activities is recognized as an expense when the
Group has either the right to access the goods or has
received the service.
Category
Local, regional & trunk networks
Mobile telephone network and switches
Radio installations
Buildings
Corporate administrative assets
Useful life
(years)
20
5-15
7
10-30
5-7
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 of the assets, except for vehicles, which
are included in corporate administrative assets, as the
Group does not expect to use vehicles for their entire
economic life.
An item of property, plant and equipment is derecognized
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 derecognized.
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 constructed asset at its cost 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, there are situations that individually
would normally lead the Group to classify a lease
as a finance lease,such as if the lease term covers
more than 75 percent of the estimated economic life
or the present value of the minimum lease 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 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.
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, if any. 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.
BORROWING COSTS
Intangible assets, all of which are determined as
having finite useful lives, are amortised over their
useful economic lives. The amortisation period and
amortisation method for intangible assets is reviewed
at least annually, and adjusted prospectively, if appropriate. 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
5-15
Network and billing software
5-10
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 recognized as other expenses in the consolidated statement of comprehensive income.
INVENTORIES
Inventories are valued at the lower of cost and 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 inventories is below cost. Cost of
inventories used in multiple arrangements is determined
using the weighted average method. Cost of inventories
used in other services and construction of property, plant
and equipment is determined using the first-in, first-out
method (FIFO).
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 asset. All other borrowing costs are
expensed in the period theyoccur. Borrowing costs consist of interest and other costs incurred in connection
FAIR VALUE OF ASSETS AND LIABILITIES
with the borrowing of funds.
Fair value is the price that would be received from
saleof an asset or paid for transfer of a liability in an
INTANGIBLE ASSETS
orderlytransaction between market participants at the
Intangible assets acquired separately are initially
measurement date. The fair value measurement is
measured at cost. Following initial recognition, intangi- based on thepresumption that the sale of the asset or
ble assets are carried at cost less accumulated amor- transfer of the liability takes place either:
tisation and any accumulated impairment losses.
In the principal market for the asset or liability, or
Internally generated intangible assets, excluding
In the absence of a principal market, in the most adcapitalised development costs, are not capitalised and vantageous market for the asset or liability.
expenditure is charged to profit and loss as incurred.
The principal or the most advantageous market must
be accessible to by the Group.
The fair value of an asset or a liability is measured
using the assumptions that market participants would
usewhen pricing the asset or liability, assuming that
market participants act in their economic best interest.
A fair value measurement of a non-financial asset
takes into account a market participant’s ability to
generateeconomic benefits from highest and best use
of the asset or by selling it to another market participantthat would use the asset in its highest and best
use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient
data areavailable to measure fair value, maximising
the use of relevant observable inputs and minimising
the use ofunobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorisedwithin the fair value hierarchy, described as
follows, based on the lowest level input that is significant to the fairvalue measurement as a whole:
Level 1 — Quoted (unadjusted) market prices in
active markets for identical assets or liabilities;
Level 2 — Valuation techniques for which the lowest
level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 — Valuation techniques for which the lowest
level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Groupdetermines
whether transfers have occurred between Levels in the
hierarchy by re-assessing categorisation(based on the
lowest level input that is significant to the fair value measurement as a whole) at the end of eachreporting period.
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 cash-generating 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 recognized in profit and loss.
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 recognized impairment losses may no longer exist or may
have decreased.
If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates
used to determine the asset’s recoverableamount since
the last impairment loss was recognized. 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 recognized
for the asset in prior years. Such reversal is recognized
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 ASSETS
INITIAL RECOGNITION AND MEASUREMENT
Financial assets are classified as financial assets at fair
value through profit and loss, loans and receivables,
held-to-maturity investments, available-for-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.
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 recognized 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, all of which
are classified as loans and receivables in accordance
with IAS 39.
Loans and receivables are non derivative financial
assets with fixed or determinable payments that are
not quoted in an active market. They are initially recognized at fair value plus directly attributable transaction
costs, if any. In the case of transactions with entities
under common control, any excess of nominal amount
over the fair values at initial recognition is charged to
retained earnings.
SUBSEQUENT MEASUREMENT
SUBSEQUENT MEASUREMENT
IMPAIRMENT OF FINANCIAL ASSETS
After initial measurement, loans and receivables 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 fees or costs
that are integral part of the effective interest rate. The
amortisation is included in finance income in the statement of comprehensive income.
FINANCIAL LIABILITIES
INITIAL RECOGNITION AND MEASUREMENT
Financial liabilities are classified as financial liabilities at
fair value through profit and 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 recognized 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.
After initial recognition, trade and other payables with
fixed maturity are subsequently measured at amortised
cost using the effective interest rate method.
Gains and losses are recognized in profit and loss
when the liabilities are derecognized as well as through
the effective interest rate method amortisation process.
Amortised cost is computed using the effective interest
method by taking into account any premium or discount
on acquisition and includes transaction costs and fees
that are an integral part of the effective interest rate.
The effective interest rate amortisation is included in
finance costs in the consolidated statement of comprehensive income.
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 recognized
amounts and there is an intention to settle on a net
basis, or to realise the assets and settle the liabilities
simultaneously.
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 indicatesthat there is a
measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
For financial assets carried at amortised cost, the
Group first assesses whether objective evidence of
impairment exists for each of the 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, recognized 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 recognized in profit and loss for all impaired
financial assets.
Loans and receivables together with the associated
allowance are written off when there is no realistic
prospects of future recovery and/or when the statute
of limitation has expired. If, in a subsequent year, the
amount of the estimated impairment loss increases
or decreases because of an event occurring after the
impairment was recognized, the previously recognized
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 consolidated statement of comprehensive income.
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 derecognized 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 passthrough 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 recognized 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.
FINANCIAL LIABILITIES
A financial liability is derecognized 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 recognized in profit
and loss.
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
assumptions on staff turnover are based on historical
data.
Re-measurements, comprising of actuarial gains and
losses, the effect of the asset ceiling, excluding net interest, are recognized immediately in the statement of
financial position with a corresponding debit or credit
to retained earnings through other comprehensive
income in the period in which they occur. Re-measurements are not reclassified to profit and loss in
subsequent periods.
Past service costs are recognized in profit and loss on
the earlier of:
the date of the plan amendment or curtailment, and
the date that the Group recognises restructuring-related costs.
Net interest is calculated by applying the discount rate to
the net defined benefit liability.
Service costs comprise current service cost, pastservice
cost, gains and losses on curtailments and non-routine
settlements and are recognized in profit and loss.
Any actuarial gains or losses relating to jubilee benefits are recognized in profit and loss in the period in
which they arise.The past service cost is recognized
immediately.
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
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 recognized 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 and 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 recognized for all deductible temporary differences and unused tax losses
carried forward, to the extent that it is probable that
future taxable profit will be available against which the
deductible temporary differences and unused tax losses carried forward can be utilised, except:
when 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 and loss;
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax
assets are recognized only to the extent that it is probable that the temporary differences will reverse in the
foreseeable future and taxable profit will be available
against which the temporary differences can be utilised.
The carrying amount of deferred 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. Unrecognized deferred
income tax assets are reassessed at each reporting date
and are recognized 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 be
applied 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 recognized outside profit and
loss is recognized outside profit and loss. Deferred tax
items are recognized 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 recognized 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 recognized 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 financial statements.
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. Deferred tax
assets are classified as non-current.
CASH AND CASH EQUIVALENTS
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 consist of cash and cash
equivalents as defined above, net of outstanding bank
overdrafts, if any.
PROVISIONS
Provisions are recognized 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 recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating
to any provision is presented in profit and loss net of any
reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pretax rate that reflects, where appropriate, the risks specific
to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognized
as a finance cost.
CONTINGENT ASSETS AND LIABILITIES
A contingent asset is not recognized in the consolidated financial statements, but disclosed when an inflow
of economic benefits is probable.
Contingent liabilities are not recognized in the consolidated 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.
TREASURY SHARES
Treasury shares are recognized at purchase price
and are deducted from equity. No gain or loss is
recognized in the profit and loss on the purchase,
sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration, if shares are reissued,
is recognized in share premium. Voting rights related
to treasury shares are nullified for the Group and no
dividends are allocated to them.
EVENTS AFTER THE REPORTING PERIOD
Events after the reporting period 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 period
that are not adjusting events are disclosed in the notes
when material.
TRANSACTIONS WITH THE PARENT
AND ENTITIES UNDER COMMON CONTROL
The transactions with ultimate parent and entities under
common control are recognized in the consolidated
financial statements at fair value. The difference between fair value and the amount of the transaction is
recognized as contribution from or distribution to the
shareholders through the Group’s equity.
ВПЛИВ НА КОНСОЛІДОВАНИЙ ЗВІТ ПРО СУКУПНИЙ ДОХІД
(ЗМЕНШЕННЯ ПРИБУТКУ):
2012
(as previouslyreported)
Correction of error
2012 (restated)
(2 784 284)
(12 982)
(2 797 266)
Profit before tax
5 571 813
(12 928)
5 558 831
Profit for the year
4 329 337
(12 928)
4 316 355
4 329 337
(12 928)
4 316 355
330,70
(0,99)
329,71
Earnings per share, UAH
IMPACT ON CONSOLIDATED STATEMENT
OF FINANCIAL POSITION:
RECLASSIFICATION OF COMPARATIVE INFORMATION AND
CORRECTION OF ERROR
In 2013 the Company made certain reclassifications of
comparative information for 2012 in order to conform
with 2013 presentation. Also, in 2013 the Group identified error in the previously issued financial statements
for the year ended 31 December 2012.It was caused by
malfunction in the billing system and affected the allowance for doubtful accounts of pre-paid subscribers. The
error was corrected retrospectively by adjusting 2012
financial statements for UAH 12,982 thousand.
The impact on the consolidated financial statements is
provided in the tablesbelow:
(as previously
reported)
Correction of error
(restated)
428 814
(12 982)
415 832
11 317 090
(12 982)
11 304 108
Retained earnings
8 091 619
(12 982)
8 078 637
TOTAL EQUITY AND LIABILITIES
11 317 090
(12 982)
11 304 108
Current assets
TOTAL ASSETS
Equity
Consolidated statement of changes in equity has been adjusted to comply with the correction introduced tothe
consolidated statement of financial position and the consolidated statement of comprehensive income.
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 an 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 pre-paid and post-paidsubscribers 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 recognized 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 man-
agement regularly reviews its estimates in respect of
customer relationship period, based on the historicalexperience and its plans for future development of
the Company. As at 31 December 2013 the management estimated the customer relationship period to be
equal to 9years for contract subscribers and 3 years
for pre-paid subscribers (2012: 9 years and 4 years,
respectively). As a result of change in the abovementioned accounting estimates starting from 1 January
2013, the Group’s profit before tax for the year 2013increased by UAH 13,166thousand.
DEFERRED TAX ASSETS
Deferred tax assets are recognized 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 recognized, based upon the
likely timing and the level of future taxable profits together with future tax planning strategies. Please refer
to Note 10 for additional information on the Group’s
tax position.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation methods are based
on management estimates of the expected useful
lives 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 lives and in the amortisation or
depreciation charges. Some 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.
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Group has made significant investments in property, plant and equipment and intangible assets.
These assets are tested for impairment 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 inmarketing 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.
7. IFRSS AND IFRIC INTERPRETATIONS
NOT YET EFFECTIVE
A number of new standards, amendments to standards and interpretations are not yet effective for the
year ended 31 December 2013, and have not been
applied in preparing these consolidated financial
statements.
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 27 Separate Financial Statement, IFRS 10 Consolidated Financial Statements and IFRS 12 Disclo-
sure of Interests in Other Entities - Amendments for
investment entities
These amendements provide an exemption from consolidation of subsidiaries for entities which meet the definition of an ‘investment entity’, such as certain investment
funds. Instead, such entities would measure their investment in particular subsidiaries at fair value through profit
and loss in accordance with IFRS 9 or IAS 39. It is not
expected that these amendements would be relevant to
the Group, since none of the entities in the Group would
qualify to be an investment entity under IFRS 10.
IAS 32 Financial Instruments: Presentation- Offsetting
Financial Assets and Financial Liabilities
These amendments clarify the meaning of “currently
has a legally enforceable right to set-off”. The amendmentsalso clarify the application of the IAS 32 offsetting
criteria to settlement systems (such as central clearing
housesystems) which apply gross settlement mechanisms that are not simultaneous. These amendments
are notexpected to impact the Group’s financial position
or performance and become effective for annual periodsbeginning on or after 1 January 2014.
IAS 36 Impairmentof Assets: Recoverable Amount Disclosures for Non-Financial Assets – Amendments
These amendments remove the unintended consequences of IFRS 13 on the disclosures required under
IAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or
CGUs for which impairment loss has been recognized
or reversed during the period. These amendments are
effective retrospectively for annual periods beginning on
or after 1 January 2014 with earlier application permitted,
provided IFRS 13 is also applied. These amendments
are not expected to impact the Group’s financial position
or performance.
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 and financial liabilities as defined in IAS 39. In December 2011 the
IASB issued Mandatory Effective Date and Trasition Disclosures (amendments to IFRS 9 and IFRS 7) according
to which entities shall apply IFRS 9, as amended, for
annual periods beginning on or after 1 January 2015. In
subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the
classification and measurement of the Group’s financial
assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group
will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
IAS 24 Related Party Disclosures:Key management
personnel -Amendments
The amendment clarifies that an entity providing key
management personnel services to the reporting entity
or to the parent of the reporting entity is a related party
of the reporting entity.The amendment affects presentation of related party disclosure only and has no impact
on the Group’s financial position or performanceand
becomes effective for annual periods beginning on or
after 1 January 2014.
IFRS 2 Share-based Payment: Definition of ‘vesting condition’-Amendments
These amendments clarifythe definitions of ‘vesting
condition’ and ‘market condition’ and add definitions for
‘performance condition’ and ‘service condition’ (which
were previously part of the definition of ‘vesting condition’).These amendments are not expected to impact the
Group’s financial position or performance and become
effective for annual periods beginning on or after 1 January 2014.
IFRS 13 Fair Value Measurement: Short-term receivables and payables–Amendments
These amendments clarify that issuing IFRS 13 and
amending IFRS 9 and IAS 39 did not remove the ability
to measure short-term receivables and payables with
no stated interest rate at their invoice amounts without
discounting if the effect of not discounting is immaterial. These amendments are not expected to impact the
Group’s financial position or performance and become
effective for annual periods beginning on or after 1
January 2014.
IAS 19 Employee Benefits: Employee Contributions –
Amendments
These amendments apply to contributions from employees or third parties to defined benefit plans. The
objective of the amendments is to simplify the accounting for contributions that are independent of the
number of years of employee service, for example,
employee contributions that are calculated according
to a fixed percentage of salary.These amendments
are not expected to impact the Group’s financial position or performance and become effective for annual
periods beginning on or after 1 January 2014.
IAS 39 Financial Instruments: Recognition and Measurement– Amendments
Under the amendments there would be no need to
discontinue hedge accounting, if a hedging derivative
was novated, provided certain criteria are met. These
amendments are not expected to impact the Group’s
financial position or performance and become effective for annual periods beginning on or after 1 January
2014.
IFRIC 21 Levies
This Interpretation addresses the accounting for a
liability to pay a levy, if that liability is within the scope
of IAS 37. It also addresses the accounting for a liability to pay a levy whose timing and amount is certain.
This Interpretation does not address the accounting
for the costs that arise from recognising a liability to
pay a levy. Entities should apply other standards to
decide whether the recognition of a liability to pay a
levy gives rise to an asset or an expense.This interpretation is not expected to impact the Group’s financial position or performance and become effective for
annual periods beginning on or after 1 January 2014.
The Group concluded that the following new standards and amendments that are not yet effective will
have no impact on its financial position, financial performance or disclosures in the consolidated financial
statements:
IFRS 3 Business Combinations (Amendments)
IFRS 8 Operating Segments (Amendments)
IAS 16 Property, Plant and Equipment (Amendments)
IAS 38 Intangible Assets (Amendments)
IAS 40 Investment Property (Amendments)
THE FAIR VALUES OF IDENTIFIABLE ASSETS AND LIABILITIES
OF JSC UKRAINIAN RADIOSYSTEMS WERE AS FOLLOWS:
At the acquisitiondate
Assets
8. ACQUISITION OF ASSETS AND LIABILITIES OF JSC “UKRAINIAN RADIOSYSTEMS”
AND ITS CESSATION
On 1 October 2012 the Company entered into the
agreements with the shareholders of Joint Stock
Company Ukrainian Radiosystems (‘URS’) to acquire
100% shares in this entity. All counterparties of these
agreements are entities under common control of the
ultimate parent. The URS shares were transferred to
the Company on 1 October 2012.
At the date of acquisition URS did not constitute a
business in the meaning of the definition set out in
IFRS 3 Business Combinations, as it did not represent
an integrated set of activities and assets that is capable of being conducted and managed for the purpose
of providing a return in the form of dividends, lower
costs or other economic benefits directly to investors.
Thus, the acquisition was recognized in these consolidated financial statements as the acquisition of identifiable assets and liabilities at their relative fair values
as at 1 October 2012.
At the date of transaction the amounts due by URS
to the Company comprised (1) accounts payablefor national roaming at carrying amount which was
equal to its fair value of UAH200,071 thousand and
(2) outstanding balance of short-term reimbursable
interest-free financial aid granted by the Company in
2010-2011 at carrying amount which was equal to its
fair value of UAH 2,740,117 thousand. The abovementioned debts together with cash consideration of UAH
5 paid to the former shareholders of URS comprise
consideration for the acquisition of assets and liabilities of JSC Ukrainian Radiosystems.
Non-current assets
Intangible assets
4 131
Current assets
Inventories
Pre-paid taxes, other than income tax
742
198 806
118
Other current assets
18 918
89 425
Assets of disposal group classified as held for sale
22 565
334 705
Liabilities
Non-current liabilities
Other non-current financial liabilities
(25 859)
Current liabilities
Deferred revenue
(184)
Provisions
(517)
Taxes payable, other than income tax
(53 025)
(52 931)
Other current liabilities
(122 214)
(254 730)
Net assets at fair value
Consideration for the assets and liabilities acquired
79 975
2 940 188
As at 30 August 2013 JSC “Ukrainian Radiosystems” was legally dissolved pursuant to
Ukrainian legal requirements. This event had no impact on the 2013 financial statements,
as accession of URS in 2012 was accounted as acquisition of identifiable assets and liabilities at their relative fair values.
9. REVENUES AND EXPENSES
REVENUES
2013
2012
Periodic fees
4 041 536
3 815 061
Air time charges
3 384 391
3 991 875
Interconnection
2 586 783
2 346 608
Value added services
1 438 073
1 192 135
Roaming and access to network
411 512
643 726
FTTB internet
407 184
273 553
Roaming (subscribers)
228 457
229 773
Customer equipment sales
177 816
234 577
Connection and one-time subscription fees
165 337
194 508
Fixed lines
127 950
106 921
Other revenue
122 111
103 559
13 091 150
13 132 296
COST OF MATERIALS, TRAFFIC CHARGES AND OTHER DIRECT COSTS
2013
2012
1 836 236
1 662 190
Cost of materials and services
517 062
469 389
Access to network
245 014
355 729
Roaming
93 051
115 658
Leased line costs
44 568
60 560
2 735 931
2 663 526
2013
2012
Salaries, holiday pay and other employee benefits
677 548
743 745
Social security taxes
198 650
196 349
Medical insurance
29 244
32 772
Training
1 173
672
906 615
973 538
Interconnection
SALARIES AND PERSONNEL COSTS
The average number of employees of the Group in 2013 is4,149 (2012: 4,356).
OTHER OPERATING EXPENSES
2013
2012 (restated)
Repair and maintenance
814 299
776 021
Marketing and sales commission
495 542
396 814
Local taxes and non-refundable VAT
462 009
387 715
Operating leases of building, land and equipment
410 130
399 219
Electricity
254 718
220 467
Advertising
228 694
241 717
Consultancy fees and external personnel
187 062
122 308
Insurance
100 932
92 466
Materials and supplies
35 778
34 739
Bad debts (i)
32 378
41 587
Base station audit and licenses fee
25 638
33 104
Business trip expenses
18 246
15 622
Postage, freight, distribution and telecommunication
6 929
9 030
Bank charges
2 965
2 572
27 237
23 885
3 102 557
2 797 266
(І) The amountfor 2012 does not correspond to previously issued financial statements and reflectscorrectionof error,please
refer to Note 5.
OTHER EXPENSES
2013
2012
158 575
198 799
Contributions and donations
2 712
3 309
Other expenses
3 074
1 665
164 361
203 773
Loss on disposal of property, plant and equipment, intangible assets and
assets of disposal group classified as held for sale
AMORTISATION, DEPRECIATION AND IMPAIRMENT LOSSES
Details of amortisation, depreciation and impairment losses are as follows:
Property, plant and equipment
Depreciation and amortisation
Impairment losses, net of reversals
Intangible assets
2013
2012
2013 р.
2012
1 440 087
1 370 511
197 107
160 030
77 218
28 556
-
-
1 517 305
1 399 067
197 107
160 030
In 2013 the Group recognized impairment losses on property,
plant and equipment in the amount of UAH 82,518thousand
(2012: UAH 37,504 thousand), based on internal indications
of impairment forvarious individual components of network
equipment, as the Group did not plan to use this equipment in
future. Assets identified as no longer in use were written down
to their recoverable amounts, which were based on value in
use determined for individual assets, usually zero.
In addition, in 2013 the Group recognized reversal of impairment losses in respect of network equipment in the amount
ofUAH 5,300thousand (2012: UAH 8,948 thousand) as a
result of changes in plans for future usage of previously impaired network equipment in accordance with adjusted capital
expenditure budgets.
FINANCE INCOME
10. INCOME TAX
2013
2012
Interest income
140 577
162 956
Total interest income
140 577
162 956
-
441 191
140 577
604 147
2013
2012
Interest charges related to bank loans
-
1 290
Interest expenses related to non-current liabilities
-
497
Total interest charges
-
1 787
5 095
2 698
5 095
4 485
Unwinding of discount on other current financial
assets
FINANCE COSTS
Other finance costs
The Group’s income was subject to taxation in Ukraine only. In 2010, the Ukrainian Parliament approved the Tax Code, which superseded the Law of Ukraine
‘On Corporate Income Tax’ starting from 1 April 2011. 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. During the year of 2013,
corporate income tax was levied on taxable income less deductible expenses
at a rate of 19%.The On 19 December 2013 the Ukrainian Parliament approved
amendments to the Tax Code of Ukraine, according to which the period of decrease in income tax rate to 16% has been changed. The Company calculated
deferred tax assets and liabilities as at 31 December 2013 according to the tax
rates established by the Tax Code enacted at the reporting date.
THE MAJOR COMPONENTS OF INCOME TAX EXPENSE
FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012
ARE:
2013
2012
802 695
1 046 815
Relating to origination and reversal of temporary
differences
(24 182)
195 661
Income tax expense
778 513
1 242 476
Current income tax:
Current income tax charge
Deferred tax:
RECONCILIATIONS BETWEEN TAX EXPENSE AND THE
PRODUCT OF ACCOUNTING PROFIT MULTIPLIED BY
THE TAX RATE FOR THE YEARS ENDED 31 DECEMBER
2013 AND 2012 ARE AS FOLLOWS:
DEFERRED TAX ASSETS AND LIABILITIES RELATE
TO THE FOLLOWING ITEMS IN 2013:
31-Dec-13
Recognized
inprofit and
loss
31-Dec-12
8 300
8 300
-
689
689
-
Deferred expenses (ІІІ)
12 127
(1 474)
13 601
Trade and other receivables (ІV)
1 462
(1 637)
3 099
22 578
5 878
16 700
Property, plant and equipment (I)
-
(31 198)
31 198
Intangible assets (I)
-
(18 356)
18 356
Other current liabilities (IV)
33 086
(1 773)
34 859
Employee benefit liability (III)
3 792
(4 717)
8 509
191
(61)
252
Advances received and deferred revenue (III)
36 611
(1 597)
38 208
Inventories (II)
3 246
2 414
832
Trade and other payables (III)
39 300
(10 824)
50 124
Provisions (III)
8 006
(1 309)
9 315
-
(2 377)
2 377
99 858
91 766
8 092
224 090
21 968
202 122
-
8 092
(8 092)
201 512
24 182
177 330
Deferred tax liabilities:
2013
2012
(restated)
Accounting profit before tax (І)
4,621,552
5 558 831
Income tax at actual rate (2013: 19%; 2012: 21%) (І)
878 095
1 167 355
Non - taxable income for tax purposes
(5 395)
(13 756)
Non - deductible expenses for tax purposes (І)
51 633
48 333
-
28 350
Change in estimates of deferred tax asset on losses carried forward
(175 338)
-
Other changes (reassessment of temporary differences,
effect of changes in tax rules, effect of changes in tax
rates)
29 518
12 194
Taxable income not recognized in financial accounting
Property, plant and equipment (І)
Intangible assets (І)
Deferred tax assets:
Prepayments (III)
778 513
1 242 476
(I) The amounts for 2012 do not correspond to previously issued financial statements and reflect correctionof error as described in Note 5.
Taxes payable, other than income tax (III)
Accumulated tax losses (V)
Unrecognized portion of the deferred tax assets
Net deferred tax asset
DEFERRED TAX ASSETS AND LIABILITIES RELATE
TO THE FOLLOWING ITEMS IN 2012:
31-Dec-12
Recognized inprofit and loss
Recognized in equity
31-Dec-11
13 601
(3 794)
-
17 395
-
(627)
-
627
3 099
(4 127)
-
7 226
16 700
(8 548)
-
25 248
Property, plant and equipment (I)
31 198
(73 517)
-
104 715
Intangible assets (I)
18 356
(9 551)
-
27 907
Other current
financial assets (IV)
-
(92 650)
(28 496)
121 146
Other current liabilities (IV)
34 859
(1 812)
-
36 671
(III)
8 509
(18)
-
8 527
252
252
-
-
38 208
(8 897)
-
47 105
832
792
-
40
(III)
50 124
(3 419)
-
53 543
Provisions (III)
9 315
4 568
-
4 747
Taxes payable, other than
income tax (III)
2 377
2 377
-
-
-
(22 334)
-
22 334
8 092
8 092
-
-
202 122
(196 117)
(28 496)
426 735
Unrecognized portion of
the deferred tax assets
(8 092)
(8 092)
-
-
Net deferred tax asset
177 330
(195 661)
(28 496)
401 487
Deferred tax liabilities:
Deferred expenses (III)
Prepayments (III)
Trade and other receivables (IV)
Deferred tax assets:
Prepayments (III)
Advances received and
deferred revenue (III)
Inventories (II)
Other liabilities (IV)
Accumulated tax losses
(V)
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;
(III) Advances received and deferred revenue, prepayments and deferred expenses, employee benefit liability, trade and other payables, provisions, taxes payable,
other than income tax – differences in period of recognition;
(IV) Trade and other receivables, other current financial assets, other current
liabilities and other liabilities – differences in measurement and recognition principles;
(V) Accumulated tax lossescomprise tax losses in the amount of UAH 967,880
thousand accumulatedby JSC “Ukrainian RadioSystems” (“URS”) by the date
of its liquidation. In 2013 the Company recognized deferred tax assets of UAH
175,338 thousand on accumulated tax losses inherited from URS, UAH 75,480
thousand of which were utilisedwithin 2013.
As at 31 December 2013 the Company did not recognise deferred tax asset in respect of temporary differences of UAH 30,612thousand (2012: UAH 27,581 thousand) related tothe investment in its subsidiary Staravto because it is not probable
that the temporary difference will reverse in the foreseeable future.
As at 31 December 2013 the current and non-current pre-paid income tax in total
amount of UAH 1,277,139thousand were related to dividends payments made
by the Company in 2013 which were subject to 25% prepayment of income tax
in accordance with the requirements of Ukrainian legislation. Pre-paid income
tax inthe amount of UAH 421,326 thousand is not expected to be used within the
next twelve months and was classified as a non-current asset as at 31 December
2013.
11. PROPERTY, PLANT AND EQUIPMENT
THE MOVEMENT OF PROPERTY, PLANT AND
EQUIPMENT IS AS FOLLOWS:
Local, regional &
trunk networks
Radio
installa-tions
Buildings
Land
Corporate administ-rative assets
Construction in progress,
uninstalled and dismantled
equipment (II)
Total
923 595
6 829 127
2 825
594
1 460 192
106 511
872 199
1 566 508
14 583 726
Additions
139
55 153
26 127
5 346
20
11 477
1 622 653
1 720 915
Disposals
-
(594 078)
(147
726)
(12 367)
-
(50 033)
(88 019)
(892 223)
90 880
779 815
245 572
286 327
-
116 245
(1 523 590)
(4 751)
1 014 614
7 070 017
2 949
567
1 739 498
106 531
949 888
1 577 552
15 407 667
Additions
1 616
48 600
2 662
1 108
-
10 618
1 443 095
1 507 699
Disposals
(4)
(597 572)
(109
444)
(41 980)
-
(22 866)
(40 486)
(812 352)
74 965
1 089 598
299 323
87 840
1
77 724
(1 644 646)
(15 195)
1 091 191
7 610 643
3 142
108
1 786 466
106 532
1 015 364
1 335 515
16 087 819
Cost:
At 1 January 2012.
Transfers,re-classifica-tions and
other changes (I)
At 31 December 2012
Transfers,re-classifica-tions
and other changes (I)
At 31 December 2013
PROPERTY, PLANT AND EQUIPMENT:
Local, regional&
trunk networks
Radio installa-tions
Buildings
Land
Corporate
administ-rative
assets
Construction in progress, uninstalled and
dismantled equipment
(ii)
Total
Accumulated depreciation and impairment losses:
At 1 January 2012
205 196
4 002 180
1 763 789
308 983
-
623 577
585 128
7 488 853
Depreciation charge for the year
(Note 9)
48 456
774 518
350 185
64 393
-
38 820
94 139
1 370 511
Impairment (Note 9)
-
-
-
-
-
-
28 556
28 556
Disposals
-
(479 209)
(122 081)
(4 453)
-
(44 617)
(42 884)
(693 244)
other changes (i)
-
31 226
-
-
-
-
(32 030)
(804)
At 31 December 2012
253 652
4 328 715
1 991 893
368 923
-
617 780
632 909
8 193 872
Depreciation charge for the year
(Note 9)
52 710
828 474
371 146
77 566
-
76 347
33 844
1 440 087
Impairment (Note 9)
-
-
-
-
-
77 218
77 218
Disposals
-
(478 412)
(91 872)
(32 619)
-
(19 283)
(34 120)
(656 306)
(603)
191 602
25 410
26 030
-
(43 980)
(198 029)
430
305 759
4 870 379
2 296 577
439 900
-
630 864
511 822
9 055 301
At 1 January 2012
718 399
2 826 947
1 061 805
1 151 209
106 511
248 622
981 380
7 094 873
At 31 December 2012
760 962
2 741 302
957 674
1 370 575
106 531
332 108
944 643
7 213 795
At 31 December 2013
785 432
2 740 264
845 531
1 346 566
106 532
384 500
823 693
7 032 518
other changes (i)
At 31 December 2013
-
Net book value:
(I) Transfers, reclassifications and other changes include items transferred to
intangible assets and to/from assets of disposal group classified as held for
sale, please refer to Note 29 for further details;
(ІІ) Temporarily dismantled equipment is continued to be depreciated over
the estimated remaining useful life.
As at 31 December 2013 historical cost of fully depreciated items comprised UAH
4,455,982 thousand (2012: UAH 3,068,696 thousand).
12. INTANGIBLE ASSETS
THE MOVEMENT OF INTANGIBLE ASSETS IS AS FOLLOWS:
Licenses
Network and billing
software
Total
At 1 January 2012
318 101
3 118 610
3 436 711
Additions
168 670
278 978
447 648
Disposals
(366)
(41 098)
(41 464)
486 405
3 356 490
3 842 895
Additions
-
155 866
155 866
Disposals
(605)
(85 111)
(85 716)
16
18 712
18 728
485 816
3 445 957
3 931 773
At 1 January 2012
163 701
2 389 510
2 553 211
Amortisation charge for the year(Note 9)
36 684
123 346
160 030
(366)
(36 238)
(36 604)
At 31 December 2012
200 019
2 476 618
2 676 637
Amortisation charge for the year(Note 9)
48 457
148 650
197 107
Disposals
(603)
(68 524)
(69 127)
Transfers, reclassifications and other
changes (І)
(116)
(39)
(155)
247 757
2 556 705
2 804 462
At 1 January 2012
154 400
729 100
883 500
At 31 December 2012
286 386
879 872
1 166 258
At 31 December 2013
238 059
889 252
1 127 311
Cost:
At 31 December 2012
Transfers, reclassifications and other
changes (І)
At 31 December 2013
Accumulated amortisation and impairment
losses:
Disposals
At 31 December 2013
Net book value:
(І) Transfers, reclassifications and other changes in 2013 include items transferred from property, pland and
equipment.
(ІІ) As at 31 December 2013 historical cost of fully amortised intangible assets comprised UAH 1,510,224
thousand (2012: UAH 1,517,775 thousand).
THE GROUP’S MAJOR LICENSES AS AT 31 DECEMBER ARE AS FOLLOWS:
License #
Coverage
License
Acquisi-tion date
Expira-tion date
Net book valueas at 31
December 2013
Net book valueas at 31
December 2012.
N/A
National
1800 MHz (GSM) frequencies usage licenses
(І)
81 951
97 222
N/A
National
900 MHz (GSM) frequencies
usage licenses
(ІІ)
97 675
122 810
ЛВ № 593094
National
900 MHz (GSM) cellular
license
Oct-11
Oct-26
8 016
8 641
АВ № 593093
National
1800 MHz (GSM) cellular
license
Oct-11
Oct-26
8 016
8 641
АГ № 506983
Interna-tional
International communication
(iii)
Aug-04
Aug-19
3 391
3 990
АГ № 506984
Inter city
Inter city communication (iii)
Aug-04
Aug-19
3 461
4 072
АГ № 506986
City
Fixed city communication (iii)
Aug-10
Aug-15
459
734
National
Other licenses
Dec-03
Jul-27
35 090
40 276
238 059
286 386
N/A
(І) 1800 MHz (GSM) frequencies usage licenses comprise licenses that were acquired in the period from February 2001 to December 2012.The average period
of validity is 13 years;
(ІІ) 900 MHz (GSM) frequencies usage licenses comprise licenses that were acquired in the period from June 1999 to December2012. The average period of
validity is 10 years;
(ІІІ) In April 2011 the National Commission for the State Regulation of Communication and Informatization has reissued licenses previously granted to Kyivstar
due to the change of the Company’s legal form from closed to privatejoint stock company pursuant to the amendments introduced to the Ukrainian legislation on
joint stock companies.
13. OTHER NON-CURRENT ASSETS
OTHER NON-CURRENT ASSETS ASAT 31 DECEMBER ARE AS FOLLOWS:
Prepayments for property, plant and equipment
Prepayments for intangible assets
Other non-current assets
2013
2012
36 788
60 055
218
1 212
2 940
4 582
39 946
65 849
14. TRADE AND OTHER RECEIVABLES
TRADE AND OTHER RECEIVABLES CONSIST
OF THE FOLLOWING AS AT31 DECEMBER:
2013
2012
(restated)
Trade receivables - interconnection and access to
network
147 711
209 554
Trade receivables – subscribers
120 401
120 317
Trade receivables – roaming
79 380
53 607
Trade receivables - dealers for pre-paid cards and
packages
76 180
61 897
Interest receivable
2 650
7 899
Other receivables
20 030
14 077
446 352
467 351
(57 203)
389 149
Allowance for impairment (Note 15)
2013
2012
(restated)
UAH
205,469
219,668
(51 519)
EUR
121,100
110,556
415 832
USD
62,580
85,608
As at 31 December 2013 and 2012 trade and other receivables are non-interest bearing and are
settled in the normal course of business.
15. RECONCILIATION OF ALLOWANCE ACCOUNTS
THE RECONCILIATION OF CHANGES IN ALLOWANCE ACCOUNTS IS
AS FOLLOWS:
Prepayments
Total
As at 1 January 2012
55 551
73
55 624
Charge for the year (І)
45 611
43
45 654
Utilised
(45 576)
(4)
(45 580)
Unused amounts reversed
(4 067)
-
(4 067)
As at 31 December 2012 (І)
51 519
112
51 631
Charge for the year
35 572
1 377
36 949
Utilised
(25 366)
-
(25 366)
(4 522)
(49)
(4 571)
57 203
1 440
58 643
(І) Theamounts for 2012 do not correspond to previously issued financial statements and reflect
correction of error as described in Note 5
In 2013 bad debt expense in the amount of UAH 32,378thousand (2012: 41,587 thousand) is included in other operating expenses, please refer to Note 9.
16. DEFERRED EXPENSES
AS AT 31 DECEMBER DEFERRED EXPENSES CONSIST
OF THE FOLLOWING:
2013
2012
Deferred connection costs (І)
68 459
76 080
Витрати майбутніх періодів на стартові пакети і картки
поповнення рахунків (ІІ)
30 459
32 468
98 918
108 548
(І) As at 31 December 2013 and 2012 deferred connection costs mainly consisted of costs of start packages, dealers bonuses related to connection of new
subscribers and cost of Wi-Fi routerslimited to the amount of respective deferred
connection fees;
(ІІ) 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:
2013
2012
At 1 January
76 080
90 789
Deferred during the year
76 588
40 850
(84 209)
(55 559)
68 459
76 080
Released to profit and loss
At 31 December
17. CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS CONSIST OF THE FOLLOWING
AS AT 31 DECEMBER:
2013
2012
Short-term deposits
543 529
1 122 265
Cash at banks
97 403
361 171
Cash on hand
28
28
640 960
1 483 464
AS AT 31 DECEMBER CASH ON HAND AND CASH
AT BANKSARE DENOMINATED IN THE FOLLOWING CURRENCIES:
2013
2012
UAH
89 153
256 650
USD
5 452
8 015
EUR
2 826
96 534
97 431
361 199
In 2013 and 2012 cash at current bank accounts earned interest at fixed rates
varying from 2%to 13% per annum.
AS AT 31 DECEMBER SHORT-TERM DEPOSITS SPLIT BY
CONTRACTUAL MATURITY, CURRENCY AND INTEREST
RATE EARNED IS AS FOLLOWS:
Currency
UAH
USD
EUR
Maturity date
Interest rate p.a
2013
2012
0-30 days
18-27%
359 200
1 013 000
31-60 days
20%
116 000
-
475 200
1 013 000
0-30 days
3.5-8%
3 197
109 265
61-92 days
7-8%
28 695
-
31 892
109 265
36 437
-
36 437
-
543 529
1 122 265
31-60 days
5%
18. EQUITY
SHARE CAPITAL AND SHARE PREMIUM
DIVIDENDS DECLARED
DISTRIBUTIONS TO THE SHAREHOLDERS
As at 31 December 2013 the authorised and fully paid
share capital comprised 17,742,389ordinary shares
(2012: 17,742,389 ordinary shares) at a par value of
UAH 50each. 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.
On 22 November 2011 the Company’s General Meeting of Shareholders has approved the additional issue
of 55,000 shares with nominal value of UAH 50 each.
In February 2012 these shares were placed with the
existing shareholder - VimpelCom Holdings B. V.
in accordance with para. 22 of Law of Ukraine ’On
Joint Stock Companies’ at their market price of UAH
1,910.69 per share determined by an independent appraiser appointed by the Company. In return for these
shares, VimpelCom Holdings B.V. has invested into
the Company USD 13,153 thousand, of which USD
13,152 thousand were received as payment for 54,997
ordinary shares, which comprised UAH 105,082 thousand, based on the official exchange rate of the National Bank of Ukraine (‘NBU’) at the date of payment
(7 February 2012), and USD 717.63 were received as
payment for 3 ordinary shares, which comprised UAH
5,732, based on the official NBU exchange rate at the
date of payment (17 February 2012).
As a result of the additional issue of shares, the Company’s share capital was increased by UAH 2,750
thousand, while share premium was increased by
UAH 102,338 thousand.
In 2013, the Company has declared dividends in
total amount of UAH 4,099,865 thousand (UAH
313,08 per share) (2012: 3,977,424 thousand (UAH
303,73per share)).As at 31 December 2013 and 2012
dividends declared were fully paid by the Company
to its shareholders in cash, net of withholding tax.
Contribution from shareholders - Radio frequency
licenses re-issued by the National Commission for
the State Regulation of Communication and Infomatisation
In late 2011, the Company and JSC Ukrainian Radiosystems (‘URS’) jointly applied to the state regulator
– the National Commission for the State Regulation
of Communication and Infomatization(‘NCSRCI’) to
legally re-register rights for usage of radio frequencies resources owned by URS in favour of Kyivstar.
On 19 March 2012 NCSRCI re-issued these licenses
to Kyivstar and the Company, in its turn, paid only
fees for paper blanks. Taking into consideration
that the Company and URS were the entities under
common control, at the date of transactionKyivstar
recognized these licenses at their fair value of UAH
132,682 thousand as a contribution from the shareholders recorded in additional capital. The fair value
of the licenses was determined by reference to the
fixed rates charged by the NCSRCI for the issue of
licenses with similar terms.
In 2010-2011 the Company has provided to JSC
Ukrainian Radiosystems short-term reimbursable interest-free financial aid which at initial recognition was
accounted for at its fair value. Loss on initial recognition at fair value was charged directly to equity (net
of deferred tax effect) as distribution to shareholders.
In 2012 JSC Ukrainian Radiosystems has early redeemed a part of the debt of UAH 222,000 thousand.
Therewith, the difference between the fair value and
nominal amount of the debt repaid of UAH 15,812
thousand was recorded as distribution to the shareholders.
Besides this, the balance of deferred income tax asset
(related to the above interest-free financial aid) recognized in equity as at 1 October 2012 comprised UAH
28,496 thousand. This balance was reversed through
equity as a distribution to the shareholders since the
financial aid was included in the consideration paid for
the acquisition of assets and liabilities of JSC Ukrainian Radiosystems.
On 1 October 2012 the Company acquired 100%
shares of the entity under common control JSC
Ukrainian Radiosystems. The difference between
the consideration paid for the assets and liabilities
acquired and their fair values in the amount of UAH
2,860,213 thousand was recognized in equity as distribution to the shareholders.
19. DEFERRED REVENUE
AS AT 31 DECEMBER DEFERRED REVENUE CONSISTS
OF THE FOLLOWING:
2013
2012
Deferred revenue - dealers and subscribers (І)
571 396
516 172
Deferred connection and one-time subscription fees (ІІ)
135 483
142 005
Customer loyalty programs (ІІІ)
43 738
38 802
750 617
696 979
(I) Deferred revenue – dealers - represents deferred
revenue from unused time on pre-paid cards, which
were sold to dealers, but have not yet been activated
by subscribers. Deferred revenue – dealers is recognized in the statement of financial position until the
pre-paid cards have been activated by subscribers
or the pre-paid card has expired. Deferred revenue –
subscribers - mainly consists of deferred revenue from
unused time on pre-paid cards, which were activated
by subscribers. Deferred revenue – subscribers is
recognized as revenue in the statement of comprehensive income on the basis of actual mobile communication services usage by subscribers;
(II) Deferred connection and one-time subscription
fees – mainly consist of fees for initial connection
to the network and one-off payments for subscription to additional services. Deferred connection and
subscription fees are recognized in the consolidated
statement of comprehensive income over the periods
that the fees are earned;
(III) Customer loyalty programs – represent various
loyalty programs, established by the Company, whereby enrolled mobile and FTTB subscribers are eligible
for bonuses, which may then be used for discounts on
future mobile calls, additional FTTB internet services
or purchase of mobile handsets.
THE MOVEMENTS IN DEFERRED
CONNECTION AND ONE-TIME SUBSCRIPTION FEES ARE AS FOLLOWS:
2013
2012
As at 1 January
142 005
161 248
Deferred during the year
158 252
176 430
(165 337)
(194 508)
563
(1 165)
135 483
142 005
Released to profit and
loss (Note 9)
Other changes
As at 31 December
20. PROVISIONS
THE MOVEMENT IN PROVISIONS IS AS FOLLOWS:
Decommissioning
Legal cases and penalties
Total
As at 1 January 2012
29 672
1 767
31 439
Arising during the year
606
250
856
(225)
-
(225)
-
(1 730)
(1 730)
Change in estimates
25 466
-
25 466
Discount rate adjustment
2 697
-
2 697
Asat 31 December 2012
58 216
287
58 503
Utilised
Decommi-ssioning
Legal cases
and penalties
Restruc-turing
Other
Total
58 216
287
-
-
58 503
Arising during the year
2 221
2 384
25 129
23 217
52 951
Utilised
(861)
(36)
(10 188)
-
(11 085)
-
(250)
-
-
(250)
(13 549)
-
-
-
(13 549)
Discount rate adjustment
4 008
-
-
-
4 008
50 035
2 385
14 941
23 217
90 578
58 216
287
-
-
58 503
-
287
-
-
287
Non-current
58 216
-
-
-
58 216
50 035
2 385
14 941
23 217
90 578
-
2 385
14 941
23 217
50 035
-
-
-
Change in estimates
Current
Current
Non-current
PROVISION FOR LEGAL CASES
As at 31 December 2013 the Grouprecognizedprovision of UAH 2,385thousand (2012: UAH 287 thousand)
regarding legal proceeding initiated by its counterparty
in respect of services provided by the counterparty, but
not accepted by the Group. The management believes
that the risk of losing this case is probable.
PROVISION FOR RESTRUCTURING
As at 31 December 2013 the Grouprecognized provision of UAH 14,941 thousand for redundancy payments
related to future dismissal of employees as the result of
branches restructuring.
DECOMMISSIONING LIABILITIES
As at 31 December 2013 the Group recognized UAH
50,035 thousand (2012: UAH 58,216 thousand) of provision for decomissioning in respect of future dismantling costs related to its network equipment installed on
leased sites. Provision for decommissioning has decreased in 2013 due to the changes in input assumptions as follows:
Assumptions used
as at 31 December
2013
Assumptions
used as at 31
December 2012
Cost of dismantling per site,
UAH
39 800
40 200
40 543
Discount rate
11,39%
11,17%
50 035
Inflation rate
3,70%
4,06%
21. TAXES PAYABLE, OTHER THAN INCOME TAX
TAXES PAYABLE, OTHER THAN INCOME TAX CONSIST OF THE FOLLOWING AS AT 31DECEMBER:
22. TRADE AND OTHER PAYABLES
AS AT 31 DECEMBER TRADE AND OTHER PAYABLES
CONSIST OF THE FOLLOWING:
2013
2012
Roaming
206 115
223 452
Equipment and construction works
196 864
341 663
Technical support services
128 300
123 830
2013
2012
VAT payable
162 865
121 305
Professional fees
88 354
76 981
Pension fund duty for mobile
services
32 161
21 504
Software
46 829
49 085
Frequency fee
4 533
22 728
Content
38 751
23 979
Miscellaneous other taxes
132
128
Dealers
31 401
35 905
Personal income tax and Unified social security contribution
payable
Interconnection
30 496
31 686
32
8 638
Advertising and promotion
26 520
32 265
Rent
20 423
17 595
199 723
174 303
Inventories
15 562
11 375
945
20 449
8 876
14 455
839 436
1 002 720
Due to employees
Other payables
AS AT 31 DECEMBER TRADE AND OTHER
PAYABLES ARE DENOMINATED IN THE
FOLLOWING CURRENCIES:
2013
2012
UAH
533 058
681 124
EUR
163 054
194 974
USD
139 654
123 188
RUR
3 670
3 434
839 436
1 002 720
As at 31 December 2013 and 2012 trade and other payables are non-interest bearing and settled in the normal
course of business.
23. ADVANCES RECEIVED
AS AT 31 DECEMBER ADVANCES RECEIVED CONSIST
OF THE FOLLOWING:
2013
2012
Advances received from subscribers
141 185
128 489
Advances received from agents for
subscribers account replenishment
31 120
23 271
Advances received from dealers
252
14
Other advances received
44
31
172 601
151 805
As at 31 December advances received are denominated in UAH.
24. OTHER CURRENT LIABILITIES
AS AT 31 DECEMBER OTHER CURRENT LIABILITIES
CONSIST OF THE FOLLOWING:
2013
2012
Bonuses accrued
125 517
139 100
Accrual for unused vacations
44 747
50 050
-
251
170 264
189 401
Other
As at 31 December 2013 and 2012 other current liabilities are non-interest
bearing and denominated in UAH.
25. RELATED PARTY DISCLOSURE
THE GROUP’S TRANSACTIONS WITH ITS RELATED PARTIES FOR THE YEARS ENDED
31 DECEMBER ARE AS FOLLOWS:
Finance
income
Sales of property, plant
and equipment
Purchase
of property,
plant and
equipment
and intangible
assets
116 794
-
-
-
-
2 940
-
3 769
1 193
3 233
-
1 871
21 708
-
-
-
-
69 436
-
-
-
-
1 101 941
489 620
69 436
121 605
21 708
3 769
1 193
Revenues
Cost of materials, traffic
charges and
other direct
costs
Salaries and
personnel
costs
Finance
income
Finance
expense
Purchase
of property,
plant and
equipment
and intangible
assets
-
-
-
54 553
-
-
-
Entities under common control
878 785
347 069
-
43 570
441 191
497
269 544
Other related parties
147 601
7 699
-
2 203
34 646
-
-
-
-
76 308
-
-
-
-
1 026 386
354 768
76 308
100 326
475 837
497
269 544
2013
The ultimate parent (VimpelCom Ltd.)
Key management personnel of the
Group
2012
Key management personnel of the
Group
Revenues
Cost of materials, traffic
charges and
other direct
costs
Salaries and
personnel
costs
-
-
-
1 079 583
486 387
22 358
THE OUTSTANDING BALANCES FROM RELATED PARTIES AS AT 31 DECEMBER WERE AS FOLLOWS:
Trade and other
receivables
Cash and
cash equivalents
Total
60 382
-
60 382
7 044
28 315
35 359
67 426
28 315
95 741
2013
Trade and other
receivables
Cash and
cash equivalents
Total
90 498
-
90 498
7 500
356 450
363 950
97 998
356 450
454 448
2012
TERMS AND CONDITIONS OF TRANSACTIONS WITH RELATED PARTIES
Outstanding balances on settlements with related
parties at the year-end are unsecured and settlement
occurs in cash. Except for other non-current financial
liabilities, outstanding balances on settlements with
related parties are interest free. There have been no
financial guarantees issued in favour of the Group or
received to/from any related party. For the years ended 31 December 2013 and 2012, the Group has not
recorded any impairment of receivables as regards to
the amounts owed by related parties.
REVENUES AND TRADE RECEIVABLES
In 2013 the Group provided to domestic and overseas
telecom operators, being the Group’s related parties,
THE OUTSTANDING AMOUNTS DUE TO RELATED PARTIES AS AT 31 DECEMBER ARE AS FOLLOWS:
Trade and other
payables
Total
56 263
56 263
30 692
30 692
15 582
15 582
102 537
102 537
2013
Trade and other
payables
Other
non-current
financial liabilities
Total
58 697
-
58 697
78 103
26 356
104 459
6 758
-
6 758
143 558
26 356
169 914
2012
roaming services, access to network, interconnection and leased lineservices in total amount of UAH
1,101,941 thousand (2012: UAH 1,026,386 thousand).
The related trade receivables as at 31 December
2013 and 2012 due from related parties are non-interest bearing, unsecured and are settled in the normal
course of business.
connection and roaming services.Trade payables to
related parties are non-interest bearing and are settled in the normal course of business.
COST OF MATERIALS, TRAFFIC CHARGES AND OTHER
DIRECT COSTS AND TRADE PAYABLES
OTHER OPERATING EXPENSES
Cost of materials, traffic charges and other direct
costs includeroaming 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 inter-
OTHER NON-CURRENT FINANCIAL LIABILITIES
Other non-current financial liabilities comprised interestpayable to the entities under common control,
which were early repaid in 2013.
Other operating expenses include consulting services
provided by the ultimate parent, entities under common control and other related parties.
FINANCE INCOME
In 2013 finance income included UAH 21,708thousand
of interest on short-term deposits held in Ukrainian
bank, which is the Company’s other related party
(2012: UAH 34,646thousand). In addition, in 2012finance income included UAH 441,191 thousand of
unwinding of discount on interest-free financial aid
provided to the entity under common control.
Sales of property, plant and equipment
In 2013 the Group sold property, plant and equipment
to entity under common control for a cash consideration of UAH3,769 thousand.
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
In 2013 the Group acquired property, plant and equipment from entity under common control for a cash
consideration of UAH1,193 thousand (2012: UAH
220,202 thousand).In 2012 the Group also acquired
intangible assets in the amount of UAH 49,342 thousand from entity under common control. COMMITMENTS TO PURCHASES FROM RELATED PARTIES
COMPENSATION TO MANAGEMENT PERSONNEl
As at 31 December 2013 the Group had outstanding
commitments in respect of lease line services and
rentto entities under common control in the amount
of UAH 5,151 thousand (2012: UAH 7,317 thousand).
In addition, in 2012 the Group had outstanding commitments formanagement servicesto ultimate parent
in the amount of UAH 7,031 thousand and to other
related parties in the amount of UAH 22 thousand.
As at 31 December 2013 key management personnel
consisted of 31top executives of the Group (2012: 57).
For the years ended 31 December total compensation
to key management personnel included in salaries
and personnel costs comprised:
CASH AND CASH EQUIVALENTS
As at 31 December 2013 cash in bank in the amount
of UAH 28,315 thousand (2012: UAH 234,450 thousand) were held in Ukrainian bank, which is the
Company’s other related party. In addition, as at 31
December 2012 some of the short-term deposits in
the amount of UAH 122,000 thousand were heldinthat
Ukrainian bank.
As at 31 December 2012the short-term deposits
placed with related party bank had 1-3 months maturity and earned interest in 18-23% per annum.
2013
2012
Short-term employee benefits
69 952
76 572
Long-term employee benefits
-
45
(516)
(309)
69 436
76 308
Share-based payment
Total compensation to key management personnel
26. COMMITMENTS AND CONTINGENCIES
(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, 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.
(II) LEGAL MATTERS
In the ordinary course of business, the Group is subject to legal actions and complaints.Where the risk of
outflow of resources is probable, the Company has
accrued provisions based on management’s best estimate. As at 31 December 2013 and 2012 the Group’s
was not exposed to claims from third parties that have
possible risk of outflow of resources.
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.
(III) OTHER CAPITAL COMMITMENTS
commitments in respect of purchase and construction of property, plant and equipment in the amount
of UAH 431,139 thousand (2012: UAH 294,408 thousand).
commitments related to purchases of intangible assets in the amount of UAH 97,225 thousand (2012:
UAH 53,182 thousand).
27. FAIR VALUE OF FINANCIAL INSTRUMENTS
The management assessed that as at 31 December 2013
and 2012 fair value of cash and short-term deposits, trade
and other receivables, other current financial assets, other
non-current financial liabilities, trade and other payables
approximates their carrying amounts largely due to the
short- term maturities of these instruments.
(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
are as follows:
2013
2012
Within one year
332 407
156 875
After one year but not more than
five years
203 989
76 519
More than five years
288 834
63 020
825 230
296 414
28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group’s principal financial instruments comprise
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 are identified, measured and managed in accordance with the 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 the 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, are as follows:
USD
Euro (‘EUR’)
1 January 2012
7,9898
10,2981
Average for 2012
7,9910
10,2706
31 December 2012
7,9930
10,5372
Average for 2013
7,9930
10,6116
31 December 2013
7,9930
11,0415
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 the changes in
the fair value of monetary assets and liabilities).
The sensitivity analyses have been prepared on the
basis that the proportion of financial instruments in
foreign currencies is constant at 31 December 2013
and 2012.
Increase/
(decrease) in
basis points
Increase/ (decrease)
of profit before tax
Change in USD
exchange rate
+30%
(9 675)
Change in EUR
exchange rate
+30%
4 358
Change in USD
exchange rate
-5%
1 613
Change in EUR
exchange rate
-5%
(726)
2013
Increase/ (decrease)
in basis points
Increase/
(decrease) of
profit before tax
Change in USD
exchange rate
+7,10%
4 262
Change in EUR
exchange rate
+12,67%
3 101
Change in USD
exchange rate
-7,10%
(4 262)
Change in EUR
exchange rate
-12,67%
(3 101)
2012
LIQUIDITY RISK
The Group analyses the ageing of its assets and the maturity of its liabilities and plans its
liquidity depending on the expected repayment of various instruments. The Group’s shortterm and long-term liquidity needs are funded largely through cash flow from operating
activities.
The tables below show the maturity profile of the Group’s financial liabilities as at 31 December based on contractual undiscounted payments.
2013
Less than
3 months
3 to 6 months
6 to 12 months
Total
646 681
100 741
91 069
838 491
646 681
100 741
91 069
838 491
2012
On demand
Less than 3
months
3 to 6
months
6 to 12
months
1 to 5 years
Total
Other non-current
financial liabilities
-
-
-
-
31 972
31 972
54 130
922 630
2 794
2 717
-
982 271
54 130
922 630
2 794
2 717
Trade and other
payables
31 972
1 014 243
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
institutions, 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
COMPRISES:
2013
2012
(except for cash in hand)
640 932
1 483 436
389 149
415 832
Other current financial assets
29 196
23 543
1 059 277
1 922 811
The Group’s cash is primarily held in 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 post-paidmobile customers base
represents only 9% of mobile customers base.
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 recognized
against assets.
AS AT 31 DECEMBER 2013 AND 2012, THE AGEING OF THE
GROUP’S TRADE AND OTHER RECEIVABLES AND OTHER CURRENT
FINANCIAL ASSETS, NET OF IMPAIMENT, IS AS FOLLOWS:
Past due, but not impaired
Total
Neither past
due, nor impaired
Less than
30 days
30-60 days
60-90 days
90-120 days
More than 120
days
2013
418 345
373 429
28 136
4 768
3 553
436
8 023
2012
439 375
348 671
45 555
15 792
8 456
6 066
14 835
CAPITAL MANAGEMENT
The Group considers shareholders’ equity as a 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 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.
OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The following table presents gross amounts recognized and
financial assets and liabilities which are subject to offsetting:
Gross
amounts
recognized
Gross amounts set
off in the consolidated statement of
financial position
Net amounts
presented in the
statement of financial position
Trade and other
receivables
659 964
(270 815)
389 149
Trade and other
payables
(1 109
306)
270 815)
(838 491)
Gross
amounts
recognized
Gross amounts set
off in the consolidated statement of
financial position
Net amounts
presented in the
statement of financial position
Trade and other
receivables
661 872
(246 040)
415 832)
Trade and other
payables
(1 228
311)
246 040
(982 271)
For the financial assets and liabilities subject
to netting arrangements, each agreement between the Group and the counterparty allows for
net settlement of the relevant financial assets
and liabilities when both elect to settle on a net
basis. In the absence of such an election, financial assets and liabilities are settled on a gross
basis. The major arrangements are agreements
with national and international interconnect operators and agreements with roaming partners
in respect of roaming rebates settlements.
No enforceable master netting arrangements or
similar arrangements were signed for the period
as at 31 December 2013 and 2012 and for the
years then ended.
29. ASSETS OF DISPOSAL GROUP
CLASSIFIED AS HELD FOR SALE
As at 31 December 2013 assets of disposal
group classified as held for sale are mainly represented by telecommunication equipment. The
Company has a plan and is committed to sell
these assets in the first half of 2014.
As at 31 December 2012 assets of disposal
group classified as held for sale are mainly
represented by telecommunication trunks and
related equipment which were purchased by the
Company from URSin October 2012. The Company sold these assets in the first half of 2013.
30. EARNINGS PER SHARE
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
ARE AS FOLLOWS
2013
2012 (restated)
Net profit attributable to ordinary
equity holders of the parent for
basic earnings (І)
3 843 039
4 316 355
Weighted average number of ordinary shares for basic earnings
per share (ІІ)
13 095 262
13 091 355
Basic earnings per share, UAH (І)
293,47
329,71
(І) The amounts for 2012 do not correspond to previously issued financial statements and reflect correction of errors as described in Note 5;
(ІІ) The weighted average number of shares takes
into account the treasury shares and additional share
issue during 2012.
As at 31 December 2013 and 2012 there are no potential ordinary shares. On 26 January 2012 the State
Securities and Exchange Commission of Ukraine
registered the issue of 55,000 shares made by the
Company pursuant to the resolutions of the Company’s shareholders. Please refer to Note 18 for more
details.
31. EVENTS AFTER THE REPORTING
PERIOD
DIVIDEND DECLARED
On 26 February 2014 on the extraordinary General
Meeting of Shareholders in the absentee vote format
the shareholders approveddividends distribution in
the amount of UAH 889,954 thousand (UAH 67,96
per ordinary share) to be paidfrom retained earnings
by 26 August 2014.
CHANGES IN TAX LEGISLATION
On 27 March 2014 the Ukrainian Parliament has
adopted the Law of Ukraine “On prevention of financial catastrophe and on establishment of prerequisites for economic growth of Ukraine” No. 1166-VII
dated 27 March 2014, whereby a number of amendments were introduced to the Tax Code of Ukraine.
Major amendments which may impact the consolidated financial statements of the Group are the following:
– application on permanent basis of corporate income tax rate of 18% and value added tax rate of
20%. These changes will lead to reassessment of
amounts of previously recognizeddeferred tax assets
and liabilities in 2014
– twofold increase of the rate for the frequency fee in
2014. In 2013 the Group frequency fee expensesequaled to UAH 294,228 thousand.

2013 Year Report and consolidated financial statements

Transcription

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PureNet™ Asset Management

2012 Year Report and consolidated financial statements

2014 Year Report and consolidated financial statements