ANNUAL REPORT

Transcription

ANNUAL REPORT

ANNUAL REPORT
2006-2008
З думкою про вас
Greetings from
The President
of Kyivstar
Igor Lytovchenko
President of Kyivstar
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Dear Kyivstar’s stakeholders, customers, partners and friends!
The years 2006-2008 was a time when the
Ukrainian mobile communication market
reached its climax. The penetration rate
of mobile communication reached nearly
120%. The key task for Kyivstar was the
strengthening of its leading position, maintaining the perfect quality of services for our
clients as well as developing new directions
within the telecommunication business.
These years were hard, dynamic and
extremely exciting for us. Thanks to the professionalism of our team, Kyivstar is one of
the most successful Ukrainian companies,
the best taxpayer and employer, and the
market leader in revenues and #1 in subscribers. Every second Ukrainian citizen
uses Kyivstar’s services.
In over 10 years of work we have managed
to create the most powerful telecommunication company in Ukraine — a real model
of Ukrainian success in business. We have
always found the right solutions to achieve
our goals, successfully chosen market
strategies, launched practical innovations,
confronted any situation appropriately and
always followed the company’s values: to
understand, inspire, be the best, keep our
word and to create joy.
Kyivstar today combines steady success
with the unique skill to quickly adapt to new
needs; it is a company with a unique corporate culture and a fantastic working capacity.
I believe that the future of Kyivstar is exciting and full of new opportunities. The market
of Internet services, digital music, and multimedia services has great potential. Even
today, the Internet is one the most challenging and dynamic segments. That’s why
one of Kyivstar’s main developments in the
future will be providing fixed-line and mobile
access to the Internet all over Ukraine. Any
innovative technology or service that may
improve the life of our customers now and
will always be a priority for us.
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«Kyivstar»
in 2006-2008
«Kyivstar» is the leader in the Ukrainian mobile communication market. 22,303,000 Ukrainian citizens trust with us
their communication needs (as for 09.01.2009). Our network
covers an area which totals 99.9% of the population of Ukraine,
including all big cities and small towns, more than 28 thousand villages, all major national and regional roads as well as
the main parts of the Ukrainian coast and rivers.
In this period we earned almost UAH 11 billion 350
million. This is half of the overall revenue of the
Ukrainian telecom market. We confidently hold the
leading position in the market in both total revenue
and in taxes paid to the state budget.
2006
was the year the company renewed
both its brand and working principles. The
changes reflected the new role of our company on the market — the role of an undeniable, steadily developing leader. The corporate
colours became brighter and the logo refreshed.
Such external renewal was the reflection of inner
processes that were taking place throughout all
In December 2006 Kyivstar’s
network was joined by
our 20 millionth subscriber.
Kyivstar’s activities. Rebranding symbolized a
new stage of our development.
In 2006 we continued partnerships with more
than 100 companies working within the area of
mobile content. Thus, Kyivstar’s clients had the
opportunity to use more than 600 quick numbers to access a variety of different content.
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Our achievements in 2006 were acknowledged
by international institutions: the international
long-term credit rating of Kyivstar was upgraded from «B+» level to «BB-«. While the international rating agency Moody’s Investors Service
improved the prediction of Kyivstar’s international rating from «steady» to «positive» (B1 level).
2007 was an anniversary year for Kyivstar.
10 years of activity was marked with the extensive program «Communication for the Future».
The main objective of the company is to inspire
every Ukrainian citizen to think about their
own future and to envisage tomorrow through
peaceful communication and understanding.
We carried out a number of TV projects as well
as a large-scale survey, «The Way Ukrainians
See their Future», organized in partnership with
The Kyiv International Institute of Sociology.
The program was followed by the «A Blueprint
of the Future of Ukrainians», a general view of
Ukrainians and the effect their values have in
shaping their future. First in this blueprint was
the family followed by children. Health, financial
security, confidence, self-development, career,
education, self-awareness and culture were
also of great importance.
In the year of its tenth anniversary, Kyivstar introduced the new brand «Mobilych» which offered
free calls to its subscribers and loyal terms of
services for those who do not often use their
mobile phones.
That year Kyivstar upgraded its credit rating. The
International rating agency Moody’s Investors
Service raised this index from B1 up to Ва3.
2008
The major event of
was the program
«Communication for the Future». This time the
program was centred on the lack of communication between parents and their children. Research
carried out by The Kyiv International Institute of
Sociology, showed that every fourth Ukrainian child
has trouble communicating with their own parents.
To solve this problem Kyivstar launched a broad
campaign that comprised of an Art sculpture project
on Independence Square illustrating the loneliness
that children can feel and their desire to communicate more with their parents. In 24 cities of Ukraine
we launched «Kyivstar Family Holidays» campaign
and presented a music project «Warmth of Words»
with participation of the singer Gaitana. Thanks to
various activities «Communication for the Future
2008» reached more than 20 million people.
The Highest Quality —
a Key Principle of
Kyivstar’s Work.
Providing a high level of service is the basic approach of
doing business at Kyivstar. Following this principle the company has developed and expanded «Kyivstar’s Quality
Declaration». The quality of work as the basis of doing
business earns customer loyalty, which in turn makes
Kyivstar the undeniable telecommunications leader in Ukraine.
The Quality Declaration is a daily reminder to every employee
to create the highest quality products and services for our
customers. It is way of interacting within our teams and
the basis of professional relationships. The whole text of
Kyivstar’s Quality Declaration is available on www.kyivstar.ua
under the section «About the Company».
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Our Customers
For Kyivstar the most successful measure of our company is
the satisfaction of our clients. We do our best to provide our
customers with first-class telecommunication services. This
means that we provide high class communication, offer the
best and strive for the highest quality of service. Our aim is
to meet all our customer’s needs and to do it as quickly and
professionally as possible.
«My Kyivstar/ My DJUICE» is a unique
self-service system for subscribers
that has no equivalent in Ukraine.
Openness, honesty and customer-orientation are the main principles of our daily activities. Every
subscriber is unique for Kyivstar. Through 2006-2008 Kyivstar unquestionably held the lead among
mobile carriers in the number of subscribers.
The number of Kyivstar’s customers:
21,5
million
2006
23,1
million
2007
23,3
million
2008
The Highest Quality of
Customer Service
Kyivstar customers are provided with an efficient, friendly and professional service at all
sales points, service centers as well as complete
customer telephone support. Clients are offered
the fastest connection to Kyivstar’s telephone
support operators as well as a user-friendly automatic support system «My Kyivstar/My Djuice»,
which is constantly being updated to meet the
needs of subscribers.
In 2008 there were 155 service centers throughout Ukraine.
The company is always committed to developing friendly relations with customers. Therefore
it is important to have quality and convenient
telephone support. All customers can contact
telephone support just by dialing 466. Support
is provided 24 hours a day, 365 days a year
without weekends or holidays. Interactive Voice
Response (IVR) and operators are at the customers’ disposal.
Telephone support is provided by four branches, which are integrated into one electronic
Call Center. The branches are located in Kyiv,
Dnipropetrivsk and Lviv. The total number of Call
Center employees is more than 1400 and it is the
largest department in Kyivstar. More than 600
operators receive calls from customers during
peak hours. On the average we answer 150,000
calls everyday. It’s important that at the preference of the clients, services can be provided in
Russian, Ukrainian or English. In 2008 the following figures of service quality were achieved: the
average waiting time for an operator was 12 sec,
the average talk time was 120 sec and the rate of
answered calls was 97%.
Average waiting time to connect
a customer with a Call Center
operator takes 12 sec
Throughout the 11 years of company activity an
internal quality control system has been developed and implemented. However, paramount is
what the customers think about us. To allow subscribers to evaluate our level of customer service, Kyivstar has created an interactive quality
evaluation system. By calling a free short number
466*55 every subscriber, in IVR mode, can voice
their opinion regarding our quality of service.
Customers can evaluate the quality of telephone
support provided by Call Center employees as
well as the Company’s service at large. This system has proved to be an effective tool for communicating with clients.
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Furthermore it is important to mention the implementation of a multi-line self-service system «My
Kyivstar/My Djuice», which includes web and wap
services and self-service kiosks that are available
to customers. These facilities are used by approximately 950,000 of customers (as of 31.12.08)
Over the last few years we have been developing long-term customer relations through regular targeted information campaigns. Customers
are kept informed of company marketing events
through SMS and MMS messages as well as the
calls from operators.
Convenient services, such as the ability for prepaid customers to change their SIM-card whilst
retaining their number, are becoming more popular. Every month more than 60,000 customers
use this service, staying in touch and maintaining their useful personal contacts.
Especially for «Kyivstar Business» subscribers,
small and medium businesses, we are issuing
a magazine «Your Number», which will not only
guide you through Kyivstar’s business services,
but also keep you abreast of the events in our
country and the world.
Kyivstar’s overall performance was highly considered by independent research. In 2008
Kyivstar was acknowledged to be the mobile
communication leader in customer services in
Ukraine. This finding has significant basis — it
was confirmed both by TRIM (April-May 2008)
and CATI research results (1, 2 and 3 quarters
of 2008).
Customers’ evaluation of service quality
for the period June `07 — June `08:
Average Customer Evaluation
5
4
Steadily high evaluation
2
0
Call Center1
Call Center2
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The Highest Network
Quality and Coverage
During 2006-2008 Kyivstar’s network achieved
the highest quality indexes. A development program by Kyivstar was carried out in 2006. More
than 3,500 base stations were built, whilst 3.513
km of fiber-optic trunk and zone lines were put
into operation.
Kyivstar’s network is able to
support 4 million simultaneous
conversations between
two communication centers
As of 01.01.2007 the network transmission coverage encompassed 99.9% of Ukrainian territory.
457 cities, 883 urban centres and 27,178 villages
and neighborhoods are covered by a wireless
network.
Despite the significant growth in our subscriber
base in 2005-2006 (it has doubled every year),
the quality of network operation and connection
was the highest in Ukraine. In fact Kyivstar’s network was built with a significant power margin.
In order to provide quality mobile communication
experts from Kyivstar regularly monitor the network using special mobile laboratories.
In 2007-2008 Kyivstar undertook a project of network upgrading using DWDM technology. As a
result, the network bandwidth has increased 8
fold and traffic has become more fail-safe.
The necessity of using DWDM technologies was
caused by: the growing number of subscribers
over the last few years, traffic volume inside the
network and Kyivstar’s concern to provide service quality and ease for its customers. The newly created system provides customers with the
following options:
•
Network capacity is 320 Gb/sec. This
allows the support of around four million
subscribers simultaneously communicating between two communication centers
•
Kyivstar’s extensive and effective trunk network is one of the
biggest in Ukraine and connects wirelessly all corners of the country.
•
8 fold increase in network capacity (since
2006) and up to 64 times more than
when we started; this in the future allows
subscribers unrestricted use of voice
and non-voice operator services;
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Call traffic is failure protected, particularly when
making inter-city and international calls. MPD
(Minutes per Drop) rate of Kyivstar’s network
increased twice last year. In the first quarter of
2008 it was 216 min.
Every Ukrainian region has its own specific base
station. For instance, in the Crimea on the Cape
of Sarych is Kyivstar’s southernmost base station. In general, Kyivstar’s Crimean onshore
base stations cover a 10 km wide zone off the
coast. At the end of April 2006 the Ministry
of Transport and Communication of Ukraine
requested Kyivstar to include Zmiinyi Island in its
coverage map, Even though the island is populated by only 30 people, Kyivstar carried out all
the necessary engineering works and installed
a transmitter that covered 17 ha of the territory.
The transmitter antenna was installed on a lighthouse and the equipment inside the border post.
In 2008 the Network
failure protection system
allowed calls with a duration
of more than 3.5 hours.
In the Transcarpathian area, in the village of
Solomonove, Uzhgorod region, Kyivstar has its
«most European» base station which covers the
custom post of «Tysa» and passes to Melachovtsy
(Slovakia) and Nyiregyhaza (Hungary). In 2006
Kyivstar installed the first underground station in
Ukraine. It is situated 288 meters deep in the salt
tunnel of a disused mine in the town of Soledar
in Donetsk region. Soledar is famous for its cave
health resort «Salt Symphony», the museum
of «Artemsil’» production, as well as its unique
underground concert hall.
Facts and Figures Concerning the Quality of Kyivstar’s Network
(as of the end of 2008):
Number of base stations
more than 12,121
Number of transmitters
more than 101,179
Coverage — an area populated by
99.9% of the Ukrainian
population
Length of main fiber-optic lines
more than 20,039 km
International Roaming
Kyivstar is constantly improving its international roaming service for its customers as well
as increasing the number of countries where
our subscribers can use this service. During
2006–2008, roaming agreements for post-paid
subscribers were signed with 85 foreign operators. Additionally, prepaid subscribers had the
opportunity to use roaming in 58 foreign operator
networks.
As a result, by the end of 2008 an international
roaming service for post-paid subscribers was
offered in 373 operator networks in 194 countries. For pre-paid customers this number was
82 operators in 82 countries.
Within this period international GPRS-roaming
has become available in 235 operator networks
in 133 countries.
Also by the end of 2008 CAMEL-based roaming
had spread in up to 63 countries. Subscribers of
97 mobile operators from those countries can
use roaming in Kyivstar’s network.
In 2007, taking into account subscribers’ requests
whilst aiming to simplify the terms of conditions
of the communication services in foreign operators’ networks, Kyivstar changed its procedure
for providing roaming service.
Thanks to «Call Me Back in
Roaming» subscribers can freely
communicate without having
money on their account at the other
subscribers’ expense in Ukraine
Now the roaming service offers unified and clear
rules and rates in six charging zones: in each
zone, rates are set that remain in force regardless of the country of stay or the operator’s network that serves the customer during roaming.
It enables our customers to anticipate their mobile
communication expenses abroad and stay one
mobile call away wherever they are.
International roaming for Kyivstar subscribers
Based on yearly results
2006
2007
2008
GSM-roaming
321 operators
in 171 countries
348 operators
in 184 countries
373 operators
in 194 countries
GPRS/EDGE-roaming
160 operators
in 94 countries
199 operators
in 116 countries
235 operators
in 133 countries
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Popular Tariffs
The company’s tariff policy is based on the principles of simplicity and
availability. Kyivstar’s clients may easily choose, clearly understand and enjoy
mobile communication. When offering each new tariff we are sure that it will
be of better value and provide even more opportunities for our clients.
New or updated tariffs as of the end of 2008
Tariffs for Youth
DJUICE Fun
A special offer for young people who communicate with a wide circle of friends. This tariff plan
allows DJUICE subscribers to call to subscribers
of any mobile operator within Ukraine for a uniform tariff of UAH/min 0.65.
DJUICE Talk
A special offer for DJUICE subscribers communicating mostly within the DJUICE network —
DJUICE Talk tariff plan. An extremely low tariff
for calls between DJUICE subscribers — UAH/
min 0.20. Tariff for calls to subscribers of other
mobile operators — UAH/min 0.85.
Tariffs for Maximum
Economy
Friendly
A tariff plan for Mobilych subscribers offering 10
free minutes per day for calls between Mobilych
subscribers for a daily subscriber’s fee of UAH 0.30.
Tariff for calls to subscribers of other networks
within Ukraine — UAH/min 0.80.
Corporate Clients
Simple
Business 10,
Business 50, Business 100
A tariff for business clients without compulsory
payment and with a low uniform tariff for calls
between subscribers within the subscriber’s
group — UAH/min 0.05. Tariff for calls to subscribers of other networks — UAH/min 0.50.
Kyivstar Business tariff plans offer from 200 to
1,100 free minutes per month for calls within
Ukraine without a set-up fee.
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Private Subscribers
Unlimited
All Networks
This tariff plan offers even more opportunities
for using mobile communication services: up
to 4,500 free minutes per month for calls within
Ukraine and an extensive package of free services: SMS, ММS, Internet and WAP-access.
A tariff plan with a uniform rate for all calls –
UAH/min 0.45 without set-up fee for contract
subscribers.
Universal
Tariff for contract subscribers, offering 200 free
minutes per month for calls to subscribers of
all mobile operators, except for life:), Beeline, Intertelecom and Ecotel/MTC (+380991, +380996,
+380997) for a monthly fee of UAH/min 0.70,
and to subscribers of fixed-line operators within
Ukraine for UAH/min 0.50.
No set-up fee.
Family and Friends
A contractual tariff with the subscriber’s fee of
UAH 100.00; offering the client 1,000 free minutes for calls between Kyivstar subscribers. Tariff
for calls to subscribers of other networks — UAH/
min 0.45. No set-up fee.
Classic
For contract and prepaid subscribers. Tariff for
calls between Kyivstar subscribers — UAH/min
0.10. Tariff for calls to subscribers of other networks — UAH/min 0.85.
Better with Us
A special tariff with a low fee for calls between
Kyivstar subscribers on days-off and holidays.
Thus, on Saturday, Sunday and official holidays
the tariff for calls between Kyivstar subscribers —
UAH/min 0.03. Other days — UAH/min 0.15.
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Data Packages
This tariff line was developed for convenient
access to the Internet for clients who have different levels of need. From now on, depending
on the duration of Internet connection one may
choose the best tariff among four options.
Mobile Internet XL
This is for those who use mobile Internet a lot.
For a daily subscriber’s fee of UAH 5.00 the client may use the Internet without limits, paying
only UAH 0.05 per 1 Mb of traffic.
Internet 20
For a monthly subscriber’s fee of UAH 20.00 the
client obtains 20 Mb of free traffic.
Internet 100
Subscriber’s fee — UAH 50.00. 100 Mb of free
traffic.
Internet 1000
For a subscriber’s fee of UAH 99.00 the client
obtains 1 Gb of traffic.
A highly professional
team that works,
understands, inspires,
gives joy and always
keeps its word
Kyivstar employs the best telecommunication
experts — people who really care for what they
do. We have reached the leading position first
of all thanks to our team, who do all their best
to create the optimal working environment for all
our employees and their professional growth.
In 2008 we affirmed our status as the best employer in Ukraine. According to the results of an independent survey by ‘Dilovyi’ and ‘Correspondent’
magazines, Kyivstar was recognized as the best
employer among telecommunication companies
as well as in the general ranking of enterprises.
In addition, in October 2008, Kyivstar was again
acknowledged the winner of the industry poll,
«The Best Employers of Ukraine» conducted
by an international HR-management consulting
company.
The first place in several external polls and the
excellent image of the company, have been confirmed by our own domestic survey, which was
based on annual internal research. In 2008, 93%
of our employees said that they would recommend Kyivstar as a good place of work and 94%
feel proud to work for Kyivstar.
The objective evaluation of our work — the recognition and appreciation of excellence — are important
components of Kyivstar’s management. Our company appreciates the time, energy and inspiration
given by our team and offers fair wages. Our labour
remuneration system comprises two components —
fixed compensation (salary and other set payments)
and variable compensation (quarterly and annual
bonuses). The motivation system in Kyivstar is based
on two elements — transparency and fairness.
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We understand that in our fast and changing
world the ability to embrace new information is
a recipe for success. Working well is just not
enough. The concept of an organization that is
continuously learning, progressing and setting
new standards in all its activities has become the
development philosophy of Kyivstar. A dynamic movement toward success, can be only
achieved by a company whose team is able to
acquire new knowledge and use it in their work.
Our company pays great attention to the development of its staff. In 2008 we successfully continued the competencies development program.
This has been developed by considering the
results of our annual performance assessment,
the company’s strategic targets and individual
goals for every position. We also successfully
run a Staff Potential Development Program and
a corporate library. In 2008 we created an online
educational portal for informing our employees
about training courses and ways to develop
within Kyivstar. With the help of this portal all
employees can train in a remote format which is
flexible and convenient for them.
The Company has a social benefits system
including a medical insurance program, accident
insurance, pension fund, an emergency fund, corporate cell phones, ‘Mobile Family’ service (special rates for family members and relatives), travels
for the account of the Social Insurance Fund and
individual compensation plans for managers and
the top professionals within our company.
94% employees feel proud
to work for Kyivstar
Kyivstar has excellent sporting traditions. In 2008
10 football teams from the head office and all
regional branches took part in a corporate tournament. Kyivstar’s corporate team successfully
performs in the futsal championship «Business
League».
“
One of the instruments for governing appropriate
conduct of business is the Compliance Function.
Its main goal is to ensure the conformity of the company’s
operations to the laws of Ukraine, the Corporate Code of
Conduct and general norms of business ethics. Assisting
this task, we give every employee the opportunity
to be heard if any abuse comes to light and we take all
necessary measures to rectify any negative situation.
”
Volodymyr Zhmak, adviser
to the President of Kyivstar
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Fruitful Partnership
For many years, Ericsson, a global leader in
innovative technologies, has been Kyivstar’s
consistant partner in supplying telecommunication equipment. In 2006 the companies signed
an agreement to supply equipment and services
for the further expansion and development of
Kyivstar’s GSM/GPRS/EDGE network.
According to the terms of the contract, Ericsson
will supply equipment for Kyivstar’s main network as well as its transmission network, which is
the another step in the long-lasting relationship
between the two partners.
In addition to supplying the infrastructure equipment, the contract provides service agreement,
staff training, hard and software upgrades of the
GSM/EDGE network as well as professional support in the development, implementation and
marketing of voice and non-voice services — the
most attractive service for Kyivstar’s subscribers.
Kyivstar works with its partners according to the
principles of maximum transparency of relations
and fair competition.
Our distributors are our equal business partners,
whom we try to offer every opportunity to successfully develop their business in collaboration
with Kyivstar.
Fostering the standards of the Corporate Code
of Conduct our company has developed the
Principles of Suppliers’ Operation. Working
together we set clear demands for our suppliers,
requiring them to be responsible for the product
they offer. We can guarantee fairness and objectiveness while choosing a supplier of products
or services. Our Company implements a system
of electronic tenders that enables convenient
and efficient purchases.
We see our principal task (and that of all the
telecom market) in providing the secure use of
mobile Internet services by children and teenagers. This initiative is actively backed by the
International Telecommunication Union and the
GSM Congress. Thus we not only keep our word
in terms of corporate social responsibility, but
also set respectable guidelines for development
of the content market.
Work with Dealers
The major goal of the Indirect Sales Department
is providing development and control over the
channels of indirect sales. This comprises of a
network of dealers brand-shops as well as nonprofile shops, network companies (gas stations,
supermarkets, entertainment centers, fast food
restaurants), banks and other financial institutions. It is essential to keep to the «principle of
stretching hand» — an opportunity to purchase
a start package or a scratch-card without leaving your village or going to a town or regional
centre.
During the second half of 2006 and the first
half of 2007 we changed or renovated the signboards of Kyivstar’s brand-shops. This was the
result of rebranding.
In 2007 electronic payment exploded onto the
market. The terminals for recharging accounts
allow customers a simple and convenient system
of paying without having to buy top-up cards. In
2007 there were nearly UAH 10 billion in top-up
electronic payments.
Number of contracts signed (including dealers)
Year
2006
2007
2008
Number of contracts signed
(including dealers)
486 816
238 329
275 148
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New
Technologies for
a Comfortable
Mobile Life
The implementation of a new technology is a complex
process, which involves most departments of a company.
It includes several stages of research, development and
equipment testing. The technologies that were offered by
Kyivstar to its customers in 2006–2008, were projected not
only to meet their needs in new technologies today, but often
they exceeded their time and served as a decisive force
in the development of the whole telecommunications market.
2006
SIM-Pair
In 2006 a revolutionary technology was introduced when a new unique service called SIMpair was offered to customers. This moved us to
a whole new level. Now a customer can clone
his SIM-card and use it in two different mobile
devices. However, both SIM-cards can be registered on the Internet simultaneously or use
«Mobile Radio» service!
LBS (Local Based Service) —
a technology which locates
a customer with the help
of a mobile phone
In November 2006 Kyivstar was the first company to provide its customers with the opportunity
to use new services based on LBS (Local Based
Service) technology. This makes it possible to
define one’s location with the help of a mobile
phone. Using this technology each Kyivstar or
DJUICE client can identify his location and send
this data to a friend by SMS, MMS message
or e-mail. Also they are able to find a desired
address or the nearest location, such as hotel,
cafe, cash machine, pharmacy, service station, cinema etc. Besides this they can identify
a route to that location also taking into account
the conditions of road traffic. Based on this technology, a new service «Mobile Map» and a new
advanced mobile game «Spy Games» were
developed and offered to the customers.
Automatic identification of
the mobile telephone models
and settings recognition
for high- technology services
Kyivstar has implemented a unique high-technology solution in the domestic market — an operator’s
interactive voice response identifies the model of
a mobile telephone and automatically sends the
settings for using high-technology services. The
provision of this solution is intended to lower the
barrier for customers in using these services.
2007
Automatic activation of
GPRS technology
In 2008 all subscribers that registered with
Kyivstar network for the first time, automatically
connected to a data transfer service based on
GPRS/EDGE protocol. From now on all GPRS/
EDGE-related services are available to our customers after switching on their mobiles for the
first time.
2008
SIM-Pair
In 2008 the SIM-card managing tool of SIMpair service was optimized in order to make the
switching process extremely quick and easy.
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Effective and
Innovative Services
Kyivstar provides its customers with reliable and easy-to-use
products
that
meet
their
needs.
Their
innovativeness
improves people‘s lives. With the help of Kyivstar services our
customers can use mobile communication possibilities in a
more effective manner and save time. In addition services
developed for business customers, help to expand their
business.
2006
«My Kyivstar»
«Mobile Map»
The innovative and unique service «My Kyivstar»
was launched onto the market — a simple and
reliable self-service tool for all our company’s customers. In 2006 business customers were able
to control their mobile communication expenses.
«My Kyivstar» service allows expenses data to
be viewed — optimizing, planning and analyzing expense history through personal accounts
and subscriber numbers. The benefits of «My
Kyivstar» are cost reductions for the company as
well as simplicity and ease of access and use.
«Mobile Map» is a unique location based service. It helps customers to receive data about
their current location and send it as an SMS
or MMS to another phone or E-mail; to find the
closest location, such as a cafe, cash machine,
pharmacy etc; to plan a route to a desired location whilst taking into account road traffic conditions. The service is available with the help of
SMS, USSD and MMS or by visiting WAP-sites
wap.starport.com.ua and wap.djuice.com.ua
under the «Mobile Map» section.
SIM-card change while retaining
the mobile phone number
A service is available for all customers in all service centers of the company. It helps customers
to retain their personal contacts if a SIM-card is
lost. If lost, each Kyivstar customer can easily
renew their mobile phone number.
Wi-Fi Network
Since October 9, 2006 Kyivstar has provided
a wireless Internet access service using Wi-Fi
technology. In Wi-Fi locations Kyivstar subscribers can take advantages of fast Mobile Internet.
For this purpose users need only a smartphone,
laptop or pocket PC, equipped with a Wi-Fi
adapter.
«Mobile Manager»
In spring 2006 Kyivstar presented a new and
unique service «Mobile Manager» which offered
corporate subscribers a convenient way of managing their own mobile corporations. Now new
options are provided, including two new features called «Calls Interception» and «Virtual
Secretary».
These two features were specially developed to
ensure effective and continuous communication
between Kyivstar’s corporate clients and their
partners.
«Calls Interception» guarentees you never miss
a call from a partner, even out of work hours or
days off. «Virtual Secretary» would help business
partners get in touch with a desired employee in
easiest and most convenient manner.
«WAP-Cameras»
On November 1, 2006 Kyivstar launched a unique
and innovative service called «WAP-Cameras».
Thanks to WAP-cameras installed in the different parts of Ukraine, subscribers can get a real
view of a desired street, bridge or crossroads and
choose the optimal route to travel. WAP-cameras
are located in Kyiv, Odessa, Dnipropetrivsk,
Zaporizhya, Kharkiv, Chernivtsi, Ivano-Frankivsk
and Uzhhorod. The number of cities where the
«WAP-cameras» service is available is increasing,
as well as the number of locations where cameras are installed. In order to use «WAP-cameras»
customers should use only a mobile phone that
supports WAP, MMS or Mobile ТV services.
Switching from pre-paid service
Ace&Base to post-paid service while
retaining your number («Migration»)
With this service if a customer switches to a
post-paid plan all the subscriber’s history in the
Kyivstar network and all connected services (if
they are available for the post-paid plan). are
retained. Money on the account will be transferred to the post-paid account of the subscriber. Besides this, the subscriber’s history is also
retained. In order to use the service one should
have had an ACE&BASE service history for at
least half year.
27
2007
«Find a friend» and «Beacon»
«WEB-Navigator»
These two services are based on the technology
of identifying a customer’s location with the help
of a mobile phone (LBS). At any time they allow
the customer to define the location of friends and
family members. Thanks to this service you can
always locate your child or a person you care
about.
Clients that have telephones without built-in
web-browsers can normally view web-pages
and manage E-mails directly from the mobile
phones.
«eSMS+eMMS»
This service allows the customers of Kyivstar to
create and send text and multimedia messages
from PCs. You need to download software and
it will be automatically installed during start-up.
«Call Me Back»
and «Call Me Back in Roaming»
«Call me back» service allows a customer to
inform his relatives or friends free of charge that
they need to contact him or her. And if our customer in roaming needs to contact someone
without being charged for his call, he can use
«Call Me Back in Roaming» and stay in touch
even if he does not have enough on his account
to make a call.
«Separate Bills»
«Separate Bills» service allows a business customer to split personal and work-related expenses using special pricing conditions. These
conditions can be set by different criteria at the
discretion of the customer. In particular they
include: separating charges by certain numbers, subscriber groups, communication regions
(intercity or international), mobile network operators and call time as well as additional services
types that are used.
29
«Mobile RADIO»
«Who Called»
This service for Kyivstar network subscribers
is a voice data transfer based on Push-to-Talk
technology. «Mobile Radio» from Kyivstar is
designed for those who want to make their lives
easier. This service is very useful for collective communication in so far as it supports up
20 parties staying in touch simultaneously! Low
talk-rates, simple and quick organization of the
group communication and unrestricted operating range, have resulted in a key service for a
target business audience!
If a customer has turned off his phone, the battery is low or he cannot be reached due to some
other reasons, then «Who Called» service will
inform them about all missed calls that they have
received on their number. Missed call data will
be sent to a customer by SMS from Kyivstar,
indicating the phone number from which the
attempt was made, the number of calling
attempts and time and date of the last attempt.
Since December 8, 2008 «Who Called» service
has been provided in a more convenient form.
«Migration»
This service allows switching between post-paid
and pre-paid service plans.
Now all DJUICE and pre-paid mobile communication subscribers who have been using Kyivstar
for more than 6 months can switch to post-paid
or business service plan free of charge without
losing their mobile numbers.
From then on missed call data will be received
as a standard SMS message from the contact
that tried to call you, not from Kyivstar as it was
before. If you missed calls from more than 4 different contacts, all calls will be grouped into one
message for more convenient viewing.
2008
«3G Internet»
«Navigator»
Apprehending world trends in high-speed data
transmission and generally anticipating peoples’
growing demand for data, Kyivstar offered its clients 3.6 Mb/sec Internet wireless access, based
on 3G technology. This service is a result of the
cooperation between CJSC «Kyivstar GSM»
and JSC «Ukrtelecom».
This location based service allows monitoring
and coordinationg of vehicle, goods and freight
movement as well as employees direct from
the office computer. The service can be easily connected with a help of «My Kyivstar» system and used through a convenient interface.
Using «Navigator» will enable Kyivstar business
customers to receive information directly and
promptly about the movement of freight or courier. In return it will help avoid unintended use of
vehicles.
«Inform Me»
and «Inform About Me»»
Taking care to provide communication quality,
Kyivstar has developed the «Inform Me» service
which allows customer to save time when making calls to those that are out of reach. After the
implementation of this service customers will
not have to waste time continually dialing recipients’s numbers and waiting for them to join the
network. The system will inform the caller that
the call recipient is back in the network by sending them an SMS.
«Inform About Me» is an additional functionality
of the service, which sends an SMS informing
those callers who tried to call a customer that
he is back in the network. At the discretion of the
customer this service can be deactivated.
31
«Traffic Manager»
Especially for «Mobile Internet XL» users. This
service was launched to enable faster web
browsing. Faster downloading is due to a reduction of the amount of data received.
«Internet Center»
For an easier and faster set up of Internet
access from a PC, a service called «Internet
Center» was launched. It is free software, which
automatically identifies the installed operating
system, telephone or modem connected to the
computer, and installs all settings needed to
access the Internet.
Short Numbers Provided by
«Mobile manager» Service
Short numbers extension range allows corporate
customers and business users to enjoy a convenient and simple way of dialing their colleagues’
numbers. When making calls corporate customers can use the short numbers they assigned
themselves to communicate with each other.
Call Waiting/Hold
and Conference Calls for
Pre-Paid Customers
Activating the standard call waiting/call hold and
conference calls for pre-paid customers enables
them to hold several subscribers without missing
any important calls.
Transfer of Money
Kyivstar has enabled its customers to transfer
money between their accounts. The minimal
amount that can be transfered is 1 UAH making
this service more convenient and comfortable
to use.
«Convenient Switch»
To switch service providers always involves
changing a mobile phone number which you’ve
got used to and is held by others. Taking this
into account, Kyivstar has developed a free service called «Convenient Switch». With its help
customers of other cellular networks can switch
to the Kyivstar without losing time or calls. From
now on anyone dialing the old number will be
informed of a customer’s new contact.
The Development of
the Market of
Non-Mobile Services
As well as providing high quality mobile services, Kyivstar has proved to be a telecommunication operator that is competent in different
market segments. Being a reliable partner, we
have developed a portfolio of non-mobile telecommunication services to address the growing
demands of our corporate subscribers.
Providing digital data transmission channels still
remains the largest demand. Connection may
be made through cutting-edge technologies
such as LLC, MPLS and DWDM. The growth
of income from providing these services was
39.7% in 2007 (22.7% in 2006) and the demand
is still growing.
As the Ukrainian mobile market has saturated,
Kyivstar has overcame the problem of maintaining profitability by increasing additional profits
from new business activities, often determined
by the needs of our corporate subscribers. To
support these activities we created the department of integrated solutions, which in 2007 successfully provided following services:
Fixed-line telephony is of great interest among
subscribers from both the B2B and B2C segments, 84% of which are the clients of LA level.
Developing convergent services of fixed-line
and mobile communication may win Kyivstar the
leading position on both the mobile and fixedline telephony market.
•
Leasing national and international data
transmission channels for corporate clients, national and international carriers.
•
Fixed-line Internet access.
•
Fixed-line telephony, which stresses
the policy of combining fixed-line
and corporate mobile networks.
At the end of 2007 we launched a large-scale
program aimed at defining our business abilities
in the fixed-line communication market. It was
aimed at defining clear target segments and
technologies for providing these services.
33
Kyivstar Honors
and Awards
2006
November
December
«Choice 2006», Kyivstar —
the Best Mobile Operator
Kyivstar
Communication Programs
Received Three Awards
«EFFIE Awards Ukraine 2006»
At the end of autumn Kyivstar was chosen as the
best mobile operator of the year according to
the results of «Choice 2006». This international
competition «Choice of the Year» is recognised
as an unbiased and extensive annual poll that
chooses the best market players in over 100
nominations on the basis of comprehensive
industry research.
December
Igor Lytovchenko — One of Three
Best Top Managers in Ukraine
Igor Lytovchenko, the President of Kyivstar, is
one of the three best top managers in the country according to Comp&nion magazine. The
magazine identified his outstanding managerial
skills, which have enabled Kyivstar to become
the leader in mobile operators.
EFFIE global awards are granted for high achievements and best practices in the sphere of advertising and PR-technologies. The Competition
«EFFIE Awards Ukraine» was created by an international advertising coalition and was presented
in Ukraine for the first time. Kyivstar’s communication programs, debuting in the competition,
were awarded three nominations:
Gold EFFIE — for the advertising campaign
«Better Country — Better Coverage».
Silver EFFIE — for the communication program
«Ukraine — the Heart of Europe».
Bronze EFFIE — for the campaign in launching
the youth brand DJUICE.
2007
May
July
Kyivstar —
the Most Expensive Brand in Ukraine
Kyivstar —
One of the Most
Attractive Employers
Kyivstar is recognized as the most expensive
brand in the nomination «FMCG» (fast-moving
consumer goods) according to the rating «Brand
Gvardia» compiled by the Ukrainian Rating Agency
and Publishing House «Halytski Kontrakty». Jury
members admired the company’s achievements,
quality of coverage and subscribers’ servicing,
market proposals and social activity.
According to the results of research carried out
by Robota International, Kyivstar was second in
the list of the most attractive employers — one
place higher than the preceding month. The
popularity rating is based on the number of visits
to an employers’ page on www.rabota.ua.
May
September
Andrew Simmons — One of the Ten
Best Financial Directors in Ukraine
Kyivstar —
the Leader in the Category
of Inspiring Companies
Andrew Simmons, Kyivstar’s Financial Director, took
fourth place among the ten best financial directors
in the country according to Comp&nion magazine.
The magazine admired his modern methods of financial management and the highly proficient financial analysis, which has allowed Kyivstar to become
the leader among Ukrainian mobile operators.
Kyivstar was ranked first in the annual survey «10
Inspiring Companies», compiled by Comp&nion
magazine. Experts state that Kyivstar inspires with
its aspiration for leadership, corporate strategy,
customer focus, reputation, staff policy, nonstandard marketing solutions and social responsibility.
35
November
November
Kyivstar — the Best Employer in Ukraine
The President of Kyivstar −
One of the Best
Top-Managers in Ukraine
In a specialized survey by GfK Ukraine for
Correspondent Weekly magazine, experts named
Kyivstar as the best employer in the country.
Kyivstar was recognized not only to be the best
employer among telecommunication companies,
but also took honorable first in a short poll of all
industries. Also, according to the results of a survey by Dilovyi magazine, Kyivstar was named
«The Best Employer in Ukraine», having won
twice as many votes as its immediate competitor.
Igor Lytovchenko is among the three best
top managers in the survey «The Best TopManagers of Ukraine» compiled by Comp&nion
business magazine. His strengths include: charisma, business efficiency, professionalism, full
participation in business processes, corporate
and managerial potential.
2008
March
March
Kyivstar — the Best Employer in
Ukraine According to Dilovyi Magazine
Kyivstar –
the Leader of CSR
Kyivstar was recognized as the best in the survey
«50 Best Employers» compiled by Dilovyi magazine in all categories and findings — according
to top, middle and low management representatives. Kyivstar took first place, leaving other
companies far behind in the number of votes it
received. In the category «The Best Employer
among Telecommunication Companies», the
national operator took first place as well.
Kyivstar attained the highest marks from experts in the survey «Companies of Social Responsibility» compiled by the Ukrainian wide
Rating Program «Gvardia». Kyivstar received А+
in all categories: attitude to the product, attitude
to the state, attitude to the consumer, attitude
to society, attitude to employees and attitude to
corporate structure, and took the position of one
of the leading CSR.
April
October
Kyivstar —
the Most Innovative Company
among Mobile Operators
Kyivstar —
the Best Tax Payer in Kyiv
Kyivstar took first place among mobile communication operators in the category of innovators
compiled by the Ukrainian Wide Rating Program
«Gvardia». Experts named the fact that Kyivstar
offers beneficial innovations to subscribers as
one of its main competitive advantages .
Kyivstar was ranked first in a survey of the best
tax payers during the first eight months of 2008
compiled by the State Tax Administration of
Ukraine.
June
November
Kyivstar — the Most Expensive
Brand in Ukraine
Kyivstar —
the Best Employer of
Ukraine
Kyivstar ranked first in a survey of the most
expensive brands in Ukraine compiled by the
Ukrainian Wide Rating Program «Gvardia». In the
opinion of experts, the high level of brand management allows Kyivstar not only to hold leading positions in the market, but also to actively
strengthen them.
Kyivstar took first place among employers in the
industry and in a general survey by Correspondent
magazine, and thus affirming its status as the
best employer in Ukraine.
September
November
Kyivstar —
the Leader in a Survey of
Inspiring Companies
The President of Kyivstar —
the Best Top Manager in Ukraine
In the annual survey «10 Inspiring Companies»
compiled by Comp&nion magazine, Kyivstar
took first place for the second time running. In
the opinion of the panel, the company has not
only the image of a telecommunication company, but also of an intermediary in the communication between people.
Igor Lytovchenko, the President of Kyivstar, took
first place in the annual survey «10 Best Top
Managers in Ukraine» compiled by Comp&nion
magazine. In the opinion of the panel, knowledge of his professional and personal qualities
is enough to understand the reasons for his success — the best at school, university and business — an absolutely consistent course in life.
Closed Joint Stock Company
Kyivstar G.S.M.
INDEPENDENT
AUDITORS’
REPORT
TO THE SHAREHOLDERS
OF CLOSED JOINT STOCK
COMPANY KYIVSTAR G.S.M.
The accompanying notes form an integral part of the consolidated financial statements
5
We have audited the accompanying consolidated financial statements of Closed Joint Stock Company Kyivstar G.S.M. (hereinafter
referred to as the ‘the Company’) and its subsidiary (hereinafter together referred to as the ‘the Group’), which comprise the
consolidated balance sheets as at 31 December 2007 and 2006
and the consolidated income statements, consolidated statements
of changes in equity and consolidated cash flow statements for
the years then ended, and a summary of significant accounting
policies and other explanatory notes.
Management’s
Responsibility for the
Financial Statements
Management is responsible for the preparation and
fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control
relevant to the preparation and fair presentation of
consolidated financial statements that are free from
material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’
Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our
audits. We conducted our audits in accordance with
International Standards on Auditing. Those standards
require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable
assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the financial statements. The procedures selected
depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of
the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s
preparation and fair presentation of the financial
statements in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial
position of the Group as at 31 December 2007 and
2006, and its financial performance and its cash flows
for the years then ended in accordance with
International Financial Reporting Standards.
25 May 2009
5
Kyivstar G.S.M.
CONSOLIDATED INCOME STATEMENTS
For the years ended 31 December 2007 and 2006
(in thousands of Ukrainian Hryvnia)
Notes
2007
2006
2005
Revenues
7
10,923,716
8,638,715
5,798,145
Costs of materials and traffic charges
7
(1,820,424)
(1,230,349)
(918,961)
Salaries and personnel costs
7
(644,000)
(435,721)
(337,552)
Other operating expenses
7
(2,034,040)
(1,893,839)
(1,289,613)
Other income and expenses
7
(51,399)
(8,909)
(9,474)
Depreciation and amortisation
7
(1,486,732)
(1,174,011)
(887,073)
Impairment of property, plant and
equipment
7
(79,182)
(24,460)
(11,617)
4,807,939
3,871,426
2,343,855
Finance income
7
244,152
113,815
31,953
Finance costs
7
(304,234)
(255,885)
(238,266)
Foreign exchange gain, net
22,704
5,534
98,281
Profit before tax
4,770,561
3,734,890
2,235,823
(1,248,662)
(980,350)
(591,026)
3,521,899
2,754,540
1,644,797
329.54
257.74
153.90
Income tax expense
8
Profit for the year
Earnings per share, UAH
30
Signed and authorised for release on behalf of Closed Joint Stock Company Kyivstar G.S.M. on 25 May 2009:
Igor Lytovchenko,
President
Andrew Simmons,
Chief Financial Officer
Lesya Samoylovich,
Deputy Chief Financial Officer,
Chief Accountant
at 31 December 2007 and 2006
7
CONSOLIDATED BALANCE SHEETS
As at 31 December 2007 and 2006
Notes
2007
2006
2005
Property, plant and equipment
9
6,603,393
6,236,985
4,859,854
Intangible assets
10
1,390,421
1,316,353
1,036,623
Derivative financial instrument
21
969
Other non-current assets
11
147,654
123,490
29,417
Deferred tax asset
8
241,424
160,381
136,779
8,383,861
7,837,209
6,062,673
ASSETS
Non-current assets
–
–
Current assets
Inventories
52,290
62,827
92,448
292,640
283,684
393,481
Trade and other receivables
12
Prepaid taxes, other than income tax
13
8,970
6,771
5,015
Prepayments
14
110,015
96,923
73,232
137,053
221,489
Deferred connection costs
16
107,606
Short-term deposits
17
764,338
Cash and cash equivalents
18
4,611,689
2,598,949
929,776
5,947,548
3,186,207
1,715,441
170,268
–
6,117,816
3,186,207
1,715,441
14,501,677
11,023,416
7,778,114
Assets of disposal group classified
as held for sale
TOTAL ASSETS
29
–
–
–
Kyivstar G.S.M.
CONSOLIDATED BALANCE SHEETS
(continued)
As at 31 December 2007 and 2006
Notes
2007
2006
2005
19
656,499
656,499
656,499
9,523,448
6,001,549
3,247,009
10,179,947
6,658,048
3,903,508
–
2,535,777
2,520,927
–
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
Share capital
Retained earnings
Non-current liabilities
Interest-bearing loans and borrowings
20
21
Employee benefit liability
22
36,960
33,484
17,561
9,578
3,110
17,561
2,582,315
2,557,521
Current liabilities
20
2,280,436
46,039
47,581
21
7,513
8,142
575
22
1,469
1,289
981
Deferred revenue
23
848,532
814,847
640,745
Provisions
24
3,325
–
–
Income tax payable
Taxes payable, other than income tax
25
103,853
64,105
85,697
90,963
57,182
60,160
Trade and other payables
26
671,560
579,398
308,289
Advances received
27
133,030
93,165
82,564
Other current liabilities
28
163,488
118,886
90,493
4,304,169
1,783,053
1,317,085
14,501,677
11,023,416
7,778,114
TOTAL EQUITY AND LIABILITIES
9
CONSOLIDATED CASH FLOW STATEMENTS
Notes 2007
2006
2005
3,734,890
2,235,823
Cash flows from operating activities
Profit before tax
4,770,561
Adjustments for:
Depreciation of property, plant and equipment
1,144,943
877,676
686,604
Impairment of property, plant and equipment
79,182
24,460
11,617
Amortisation of intangible assets
341,789
296,335
200,469
Loss on disposal of property, plant and equipment and intangibles
48,507
11,489
170
Interest income
(231,042)
(113,815)
(31,953)
Interest expense related to bank loans
304,234
243,231
230,932
Loss (gain) on derivative financial instrument
(13,110)
12,654
6,684
Movements in provisions and defined employee benefit liability
11,488
6,777
4,091
Unrealised foreign exchange gain (loss)
19,343
(2,396)
(81,540)
Operating profit before working capital changes
6,475,895
5,091,301
3,262,897
Inventories
10,537
29,621
(39,577)
Trade and other receivables and prepayments
(9,685)
91,399
(120,538)
Short-term deposits
(764,338)
–
–
29,447
84,435
93,531
(84,342)
502,085
(297,920)
Deferred revenue
33,685
174,103
127,376
Advances received
39,865
10,601
7,686
Other liabilities
78,382
25,415
51,812
Cash from operations
5,809,446
6,008,960
3,085,267
Interest received
216,736
105,756
31,953
Interest paid
(215,959)
(236,734)
(212,424)
Income taxes paid
(1,289,957)
(1,025,544)
(632,692)
Net cash from operating activities
4,520,266
4,852,438
2,272,104
Change in:
Kyivstar G.S.M.
CONSOLIDATED CASH FLOW STATEMENTS
(continued)
Notes
2007
2006
2005
Purchase of property, plant and equipment
(1,609,496)
(2,576,648)
(2,223,594)
Purchase of intangible assets
(449,804)
(598,840)
(472,955)
Proceeds from sale of property, plant and equipment
3,602
2,463
2,154
Net cash used in investing activities
(2,055,698)
(3,173,025)
(2,694,395)
Proceeds from loans and borrowings
–
–
1,262,500
Repayment of loans and borrowings
(393,900)
–
(204,545)
Repayment of domestic corporate bonds
–
–
(25,938)
Payment of financial fees
(18,035)
(5,418)
(14,903)
Proceeds arising on derivative financial instrument
–
–
14,095
Payments arising on derivative financial instrument
(20,550)
(7,218)
Net cash (used in)/from financing activities
(432,485)
(12,636)
1,031,209
Net increase in cash and cash equivalents
2,032,083
1,666,777
608,918
Net foreign exchange difference
(19,343)
2,396
18,832
Cash flows from investing activities
Cash flows from financing activities
–
Cash and cash equivalents as at 1 January
18
2,598,949
929,776
302,026
Cash and cash equivalents as at 31 December
18
4,611,689
2,598,949
929,776
Notes
Non cash transactions
Deferral of connection and subscription fees
2007
2006
2005
174,074
204,343
256,334
11
CONSOLIDATED STATEMENTS
OF CHANGES IN EQUITY
(у тисячах гривень)
Attributable to equity holders of the parent
Share capital (Note 19)
Retained earnings
Total equity
Balance at 1 January 2005
656 499
1 602 212
2 258 711
Profit for the year
–
1 644 797
1 644 797
Balance at 31 December 2005
656 499
3 247 009
3 903 508
Profit for the year
–
2 754 540
2 754 540
656 499
6 001 549
6 658 048
Profit for the year
–
3 521 899
3 521 899
656 499
9 523 448
10 179 947
Kyivstar G.S.M.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Corporate information
Closed Joint Stock Company Kyivstar G.S.M. (hereinafter referred to as ‘Kyivstar G.S.M.’ 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 telecommunications network and provides a wide
range of mobile communication services in Ukraine.
using the GSM standard for 15 years from the commencement of operations. In addition, the Company
was granted other licences that give the Company the
right to develop and operate wireless, long-distance,
local wire networks, and a data transfer network
throughout the country. These licences are provided
for a 13 to 15 year period.
In October 1997, the Company was granted a 900
MHz (GSM) cellular licence for operation in Ukraine.
In addition to that, during 2002 and 2003, the
Company obtained 1800 MHz (GSM) cellular licences
for operations in defined regions of Ukraine and started providing GSM-1800 services in those regions.
These licences give the Company the right to operate
The Company began commercial operations on 9
December 1997 in Kyiv. During the period since
inception, the Company has expanded its network
and as at 31 December 2007 operated in more than
28 thousand of large cities and towns in Ukraine from
6 branches located in Kyiv, Dnipropetrovsk, Odessa,
Kharkiv, Lviv and Simferopol.
As at 31 December 2005, 2006 and 2007 the Company’s shareholders and their respective declared interests
were as follows:
Interest
Number of
shares
Telenor Mobile Communications AS (Norway)
56.52%
6,040,262
Storm LLC (Ukraine)
43.48%
4,647,127
100.00%
10,687,389
The Company has one wholly owned subsidiary – Joint Stock Company ‘Staravto’, which was established in
order to provide transportation services to the Company. The Company and its subsidiary are hereinafter
together referred to as ‘the Group’.
13
2. Operating environment, risks
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.
The Ukrainian economy is vulnerable to market downturns and economic slowdowns elsewhere in the
world. The ongoing global financial crisis has resulted
in considerable instability in the capital markets, significant deterioration in the liquidity of banks, much
tighter credit conditions where credit is available, and
significant devaluation of the national currency
against major currencies. Furthermore, in the fourth
quarter of 2008, international agencies began to
downgrade the country’s credit ratings. Whilst the
Ukrainian Government is introducing various stabilisation measures aimed at providing liquidity and supporting debt refinancing for Ukrainian banks, there
continues to be uncertainty regarding access to capital and its cost for the Group and its counterparties.
These factors could affect the Group’s financial position, results of operations and business prospects.
Whilst management believes it is taking appropriate
measures to support the sustainability of the Group’s
business in the current circumstances, unexpected
further deterioration in the areas described above
could negatively affect the Group’s 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 derivative
financial instruments measured at fair value, and certain financial instruments measured in accordance
with the requirements of IAS 39 Financial instruments:
recognition and measurement. The carrying values
of recognised liabilities that are hedged items in fair
value hedges that would otherwise be carried at
amortised cost are adjusted to record changes in the
fair values attributable to the risks that are being
hedged.
These consolidated financial statements are presented in Ukrainian Hryvnia (‘UAH’) thousands and all values are rounded off to the nearest thousand except
where 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).
For all periods including the year ended 31 December
2005, the Group prepared its consolidated financial
statements in accordance with accounting standards
generally accepted in the United States of America
(US GAAP). These consolidated financial statements
are the first the Group has prepared in accordance
with IFRS. In preparing these consolidated financial statements, the Group’s consolidated opening
balance sheet was prepared on 1 January 2005, the
Group’s date of transition to IFRS.
As a first-time adopter of IFRS, the Group applied
IFRS 1, First-Time Adoption of International Financial
Reporting Standards. In accordance with IFRS 1, the
Group used the same accounting policies throughout
all periods presented in its first IFRS consolidated
financial statements. Those accounting policies comply with each IFRS effective at the reporting date for its
first IFRS financial statements (i.e., as at 31 December
2007). In addition, the Group has also early adopted
the following IFRS and IFRIC interpretation as at
1 January 2005:
Kyivstar G.S.M.
• IAS 23 Borrowing Costs (Revised)
effective 1 January 2009
• IFRIC 13 Customer Loyalty Programmes
effective 1 July 2008
• IAS 16 Property, Plant and Equipment:
Replace the term ‘net selling price‘ with
‘fair value less costs to sell’. The Group
amended its accounting policy
accordingly, which did not result in any
change in the financial position.
The principal effects of adopting these IFRS and • IAS 23 Borrowing Costs:
IFRIC are as follows:
The definition of borrowing costs is
revised to consolidate the two types of
IAS 23 Borrowing Costs (Revised)
items that are considered components of
‘borrowing costs’ into one – the interest
The IASB issued an amendment to IAS 23 in April
expense calculated using the effective interest
2007. The revised IAS 23 requires capitalisation of
rate method calculated in accordance
borrowing costs that are directly attributable to the
with IAS 39. The Group has amended its
acquisition, construction or production of a qualifying
accounting policy accordingly,
asset. Therefore, the Group capitalises borrowing
which did not result in any change
costs on qualifying assets with a commencement
in its financial position.
date on or after 1 January 2005.
• IAS 36 Impairment of Assets:
IFRIC 13 Customer Loyalty Programmes
When discounted cash flows are used to estimate
The IFRIC issued IFRIC 13 in June 2007. This interpre‘fair value less cost to sell’ additional disclosure
tation requires customer loyalty credits to be accountis required about the discount rate, consistent
ed for as a separate component of the sales
with disclosures required, when the discounted
transaction in which they are granted. A portion of the
cash flows are used to estimate ‘value in use’.
fair value of the consideration received is allocated to
This amendment has no immediate impact on
the award credits and deferred. This is then recogthe financial statements of the Group because
nised as revenue over the period that the award credthe recoverable amount of its cash generating
its are redeemed.
units is currently estimated using ‘value in use’.
Improvements to IFRSs
In the course of transition to IFRS, the Group did not
In May 2008 IASB issued its first omnibus of amend- use any of the exemptions provided by IFRS 1 for the
ments to its standards, primarily with a view to remov- first-time adopters.
ing inconsistencies and clarifying wording. There are The reconciliation of the Group’s equity as at 1
separate transitional provisions for each standard.
January 2005 and 31 December 2005 and profit for
The Company has early adopted the following amend- the year then ended between US GAAP and IFRS is
as follows:
ments to standards:
15
Equity as at
1 January 2005
Net profit for
the year of
2005
Comprehensive
income for the
year ended 31
December 2005
Equity as at
31 December
2005
US GAAP (audited), thousands of US
dollars, as reported
425 738
322 852
23 733
772 323
US GAAP, translated to UAH
2 258 711
1 641 523
125 914
4 026 148
Transition from USD to UAH as
presentation currency
–
–
(125 914)
(125 914)
Measurement of financial liabilities
–
4 365
–
4 365
Deferred tax
–
(1 091)
–
(1 091)
IFRS (audited)
2 258 711
1 644 797
–
3 903 508
Basis of consolidation
Foreign currency translation
The consolidated financial statements comprise the
financial statements of the Company and its whollyowned subsidiary. The subsidiary’s financial statements are prepared as at the same reporting date as
the Company’s, using consistent accounting policies.
Transactions denominated in currencies other than
the relevant functional currency (foreign currencies)
are initially recorded in the functional currency at the
rate in effect at the date of transaction. Monetary
assets and liabilities denominated in foreign currencies are translated at the functional-currency rate of
All intra-group balances, income and expenses and exchange in effect at the balance sheet date. Nonunrealised gains and losses resulting from intra-group monetary items that were measured in terms of histransactions are eliminated in full.
torical cost in a foreign currency are translated using
the exchange rate as at the date of the initial transacFunctional and presentation
tion. Non-monetary items measured at fair value in a
foreign currency are translated using the exchange
currencies
rates at the date when the fair values were deterThe Group’s functional and presentation currency is mined. The resulting gains and losses are recognised
Ukrainian Hryvnia.
in income statement.
Kyivstar G.S.M.
4. Summary of significant accounting policies
Revenue recognition
and measurement
Revenue is recognised to the extent that it is probable
that the economic benefits will flow to the Group and
the revenue can be reliably measured. Revenues are
measured at the fair value of the consideration
received or receivable, excluding discounts, rebates
and sales taxes. These taxes are regarded as collected on behalf on the authorities.
Revenues primarily comprise sales of:
• Services: revenue from air time charges,
interconnection fees, subscription and
connection fees, fees for data network services;
• Customer equipment: telephony
handsets, modems, etc.
Air time revenue
The Company earns air time revenue by providing its
prepaid and post-paid subscribers with access to the
cellular network and routing their calls through the
network and its roaming partners’ networks.
Subscription fees
Subscription fees mainly consist of various supplementary subscriptions and also include change of subscription type and transfer of subscriptions from one location
to another. One time subscription fees that are linked to
other elements in a way that the commercial effect cannot be understood without reference to the other transactions are deferred and recognised over the periods
that the fees are earned, which is the expected period
of the customer relationship and approximates 3 years.
Periodic subscription fees are recognised in the period
when the respective service is rendered.
Sales of telephony handsets and modems
Revenues from sales of handsets and modems are
normally recognised, when the related significant
risks and rewards are transferred to the buyer.
Discounts
Discounts are often provided in the form of cash discount, free products or services delivered by the
Company or by external parties. Discounts are recorded on a systematic basis over the period the discount is
earned. Cash discounts or free products are recorded
as revenue reductions. Free products or services delivered by external parties are recorded as expenses.
Revenue from interconnection
Revenue from interconnection represents the revenue
earned for the termination of calls from other telecom- Presentation
munications service providers’ networks on the Where the Company’s role in a transaction is a principal,
Company’s network.
revenue is recognised on a gross basis. The evaluation
Air time and interconnection revenue is recognised in of whether the Company is acting as principal or agent
is based on an evaluation of the substance of the transthe period when the respective service is rendered.
action, the responsibility for providing the goods or services and setting prices and the underlying financial risk
Connection fees
Connection fees are paid by subscribers for the first and rewards. This requires revenue to comprise the
time activation of network service. Revenues from gross value of the transaction billed to the customer,
connection that are linked to other elements in a way after trade discounts, with any related expenditure
that the commercial effect cannot be understood charged as an operating cost. Where the Company’s
without reference to the other transactions are role in a transaction is that of an agent, revenue is recogdeferred and recognised over the periods that the nised on a net basis and represents the margin earned.
fees are earned, which is the expected period of the Interest income
customer relationship and approximates 3 years. The
expected period of the customer relationship is based Interest income is recognised as interest accrued
on past history of churn and expected development of (using the effective interest method). Interest income is
included in finance income in the income statement.
the Company.
17
Deferred revenue
Depreciation is calculated on a straight-line basis
over the estimated remaining useful life of the asset as
Cellular service revenue is recognised on the basis of follows:
actual airtime usage by the end customer. Unused
time on sold prepaid cards is recognised as deferred
revenue until the related services have been provided
Asset category
Useful life
to the subscribers or the prepaid card has expired.
Loyalty programs
Customer loyalty credits are accounted for as a separate component of the sales transaction, in which they
are granted. A portion of the fair value of the consideration received is allocated to the award credits and
deferred, based on estimated number of award credits that will actually be earned by the customer. This is
then recognised as revenue over the period that the
award credits are redeemed.
Costs related to connection fees
Initial direct costs incurred in earning connection fees
are deferred over the same period as the revenue,
limited to the amount of the deferred connection fees.
Costs incurred consist primarily of the cost of the SIM
card and dealers’ bonuses. In some cases costs
associated with connection fees exceed the revenues
and the amount of connection costs exceeding the
amount of deferred connection fees is expensed.
Advertising costs, marketing
and sales commissions
(years)
Local, regional & trunk networks
20
Mobile telephone network and
switches
3–15
Radio installations
7
Buildings
15–30
Corporate administrative assets
3–4
Depreciation method, estimated useful life and residual value are evaluated at least annually and adjusted
prospectively, if appropriate. Residual value is estimated to be zero for most assets, except for vehicles,
which are included in corporate administrative assets,
that the Group does not expect to use for the assets’
whole economic life. Changes in estimates are
accounted for prospectively. Depreciation commences on the first day of the month following the date of
putting the item into operation. Freehold land is not
depreciated.
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued
use of the asset or disposal. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the
income statement in the year the item is derecogProperty, plant and equipment is stated at cost less nised.
accumulated depreciation and any accumulated impairment losses. Cost includes professional fees and, for Assets held under finance leases and leasehold
qualifying assets, borrowing costs are capitalised. improvements are depreciated over their expected
Depreciation is calculated to reduce the cost of assets, useful lives on the same basis as owned assets or,
other than land, to their estimated residual value, if any, where shorter, the term of the relevant lease.
over their estimated useful lives. Depreciation commenc- Construction in progress
es, when the assets are ready for their in-tended use.
Assets in the course of construction are capitalised as
Repair and maintenance is expensed as incurred. If a separate component of property, plant and equipnew parts are capitalised, replaced parts are derecog- ment. On completion, the cost of construction is
nised and any remaining net book value is recorded transferred to the appropriate category. Construction
to operating profit (loss) as loss on disposal.
in progress is not depreciated.
Advertising costs, marketing and sales commissions
are expensed as incurred, unless they form part of the
costs that are deferred in relation to deferral of connection fees as described above.
Kyivstar G.S.M.
Dismantled equipment
When equipment, which was used by the Group, is
temporarily dismantled or transferred from one location to another, it is continued to be depreciated on a
straight-line basis over the estimated remaining useful
life, which was established for this equipment before
dismantling. This is based on the fact that telecommunication equipment is subject to moral (functional)
depreciation due to technical innovation rather than
physical (wear and tear) depreciation. When the dismantled equipment is put back in service, the cost of
the base station, into which it is included, is increased
by the cost of the previously dismantled equipment
and accumulated depreciation is increased by the
amount of depreciation of the previously dismantled
equipment, accumulated for the period, during which
the item was accounted for as dismantled equipment.
and the present value of the minimum lease payments
at inception of the lease, less accumulated depreciation and impairment losses. Leased assets are depreciated over the useful life of the asset.
Operating leases payments are charged to profit or
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. Prepaid lease
payments made on entering into operating leases or
acquiring leaseholds are amortised over the lease
term in accordance with the pattern of benefits provided and included in the line item ‘depreciation and
amortisation’ in the income statement.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily
takes a substantial period of time to get ready for its
intended use or sale are capitalised as part of the cost
of the respective assets. All other borrowing costs are
expensed in the period they occur. Borrowing costs
Land
consist of interest and other costs that an entity incurs
Freehold land to which the Group has due legal title is in connection with the borrowing of funds.
included in the Group’s balance sheet at its historical
Intangible assets
cost. Freehold land is not depreciated.
Intangible assets acquired are initially measured at
Leases
cost. Following initial recognition, intangible assets
Leases are classified as finance leases whenever the are carried at cost less any accumulated amortisation
terms of the lease transfer substantially all the risks and and any accumulated impairment losses.
rewards of ownership to the lessee. All other leases are Intangible assets with finite useful lives are amortised
classified as operating leases. The evaluation is based over the useful economic lives. Useful lives and amortion the substance of the transaction. However, situa- sation method for intangible assets is reviewed at least
tions that individually would normally lead the Group to annually, and adjusted prospectively if appropriate.
classify a lease as a finance lease is if the lease term is
more than 75 percent of the estimated economic life or Amortisation is provided using the straight-line basis
the present value of the minimum lease payments over the estimated useful lives of the related assets as
exceeds 90 percent of the fair value of the leased asset. follows:
Uninstalled equipment
Uninstalled equipment represents equipment purchased by the Group, but not yet put into operation.
Uninstalled equipment is not depreciated.
The Group may enter into an arrangement that does not Asset category
Useful life (years)
take the legal form of a lease but conveys a right to use
10–15
an asset in return for a payment or series of payments. Operational licences
Determining whether an arrangement is, or contains, a
Network and billing software
5
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; Gains and losses arising from derecognition of an
and (b) the arrangement conveys a right to use the asset. intangible asset are measured as the difference
between the net disposal proceeds and the carrying
The Group as lessee
amount of the asset and are recognised as other
Plant and equipment acquired by way of finance lease expenses in the income statement as a part of opeis capitalised and carried at the lower of its fair value rating profit.
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.
Impairment losses of continuing operations are recognised in the income statement.
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. In identifying whether cash
inflows from an asset (or group of assets) are largely
independent of the cash inflows from other assets (or
group of assets), the management considers various
factors including how management monitors the entity’s operations (such as by product or service lines,
businesses, geographical areas). Based on the specifics of the Group’s operations, the management has
identified that the Group has one cash generating unit,
which is the Company’s network as a whole.
An assessment is made at each reporting date as to
whether there is any indication that previously recognised impairment losses may no longer exist or may
have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised
impairment loss is reversed only if there has been a
change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss
was recognised. If that is the case the carrying amount
of the asset is increased to its recoverable amount.
That increased amount cannot exceed the carrying
amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is
recognised in profit or loss. After such a reversal the
depreciation charge is adjusted in future periods to
allocate the asset’s revised carrying amount, less
19
any residual value, on a systematic basis over its remaining useful life.
Financial assets
Initial recognition
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or
loss, loans and receivables, held-to-maturity investments, 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.
Financial assets are recognised initially at fair value
plus, in the case of investments not at fair value through
profit or loss, directly attributable transaction costs.
Purchases or sales of financial assets that require delivery
of assets within a time frame established by regulation or
convention in the marketplace (regular way purchases)
are recognised on the trade date, i.e., the date that the
Group commits to purchase or sell the asset.
The Group’s financial assets include cash and shortterm deposits, trade and other receivables, loans,
and derivative financial instruments.
Subsequent measurement
The subsequent measurement of financial assets
depends on their classification as follows:
Financial assets at fair value through profit or loss
include financial assets held for trading and financial
assets designated upon initial recognition at fair value
through profit or loss. Financial assets are classified as
held for trading if they are acquired for the purpose of
selling in the near term. This category includes derivative financial instrument entered into by the Group that
do not meet the hedge accounting criteria as defined by
IAS 39. Financial assets at fair value through profit and
loss are carried in the balance sheet at fair value with
gains or losses recognised in the income statement.
Loans and receivables
Loans and receivables are non derivative financial
assets with fixed or determinable payments that are
not quoted in an active market. Such financial assets
are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in
the consolidated income statement when the loans
and receivables are derecognised or impaired, as
well as through the amortisation process.
Kyivstar G.S.M.
Held-to-maturity investments
Non derivative financial assets with fixed or determinable payments and fixed maturities are classified as
held-to-maturity, when the Group has the positive
intention and ability to hold it to maturity. After initial
measurement held-to-maturity investments are measured at amortised cost using the effective interest
method. This method uses an effective interest rate
that exactly discounts estimated future cash receipts
through the expected life of the financial asset to the
net carrying amount of the financial asset.
Financial liabilities at fair value through profit or loss
includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at
fair value through profit or loss.
Financial liabilities are classified as held for trading
if they are acquired for the purpose of selling in the
near term. This category includes derivative financial
instruments entered into by the Group that do not meet
the hedge accounting criteria as defined by IAS 39.
Gains or losses on liabilities held for trading are recognised in the income statement.
Available-for-sale financial assets
Loans and borrowings
Available-for-sale financial assets are non-derivative After initial recognition, interest bearing loans and
financial assets that are designated as available-for- borrowings are subsequently measured at amortised
sale or are not classified in any of the three preceding cost using the effective interest rate method.
categories. After initial measurement, available-forsale financial assets are measured at fair value with Gains and losses are recognised in the income stateunrealised gains or losses recognised directly in equity ment when the liabilities are derecognised as well as
until the investment is derecognised, at which time the through the amortisation process.
cumulative gain or loss recorded in equity is recognised in the income statement, or determined to be Offsetting of financial instruments
impaired, at which time the cumulative loss recorded Financial assets and financial liabilities are offset and
in equity is recognised in the income statement.
the net amount reported in the consolidated balance
The Group did not have any available-for-sale finan- sheet if, and only if, there is a currently enforceable
cial assets during the years ended 31 December legal right to offset the recognised amounts and there
is an intention to settle on a net basis, or to realise the
2007, 2006 and 2005.
assets and settle the liabilities simultaneously.
Financial liabilities
Initial recognition
Financial liabilities within the scope of IAS 39 are
classified as financial liabilities at fair value through
profit or loss, loans and borrowings, or as derivatives
designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the
classification of its financial liabilities at initial recognition.
Fair value of financial instruments
The fair value of financial instruments that are actively
traded in organised financial markets is determined by
reference to quoted market bid prices at the close of
business on the balance sheet date. For financial
instruments where there is no active market, fair
value is determined using valuation techniques. Such
techniques may include using recent arm’s length market transactions; reference to the current fair value of
another instrument that is substantially the same; disFinancial liabilities are recognised initially at fair value counted cash flow analysis or other valuation models.
plus in the case of loans and borrowings, directly
attributable transaction costs.
Amortised cost of
The Group’s financial liabilities mainly include trade financial instruments
and other payables, loans and borrowings, and deriv- Amortised cost is computed using the effective interest
ative financial instruments.
method less any allowance for impairment and principal repayment or reduction. The calculation takes into
account any premium or discount on acquisition and
The measurement of financial liabilities depends on includes transaction costs and fees that are an integral
their classification as follows:
part of the effective interest rate.
21
Fair value hedges
Gains and losses resulting from the use of actuarial
The Group uses fair value hedge primarily to hedge valuation methodologies to calculate post-employinterest rate risk of fixed-rate interest-bearing liabilities. ment benefits are recognised when the cumulative
unrecognised actuarial gains or losses for the plan at
Fair value hedges are hedges of the Group’s expo- the end of the previous reporting pariod exceed 10%
sure to changes in the fair value of a recognised asset of defined benefit obligation at that date. These gains
or liability or an unrecognised firm commitment, or an or losses are recognised as income or expense over
identified portion of such, that is attributable to a par- the expected average remaining working lives of the
ticular risk and could affect profit or loss. For fair value employees participating in the plan. Any actuarial
hedges, the carrying amount of the hedged item is gains or losses relating to jubilee benefits are recogadjusted for gains and losses attributable to the risk nised in the income statement in the period in which
being hedged. The derivative is also measured at fair they arise.
value and gains and losses from both the instrument
The past service cost is recognised as an expense on
and the item are recognised in profit or loss.
a straight-line basis over the average period until the
For fair value hedges relating to items earlier carried benefits become vested. If the benefits are already
at amortised cost, the adjustment from carrying vested following the introduction of, or changes to, a
amount to fair value is amortised through profit or loss pension plan, past service cost is recognised immeover the remaining time to maturity.
diately.
The Group discontinues fair value hedge accounting if
the hedging instrument expires or is sold, terminated or
exercised, the hedge no longer meets the criteria for
hedge accounting or the Group revokes the designation.
The defined benefit liability is the aggregate of the
present value of the defined benefit obligation and
actuarial gains and losses not recognised reduced by
past service cost not yet recognised.
Management uses actuarial techniques in calculating
the liabilities related to these employee benefits at
The Group makes defined contributions to the State each balance sheet date. Actual results could vary
Pension fund at the relevant statutory rates in force from estimates made to date.
during the year, based on gross salary payments;
such an expense is charged in the period when the Taxes
related salaries are earned.
Current income tax
In addition to the above, employees of the Group are Current tax assets and liabilities for the current and
entitled to jubilee and post-employment benefits.
prior periods are measured at the amount expected
Jubilee benefits are paid out on occasion of anniver- to be recovered from or paid to the taxation authorisary, while post-employment benefits are paid out as ties. The tax rates and tax laws used to compute the
a one-off benefit upon retirement. The amount of amount are those that are enacted or substantively
those benefits depends on the number of years of enacted by the balance sheet date.
employment and the average salary. The benefits
Deferred income tax
payable under these arrangements are unfunded.
Deferred income tax is provided using the liability
The expected cost of providing employee benefits is method on temporary differences at the balance
determined annually using the projected unit credit sheet date between the tax bases of assets and liabilactuarial valuation method to calculate the net present ities and their carrying amounts for financial reporting
value of benefit obligations at the balance sheet date. purposes.
The balance of employee benefit obligations equals discounted payments to be made in the future and accounts Deferred tax liabilities are recognised for all taxable
for staff turnover and relates to the period to the balance temporary differences, except:
sheet date. Demographic information and information
on staff turnover are based on historical data.
Employee benefits
Kyivstar G.S.M.
• where the deferred tax liability arises from
the initial recognition of goodwill or of an
asset or liability in a transaction that is not a
business combination and, at the time of the
transaction, affects neither the accounting
profit nor taxable profit or loss; and
• in respect of taxable temporary differences
Deferred tax assets and deferred tax liabilities are
offset, if a legally enforceable right exists to set off
current tax assets against current tax liabilities and
the deferred taxes relate to the same taxable entity
and the same taxation authority.
Value-added tax
Revenues, expenses and assets are recognised net
of the amount of value-added tax (“VAT”) except:
associated with investments in subsidiaries,
where the timing of the reversal of the
temporary differences can be controlled and
• where VAT incurred on a purchase of assets or
it is probable that the temporary differences
services is not recoverable from the taxation
will not reverse in the foreseeable future.
authority, in which case VAT is recognised as
part of the cost of acquisition of the asset or
Deferred income tax assets are recognised for all
as part of expense item as applicable; and
deductible temporary differences and carry-forward
of unused tax losses, to the extent that it is probable
that taxable profit will be available against which the • receivables and payables are stated
with the amount of VAT included.
deductible temporary differences, and the carry-forThe
net amount of VAT recoverable from, or payable
ward of unused tax losses can be utilised except:
to, the taxation authority is disclosed in the notes to
the consolidated balance sheet.
• where the deferred income tax asset relating
to the deductible temporary difference
Current/non-current
arises from the initial recognition of an
asset or liability in a transaction that is not a
classification
business combination and, at the time of the
An asset/liability is classified as current, when it is
transaction, affects neither the accounting
expected to be realised (settled) or is intended for
profit nor taxable profit or loss; and
sale or consumption in, the Group’s normal operating
• in respect of deductible temporary differences
cycle, it is held primarily for the purpose of being tradassociated with investments in subsidiaries,
ed, or it is expected/due to be realised or settled withdeferred tax assets are recognised only to the
in twelve months after the balance sheet date. Other
extent that it is probable that the temporary
assets/liabilities are classified as non-current. Finandifferences will reverse in the foreseeable future
cial instruments are classified based on expected life,
and taxable profit will be available against which
except for the trading instruments, and consistent
the temporary differences can be utilised.
with the underlying hedged item. Deferred revenues
The carrying amount of deferred income tax assets is and respective costs for connection are classified as
reviewed at each balance sheet date and reduced to current or non-current depending on the period, when
the extent that it is no longer probable that sufficient they are expected to be realised.
taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised. Unrecognised Cash and cash
deferred income tax assets are reassessed at each equivalents
balance sheet date and are recognised to the extent
that it has become probable that future taxable profit Cash and cash equivalents include cash at banks and
on hand and short-term deposits with an original
will allow the deferred tax asset to be recovered.
maturity of three monts or less.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the For the purpose of consolidated cash flow statement,
year when the asset is realised or the liability is settled, cash and cash equivalents consists of cash and cash
based on tax rates (and tax laws) that have been enact- equivalents as defined above, net of outstanding
ed or substantively enacted at the balance sheet date. bank overdrafts.
Provisions
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a result of
a past event, it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be
made of the amount of the obligation. Where the
Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but
only when the reimbursement is virtually certain. The
expense relating to any provision is presented in the
income statement net of any reimbursement. If the
effect of the time value of money is material, provisions are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the
provision due to the passage of time is recognised as
a finance cost.
23
Contingent liabilities are not recognised in the
financial statements unless it is probable that an
outflow of economic resources will be required to
settle the obligation and it can be reasonably estimated. They are disclosed unless the possibility of
an outflow of resources embodying economic benefits is remote.
Inventories
Inventories are valued at the lower of cost or net realisable value for products that will be sold as a separate product. Inventories that will be sold as part of
a transaction with several components, which the
Group expects to earn net income from, are valued at
cost even if the selling price of the inventory is below
cost price. Cost is determined using the FIFO method.
Events after the balance sheet date
Events after the balance sheet date that provide additional information on the Group’s position at the balContingent assets and liabilities
ance sheet date (adjusting events) are reflected in the
A contingent asset is not recognised in the financial consolidated financial statements. Events after the
statements but disclosed when an inflow of economic balance sheet date that are not adjusting events are
disclosed in the notes when material.
benefits is probable.
Kyivstar G.S.M.
5. Critical accounting
judgements and key
sources of estimation
uncertainty
revenue, e.g. some connection fees, which means
that the management has to estimate the average
customer relationship period.
Employee benefits
The cost of long-term employee benefits and other
post employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary
Key sources of estimation
increases and future pension increases. All assumpuncertainty – critical
tions are reviewed at each reporting date. In determining the discount rate, the management considers
accounting estimates
the market yields on government bonds. The turnover
Certain amounts included in or affecting the consoli- rate is calculated based on the past experience.
dated financial statements and related disclosures
must be estimated, requiring management to make Further details about the assumptions used are given
assumptions with respect to values or conditions in Note 22.
which cannot be known with certainty at the time the
consolidated financial statements are prepared. A Deferred tax assets
‘critical accounting estimate’ is one, which is both Deferred tax assets are recognised for all deductible
important to the portrayal of the Group’s financial temporary differences to the extent that it is probable
condition and results and requires management’s that taxable profit will be available against which the
most difficult, subjective or complex judgments, losses can be utilised. Significant management judgoften as a result of the need to make estimates about ment is required to determine the amount of deferred
the effect of matters that are inherently uncertain. tax assets that can be recognised, based upon the
Management evaluates such estimates on an ongo- likely timing and the level of future taxable profits
ing basis, based upon historical results and experi- together with future tax planning strategies. Please
ence, consultation with experts, trends and other refer to Note 8 for additional information on the
methods, which management considers reasonable Group’s tax position.
in the particular circumstances, as well as the forecasts as to how these might change in the future.
However, uncertainty about these estimates could Depreciation and amortisation
result in outcomes that require a material adjustment Depreciation and amortisation is based on manageto the carrying amount of the asset or liability affect- ment estimates of the future useful life of property,
plant and equipment and intangible assets. Estimates
ed in future periods.
may change due to technological developments,
competition, changes in market conditions and other
Revenue recognition
factors and may result in changes in the estimated
The main part of the Group’s revenues is based on useful life and in the amortisation or depreciation
usage, such as traffic or periodic subscriptions. The charges. Technological developments are difficult to
Company has many subscribers and offers a number predict and the Group’s views on the trends and pace
of different services with different price plans. The of development may change over time. Some of the
Company provides discounts of various types, often assets and technologies, in which the Group invested
in connection with different campaigns. Management several years ago, are still in use and provide the
has to make a number of estimates related to recog- basis for the new technologies. The useful lives of
nising revenues. To some extent, management has to property, plant and equipment and intangible assets
rely on information from other operators on amounts are reviewed at least annually taking into considerof services delivered. For some services, the other ation the factors mentioned above and all other imporparties may dispute the prices charged. Management tant factors. In case of significant changes in estimated
makes estimates of the final outcome. Some revenues useful lives, depreciation and amortisation charges
are recorded in the balance sheet as deferred are adjusted prospectively.
The Group has made significant investments in property, plant and equipment and intangible assets.
These assets are tested, as described, for impairment
annually or when circumstances indicate there may
be a potential impairment. Factors considered important which could trigger an impairment evaluation
include the following: significant fall in market values;
significant underperformance relative to historical or
projected future operating results; significant changes in the use of assets or the strategy for the Group’s
overall business, including assets that are decided to
be phased out or replaced and assets that are damaged or taken out of use, significant negative industry
or economic trends and significant cost overruns in
the development of assets.
25
Legal proceedings, claims
and regulatory discussions
The Group is a subject to various legal proceedings
and claims including regulatory discussions, the outcomes of which are subject to significant uncertainty.
Management evaluates, among other factors, the
degree of probability of an unfavourable outcome and
the ability to make a reasonable estimate of the
amount of loss. Unanticipated events or changes in
these factors may require to increase or decrease the
amount to be accrued for any matter or accrue for a
matter that has not been previously accrued because
it was not considered probable or a reasonable estimate could not be made.
Estimating recoverable amounts of assets must in part
be based on management’s evaluations, including
determining appropriate cash generating units, estimates of future performance, revenue generating
capacity of the assets, assumptions of the future market conditions and the success in marketing of new
products and services. Changes in circumstances and
in management’s evaluations and assumptions may
give rise to impairment losses in the relevant pe-riods.
Kyivstar G.S.M.
6. IFRSs and IFRIC
Interpretations not
yet effective
The Group has not adopted the following IFRS and
IFRIC interpretations published but not yet effective.
Adoption of these standards and interpretations will
not have any effect on the financial performance or
position of the Group. They will however give rise to
additional disclosures, including revisions to accounting policies.
• Amendments to IFRS 1 First-time Adoption
of International Financial Reporting
Standards and IAS 27R Consolidated
and Separate Financial Statements
• IFRS 3R Business Combinations
• IAS 1 Presentation of Financial
Statements (Revised)
• IAS 32 Financial Instruments: Presentation
and IAS 1 Presentation of Financial
Statements – Puttable Financial Instruments
and Obligations Arising on Liquidation
• IAS 39 Financial Instruments: Recognition
and Measurement – Eligible Hedged Items
• IFRS 2 Share-based payments (Revised)
• IFRS 8 Operating Segments
• IFRIC 11 IFRS 2 Group and
Treasury Share Transactions
• IFRIC 12 Service Concession Arrangements
• IFRIC 14 IAS 19 – The Limit on a Defined
Benefit Asset, Minimum Funding
Requirements and their Interaction
• IFRIC 15 Agreement for the
Construction of Real Estate
• IFRIC 16 Hedges of a Net Investment
in a Foreign Operation
• IFRIC 17 Distributions of Noncash Assets to Owners
• FRIC 18 Transfers of Assets from Customers
• Certain improvements to IFRS issues by
IASB in its first omnibus of amendments
Amendments to IFRS 1
First-time Adoption of International
Financial Reporting Standards
and IAS 27 Consolidated
and Separate Financial
Statements
The amendments to IFRS 1 allows an entity to determine
the ‘cost’ of investments in subsidiaries, jointly controlled
entities or associates in its opening IFRS financial statements in accordance with IAS 27 or using a deemed
cost. The amendment to IAS 27 requires all dividends
from a subsidiary, jointly controlled entity or associate to
be recognised in the income statement in the separate
financial statement. Both revisions will be effective for
financial years beginning on or after 1 January 2009.
The revision to IAS 27 will have to be applied prospectively. The new requirements affect only the parent’s
separate financial statement and do not have an impact
on the consolidated financial statements.
IFRS 3R Business Combinations
and IAS 27R Consolidated
and Separate Financial
Statements
The revised standards were issued in January 2008
and become effective for financial years beginning on
or after 1 July 2009. IFRS 3R introduces a number of
changes in the accounting for business combinations
occurring after this date that will impact the amount of
goodwill recognised, the reported results in the period that an acquisition occurs, and future reported
results. IAS 27R requires that a change in the ownership interest of a subsidiary (without loss of control) is
accounted for as an equity transaction. Therefore,
such transactions will no longer give rise to goodwill,
nor will it give rise to a gain or loss. Furthermore, the
amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of
control of a subsidiary. Other consequential amendments were made to IAS 7 Statement of Cash Flows,
IAS 12 Income Taxes, IAS 21 The Effects of Changes
in Foreign Exchange Rates, IAS 28 Investment in
Associates and IAS 31 Interests in Joint Ventures. The
changes by IFRS 3R and IAS 27R will affect future
acquisitions or loss of control. The standards may be
early applied. However, the Group does not intend to
take advantage of this possibility.
IAS 1 Presentation of Financial
The revised Standard was issued in September 2007
and becomes effective for financial years beginning
on or after 1 January 2009. The Standard separates
owner and non-owner changes in equity. The statement of changes in equity will include only details of
transactions with owners, with non-owner changes in
equity presented as a single line. In addition, the
Standard introduces the statement of comprehensive
income: it presents all items of recognised income
and expense, either in one single statement, or in two
linked statements. The Group is still evaluating whether it will have one or two statements.
27
IFRS 2 Share-based
payment (Revised)
This amendment to IFRS 2 was published in January
2008 and becomes effective for financial years beginning on or after 1 January 2009. The Standard restricts
the definition of ’vesting condition’ to a condition that
includes an explicit or implicit requirement to provide
services. Any other conditions are non-vesting conditions, which have to be taken into account to determine the fair value of the equity instruments granted.
In case that the award does not vest as the result of a
failure to meet a non-vesting condition that is within
the control of either the Group of the counterparty,
this must be accounted for as a cancellation. The
Group has not entered into share-based payment
schemes and, therefore, the Standard will not have
impact on the financial position or performance of the
Group.
IAS 32 Financial Instruments:
Presentation and IAS 1 Presentation
of Financial Statements – Puttable
IFRS 8 Operating Segments
IFRS 8 was issued in November 2006. It sets out
Financial Instruments and
requirements for disclosure of information about an
Obligations Arising on Liquidation
entity’s operating segments and also about the entiThese amendments to IAS 32 and IAS 1 were issued
in February 2008 and become effective for financial
years beginning on or after 1 January 2009. The revisions provide a limited scope exception for puttable
instruments to be classified as equity if they fulfil a
number of specified features. The amendments to the
standards will have no impact on the financial position
or performance of the Group, as the Group has not
issued such instruments.
Recognition and Measurement –
Eligible Hedged Items
These amendments to IAS 39 were issued in August
2008 and become effective for financial years beginning on or after 1 July 2009. The amendment
addresses the designation of a one-sided risk in a
hedged item, and the designation of inflation as a
hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion
of the fair value changes or cash flow variability of a
financial instrument as hedged item. The Group has
concluded that the amendment will have no impact
on the financial position or performance of the
Group, as the Group has not entered into any such
hedges.
ty’s products and services, the geographical areas in
which it operates, and its major customers. This IFRS
replaces IAS 14 Segment Reporting. An entity shall
apply this IFRS in its annual financial statements for
periods beginning on or after 1 January 2009.
Segment information for prior years that is reported as
comparative information for the initial year of application shall be restated to conform to the requirements
of this IFRS, unless the necessary information is not
available and the cost to develop it would be excessive. The Group expects that this standard will not
result in additional disclosures as the Group’ s structure is non-complex and it has only one reportable
segment.
IFRIC 11 IFRS 2 Group and
IFRIC 11 addresses the issue of whether certain transactions should be accounted for as equity-settled or
as cash-settled under the requirements of IFRS 2
Share-based Payment, and concerns the accounting
treatment for share-based payment arrangements
that involve two or more entities within the same
group. An entity shall apply this interpretation for
annual periods beginning on or after 1 March 2007.
The Group has not issued instruments caught by this
interpretation.
Kyivstar G.S.M.
IFRIC 12 Service Concession
Arrangements
IFRIC 12 applies to public-to-private service concession arrangements and gives guidance on the
accounting by operators for public-to-private service
concession arrangements. An entity shall apply this
interpretation for annual periods beginning on or after
1 January 2008. No member of the Group is a service
concession operator and, therefore, this interpretation will have no impact on the Group.
IFRIC 14 IAS 19 The Limit
on a Defined Benefit Asset,
Minimum Funding Requirements
and their Interaction
IFRIC Interpretation 14 was issued in July 2007 and
becomes effective for annual periods beginning on or
after 1 January 2008. This Interpretation provides guidance on how to assess the limit on the amount of surplus
in a defined benefit scheme that can be recognised as
an asset under IAS 19 Employee Benefits. The Group’s
defined benefit schemes are unfunded, therefore, the
adoption of this interpretation will have no impact on the
financial position or performance of the Group.
IFRIC 15 Agreement for the
IFRIC 15 was issued in July 2008 and becomes effective for financial years beginning on or after 1 January
2009. The interpretation is to be applied retrospectively. It clarifies when and how revenue and related
expenses from the sale of a real estate unit should be
recognised if an agreement between a developer and
a buyer is reached before the construction of the real
estate is completed. Furthermore, the interpretation
provides guidance on how to determine whether an
agreement is within the scope of IAS 11 or IAS 18.
IFRIC 15 will not have an impact on the consolidated
financial statements because the Group does not
conduct such activity.
IFRIC 16 Hedges of a Net
Investment in a Foreign Operation
IFRIC 16 was issued in July 2008 and becomes effective for financial years beginning on or after 1 October
2008. The interpretation is to be applied prospectively.
IFRIC 16 provides guidance on the accounting for a
hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that
qualify for hedge accounting in the hedge of a net
investment, where within the group the hedging instruments can be held in the hedge of a net investment
and how an entity should determine the amount of foreign currency gain or loss, relating to both the net
investment and the hedging instrument, to be recycled on disposal of the net investment. IFRIC 16 will
not have an impact on the financial statements,
because the Company does not have investments in
foreign operations.
IFRIC 17 Distributions of Noncash Assets to Owners
IFRIC 17 was issued in November 2008 and becomes
effective for financial years beginning on or after 1
July 2009 with early application permitted. This interpretation should be applied prospectively. IFRIC 17
provides guidance on accounting for distributions of
non-cash assets to owners. As such it provides guidance on when to recognise a liability, how to measure
it and the associated assets, and when to derecognise the asset and liability and the consequences of
doing so. IFRIC 17 will have no impact on the financial
position or performance of the Group, as the Group
does not distribute non-cash assets to its owners.
IFRIC 18 Transfers of Assets
from Customers
IFRIC 18 was issued in January 2009 and becomes
July 2009 with early application permitted, provided
valuations were obtained at the date those transfers
occurred. This interpretation should be applied prospectively. IFRIC 18 provides guidance on accounting
for agreements in which an entity receives from a customer an item of property, plant and equipment that
the entity must then use either to connect the customer to a network or to provide the customer with
ongoing access to a supply of goods or services or to
do both. The interpretation clarifies the circumstances
in which the definition of an asset is met, the recognition of the asset and its measurement on initial recognition, the identification of the separately identifiable
services, the recognition of revenue and the accounting for transfers of cash from customers. IFRIC 18 will
have no impact on the financial position or performance of the Group, as the Group does not receive
assets from customers.
Improvements to IFRS
As stated in Note 3 the Group has early adopted some
of the amendments to standards following the 2007
‘Improvement to IFRSs’ project. The Group has not yet
adopted the following amendments to standards and
anticipates that these changes will have no material
effect on the consolidated financial statements:
29
received and the discounted amount is accounted for
as government grant. Also, revised various terms
used to be consistent with other IFRS.
IAS 27 Consolidated and Separate
Financial Statements:
When a parent entity accounts for a subsidiary at fair
value in accordance with IAS 39 in its separate financial statements, this treatment continues when the
IAS 1 Presentation of Financial Statements:
Assets and liabilities classified as held for trading in subsidiary is subsequently classified as held for sale.
accordance with IAS 39 Financial Instruments: IAS 29 Financial Reporting in
Recognition and Measurement are not automatically Hyperinflationary Economies:
classified as current in the balance sheet.
Revised the reference to the exception to measure
assets and liabilities at historical cost, such that it
IFRS 7 Financial Instruments: Disclosures:
Removal of the reference to ‘total interest income’ as notes property, plant and equipment as being an
example, rather than implying that it is a definitive list.
a component of finance costs.
Also, revised various terms used to be consistent with
other IFRS.
IAS 8 Accounting Policies, Change in
Accounting Estimates and Errors:
IAS 34 Interim Financial Reporting:
Clarification that only implementation guidance that is
an integral part of an IFRS is mandatory when select- Earnings per share is disclosed in interim financial
reports if an entity is within the scope of IAS 33.
ing accounting policies.
IAS 10 Events after the Reporting Period:
Recognition and Measurement:
Clarification that dividends declared after the end of
Changes in circumstances relating to derivatives do
the reporting period are not obligations.
not result in reclassifications and therefore derivatives
when circumstances related to them change may be
IAS 16 Property, Plant and Equipment:
Items of property, plant and equipment held for rental either removed from, or included in, the ‘fair value
that are routinely sold in the ordinary course of busi- through profit or loss’ classification after initial recogness after rental, are transferred to inventory when nition. Removed the reference in IAS 39 to a ‘segment’ when determining whether an instrument
rental ceases and they are held for sale.
qualifies as a hedge. Require the use of the revised
effective interest rate when remeasuring a debt instruIAS 18 Revenue:
ment on the cessation of fair value hedge accounting.
Replacement of the term ‘direct costs’ with
‘transaction costs’ as defined in IAS 39.
IAS 40 Investment Property:
IAS 19 Employee Benefits:
Revision of the scope such that property under conRevised the definition of ‘past service costs’, ‘return struction or development for future use as an investon plan assets’ and ‘short term’ and ‘other long-term’ ment property is classified as investment property.
employee benefits. Amendments to plans that result If fair value cannot be reliably determined, the investin a reduction in benefits related to future services are ment under construction will be measured at cost until
accounted for as curtailment. Deleted the reference such time as fair value can be determined or conto the recognition of contingent liabilities to ensure struction is complete. Also, revised of the conditions
consistency with IAS 37.
for a voluntary change in accounting policy to be
consistent with IAS 8 and clarified that the carrying
IAS 20 Accounting for Government Grants and
amount of investment property held under lease is
Disclosures of Government Assistance:
the valuation obtained increased by any recognised
Loans granted in the future with no or low interest liability.
rates will not be exempt from the requirement to
impute interest. The difference between the amount
Kyivstar G.S.M.
IAS 41 Agriculture:
Removed the reference to the use of a pre-tax discount rate to determine fair value. Removed the prohibition to take into account cash flows resulting from
any additional transformations when estimating fair
value. Also, replaced of the term ‘point-of-sale costs’
with ‘costs to sell’.
IAS 38 Intangible Assets:
Expenditure on advertising and promotional activities
is recognised as an expense when the Company
either has the right to access the goods or has
received the service. The Group has amended its
accounting policy accordingly which did not result in
any change in its financial position.
IAS 28 Investment in Associates:
If an associate is accounted for at fair value in accordance with IAS 39, only the requirement of IAS 28 to
disclose the nature and extent of any significant
restrictions on the ability of the associate to transfer
funds to the entity in the form of cash or repayment of
loans applies. This amendment has no impact on the
Group as it does not have investments in associates.
The reference to there being rarely, if ever, persuasive
evidence to support an amortization method of intangible assets other than a straight-line method has
been removed. The Group reassessed the useful lives
of its intangible assets and concluded that the
straight-line method was still appropriate.
31
7. Revenues and expenses
Revenues
2007
2006
2005
Air time charges
6 330 195
4 801 207
2 984 079
Interconnection revenue
2 213 091
1 821 677
1 497 818
Subscription fees
843 936
639 984
363 252
Value added services
816 846
786 248
492 349
Connection fees
298 646
251 041
166 541
Roaming revenue (subscribers)
199 159
133 493
89 135
Roaming and access to network
185 952
184 920
167 224
Fixed lines
10 980
7 308
22 404
Other revenue
24 911
12 837
15 343
10 923 716
8 638 715
5 798 145
Air time charges include revenue from providing prepaid and post-paid subscribers with access to the
cellular network and routing their calls through the
network.
Connection fees consist of revenues from initial connection and supplementary subscriptions, which are
realised in the current period, and also include change
of subscription type and transfer of subscriptions
from one location to another.
Interconnection includes revenues earned for the termination of calls from other telecommunications ser- Roaming revenue (subscribers) includes revenue
vice providers’ networks on the Company’s network. from services provided to the Company’s subscribers
within the networks of the Company’s roaming partSubscription fees include periodic fees for subscrip- ners.
tion to new tariff plans and periodic fees for supplementary subscriptions such as subscription to Roaming and access to network includes revenue
voicemail, itemised invoice etc.
from services provided to subscribers of other operators and termination of incoming calls.
Value added services include outgoing SMS and
MMS, circuit of switched data and packet switched Fixed lines include revenue from fixed network operadata (WAP, GPRS, EDGE etc.)
tions.
Kyivstar G.S.M.
Costs of materials and
traffic charges
2007
2006
2005
Interconnection
1 471 901
924 509
651 872
Roaming expenses
183 881
119 208
88 204
Cost of materials
157 795
168 756
130 406
Leased line costs
6 847
17 876
48 479
1 820 424
1 230 349
918 961
2007
2006
2005
Salaries and holiday pay
508 359
349 227
270 824
Social security taxes
105 962
60 194
40 284
Medical insurance
13 451
9 656
6 924
Training
8 462
10 034
15 430
Other personnel costs
7 766
6 610
4 090
644 000
435 721
337 552
The average number of employees of the Group
in 2007 was 3,567 (2006: 2,902, 2005: 2,366).
33
2007 р.
2006 р.
2005 р.
Marketing and sales commission
753 991
813 966
495 242
Advertising
446 865
386 918
293 343
Repair and maintenance
424 018
281 542
192 357
Operating leases of building, land and equipment
154 593
97 648
54 614
Insurance
60 989
53 322
32 702
Local taxes and non-refundable VAT
50 694
60 302
43 809
Consultancy fees and external personnel
30 201
22 486
30 305
Materials and supplies
25 565
32 298
25 514
Business trip expenses
25 398
27 159
20 887
License and research fees
21 234
53 000
39 345
Bad debts
13 650
13 165
21 652
Bank charges
6 445
6 846
7 488
Postage, freight, distribution and telecommunication
2 611
10 752
7 918
17 786
34 435
24 437
2 034 040
1 893 839
1 289 613
2007 р.
2006 р.
2005 р.
Contributions and donations paid
4 628
6 268
12 113
Loss on disposal of property, plant and equipment
and intangible assets
48 507
11 489
170
Other income
(1 736)
(8 848)
(2 809)
51 399
8 909
9 474
Kyivstar G.S.M.
Amortisation, depreciation and impairment losses
Details of amortisation, depreciation and impairment losses are as follows:
Depreciation and
amortisation
Impairment
losses
Intangible assets
2007
2007 р.
2006 р.
2005 р.
341 789
296 335
200 469
–
–
–
341 789
296 335
200 469
2006
2005
1,144,943
877,676
686,604
79,182
24,460
11,617
902 136
698 221
1 224 125
The impairment losses in 2007, 2006 and 2005 were recognised based on internal indications of impairment
of various components of network equipment. Accordingly, the carrying values of the respective components
of network equipment were reduced to their recoverable amounts.
Finance income
Interest income
Net gain on financial instrument at fair
value through profit and loss
(i)
2007
2006
2005
231,042
113,815
31,953
13,110
244 152
–
113 815
–
31 953
35
Finance costs
Interest expenses related to bank
loans
Net loss on fair value hedge
Other finance costs
Less – interest capitalised
i.
(i)
2007
2006
2005
321,615
261,069
251,273
–
12,654
6,684
–
–
650
321,615
273,723
258,607
(17,381)
(17,838)
(20,341)
304 234
255 885
238 266
i) Net gain on financial instrument at fair value through profit and loss and net loss on fair value hedge relate to
change in fair value of interest rate swap with Citibank N.A. designated to hedge the Company’s risk of changes in the
fair value of one of the loans received from Dresdner Bank. In 2006 and 2005 the hedge was effective and the change
in fair value of the interest rate swap has been recognised in finance costs and offset with a similar change in fair
value on the hedged item.
In 2007 the hedge was ineffective and did not fulfill the requirements for hedge accounting according to IAS
39. Respective net gain on change in fair value of interest rate swap in 2007 was recognised in finance
income. See Note 21 for details.
Kyivstar G.S.M.
8. Income tax
The Group’s income was subject to taxation in Ukraine only. During the years ended 31 December 2007, 2006
and 2005 Ukrainian corporate income tax was levied on taxable income less allowable expenses at a rate of 25%.
The major components of income tax expense for the year ended 31 December 2007, 2006 and 2005 are:
2007
2006
2005
Current income tax charge
1,329,705
1,003,952
666,171
Deferred tax related to origination and reversal of
temporary differences
(81,043)
(23,602)
(75,145)
Income tax expense
1,248,662
980,350
591,026
Reconciliations between tax expense and the product of accounting profit multiplied by the tax rate for the
years ended 31 December 2007, 2006 and 2005, are as follows:
2007
2006
2005
Profit before tax
4,770,561
3,734,890
2,235,823
Income tax at statutory rate of 25%
1,192,640
933,723
558,956
Non-tax deductible expenses
56,022
46,627
32,070
Income tax expense
1,248,662
980,350
591,026
37
Deferred tax assets and liabilities relate to the following items in 2007:
31-Dec-07
Charged
to Income
Statement
Property, plant and equipment and intangible assets (i)
39 737
(27 068)
66 805
Deferred connection costs (iii)
26 901
(7 362)
34 263
Prepayments (iii)
15 462
6 743
8 719
Inventories (ii)
595
316
279
Interest-bearing loans and borrowings (iv)
–
(23 150)
23 150
Trade and other payables (v)
444
444
–
83 139
(50 077)
133 216
9 820
8 559
1 261
31-Dec-06
Deferred tax liabilities:
Deferred tax assets:
Trade and other receivables (v)
Other current liabilities (v)
39 604
9 883
29 721
Employee benefits (v)
4 757
2 040
2 717
–
(117)
117
Advances received and deferred revenue (iii)
268 746
20 240
248 506
Derivative financial instrument (iv)
1 636
(9 639)
11 275
324 563
30 966
293 597
241 424
81 043
160 381
Net deferred tax asset
Kyivstar G.S.M.
31-Dec-06
Charged
to Income
Statement
31-Dec-05
66,805
58,164
8,641
34,263
(21,109)
55,372
11,484
Prepayments (iii)
8,719
(2,765)
Inventories (ii)
279
279
23,150
(3,226)
26,376
–
(3,709)
3,709
133,216
27,634
105,582
1,261
1,261
–
(5,690)
5,690
–
Inventories (ii)
–
29,721
7,098
22,623
2,717
1,694
1,023
117
117
–
248,506
36,774
211,732
11,275
9,982
1,293
293,597
51,236
242,361
160,381
23,602
136,779
39
31-Dec-05
Charged to Income
Statement
1-Jan-05
8,641
(4,683)
13,324
Prepayments (iii)
11,484
7,580
3,904
55,372
55,372
–
26,376
9,839
3,709
3,709
16,537
–
105 582
71 817
33 765
5 690
(10 032)
15 722
Inventories (ii)
22 623
13 025
9 598
1 023
1 023
–
211 732
144 022
67 710
1 293
(1 076)
2 369
242 361
146 962
95 399
136 779
75 145
61 634
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 valuation models and the periods of recognition;
iii. (Advances received and deferred revenue, prepayments and deferred connection costs – differences in period of recognition;
iv. Interest-bearing borrowings and derivative financial instrument – differences in valuation models (cost vs. fair values or amortised
cost);
v. Other liabilities and receivables – differences in valuation and recognition principles.
As at 31 December 2006 the Group has not recognised deferred tax liability in respect of UAH 2,400 thousand (2007: nil,
2005: nil) temporary difference associated with its investment in subsidiary as the Group is able to control the timing of
the reversal of this temporary difference and does not intend to reverse it in the foreseeable future.
Kyivstar G.S.M.
9. Property, plant and equipment
The movement of property, plant and equipment is as follows:
Construction
in progress,
uninstalled
and
dismantled
equipment (iii)
Total
616 847
3 775 789
Local,
regional&
trunk
networks
Mobile
telephone
network and
switches
Radio
installations
Buildings
Land
Corporate
administrative
assets
At 1 January 2005
206 710
1 846 248
898 484
28 051
9 874
169 575
Additions (i)
104 420
43 250
21 239
308
3 713
95 353
2 175 758
2 444 041
(1 681)
(37)
(972)
–
(7 072)
(578)
(10 340)
–
Cost:
Disposals
–
Transfers
13 366
1 160 553
586 378
121 044
18 616
(1 899 957)
–
At 31 December 2005
324 496
3 048 370
1 506 064
148 431
13 587
276 472
892 070
6 209 490
Additions (i)
110 987
11 147
20 749
1 312
172
59 577
2 088 842
2 292 786
–
Disposals
(57)
–
(913)
–
(12 524)
(42 870)
(56 364)
Transfers
21 706
656 741
724 043
86 236
–
83 543
(1 572 269)
–
At 31 December 2006
457 132
3 716 258
2 250 856
235 066
13 759
407 068
1 365 773
8 445 912
Additions (i)
8 430
23 592
92 516
814
1 347
12 016
1 653 251
1 791 966
Disposals
(91)
(3 357)
(8 271)
(167)
(29)
(6 235)
(95 283)
(113 433)
Transfers and
reclassifications (ii)
107 817
678 429
(70 169)
209 438
28
65 643
(1 250 416)
(259 230)
At 31 December 2007
573 288
4 414 922
2 264 932
445 151 15 105
478 492
1 673 325
9 865 215
i.
The amount of borrowing costs capitalised for the year ended 31 December 2007 comprised UAH 17,381 thousand (2006: UAH 17,838
thousand, 2005: UAH 20,341 thousand) (Note 7).
ii. In 2007 equipment for exchange was reclassified to assets held for sale (Note 29).
iii. Dismantled equipment is continued to be depreciated over the estimated remaining useful life.
41
Land
Corporate
administrative
assets
Construction
in progress,
uninstalled and
dismantled
equipment (iii)
Total
7 768
–
81 740
2 900
659 431
7 119
–
58 346
19 987
686 604
–
–
11 617
11 617
–
(5 796)
(252)
(8 016)
Local, regional&
trunk networks
Mobile
telephone
network and
switches
Radio
installations
Buildings
12 474
360 405
194 144
Depreciation charge for
the year
11 042
381 861
208 249
Impairment (Note 7)
–
–
–
–
Disposals
–
(991)
(9)
(968)
Transfers
(1)
(51 904)
(24 011)
–
(27)
75 943
At 31 December 2005
23 515
689 371
378 373
13 919
–
134 263
110 195
1 349 636
the year
16 468
453 872
278 551
12 964
–
65 274
50 547
877 676
Impairment (Note 7)
–
–
–
–
–
–
24 460
24 460
Accumulated
depreciation and
impairment losses:
At 1 January 2005
–
–
Disposals
(8)
–
–
(793)
–
(9 529)
(32 515)
(42 845)
Transfers
(4)
(89 099)
(36 296)
–
–
11
125 388
–
At 31 December 2006
39 971
1 054 144
620 628
26 090
–
190 019
278 075
2 208 927
the year
22 899
599 055
318 014
24 582
–
99 060
81 333
1 144 943
Impairment (Note 7)
–
–
–
–
–
–
79 182
79 182
Disposals
(21)
(1 533)
(3 641)
(167)
–
(3 757)
(73 149)
(82 268)
Transfers and
(7 001)
(116 700)
(79 738)
1 322
–
(12 710)
125 865
(88 962)
At 31 December 2007
55 848
1 534 966
855 263
51 827
–
272 612
491 306
3 261 822
194 236
1 485 843
704 340
20 283
9 874
87 835
613 947
3 116 358
At 31 December 2005
300 981
2 358 999
1 127 691
134 512
13 587
142 209
781 875
4 859 854
At 31 December 2006
417 161
2 662 114
1 630 228
208 976
13 759
217 049
1 087 698
6 236 985
At 31 December 2007
517 440
2 879 956
1 409 669
393 324
15 105
205 880
1 182 019
6 603 393
Net book value:
At 1 January 2005
Kyivstar G.S.M.
10. Intangible assets
The movement of intangible assets is as follows:
Licenses
Total
At 1 January 2005
345,058
696,611
1,041,669
Additions
23,358
487,671
511,029
Disposals
–
(3,669)
(3,669)
At 31 December 2005
368,416
1,180,613
1,549,029
Additions
17,424
559,074
576,498
Cost:
Disposals
–
(15,492)
(15,492)
At 31 December 2006
385,840
1,724,195
2,110,035
Additions
1,335
435,466
436,801
Disposals
–
(50,988)
(50,988)
At 31 December 2007
387,175
2,108,673
2,495,848
Accumulated depreciation and impairment losses:
At 1 January 2005
77,640
237,966
315,606
Amortisation charge for the year
23,640
176,829
200,469
(3,669)
(3,669)
411,126
512,406
Disposals
–
At 31 December 2005
101,280
26,871
269,464
296,335
Disposals
–
(15,059)
(15,059)
At 31 December 2006
128,151
665,531
793,682
25,715
316,074
341,789
–
(30,044)
(30,044)
951,561
1,105,427
Disposals
At of 31 December 2007
153,866
At 1 January 2005
267,418
458,645
726,063
At 31 December 2005
267,136
769,487
1,036,623
At 31 December 2006
257,689
1,058,664
1,316,353
At 31 December 2007
233,309
1,157,112
1,390,421
43
11. Other non-current assets
Other non-current assets as at 31 December were as follows:
2007
2006
2005
Prepayments for property, plant and equipment
135,726
97,658
20,368
Prepayments for intangible assets
6,872
20,523
4,749
5,056
5,309
4,300
147,654
123,490
29,417
12. Trade and other receivables
Trade and other receivables consisted of the following as at 31 December, including amounts due from related
parties (see Note 31):
2007
2006
2005
Trade receivables – interconnection and access to
network
181,176
163,111
194,748
Trade receivables – dealers for prepaid cards and
packages
35,318
64,987
160,891
Trade receivables – dealers for post-paid subscriber's
advances
1,093
3,514
7,754
Trade receivables – subscribers
49,923
41,183
33,493
Trade receivables – roaming
38,479
47,292
32,173
Interest receivable
23,365
8,059
–
Other receivables
18,954
1,058
670
348,308
329,204
429,729
(55,668)
(45,520)
(36,248)
292,640
283,684
393,481
Allowance for impairment
Kyivstar G.S.M.
Trade and other receivables, net of allowance for impairment as at 31 December were denominated in the
following currencies:
2007
2006
2005
UAH
126,051
206,217
310,331
USD
91,254
42,455
73,565
EUR
75,335
35,012
9,585
292 640
283 684
393 481
As at 31 December 2007, 2006 and 2005 trade and other receivables are non-interest bearing and are
settled in the normal course of business.
13. Prepaid taxes, other than income tax
Prepaid taxes, other than income tax consisted of the following as at 31 December:
2007
2006
2005
8,276
–
–
694
6,771
5,015
8 970
6 771
5 015
Prepayments to State Pension Fund for
mobile services
(i)
Other taxes prepaid
i.
The Law “On mandatory contribution to the Pension Fund” establishes a 7.5% contribution for mandatory state
pension insurance on the price of mobile services. The subscribers of mobile services are defined as payers of this
contribution, while the providers of mobile services act as their tax agents. The Company includes 7.5% surcharge
in the price of its mobile services and pays contributions to State Pension Fund.
45
14. Prepayments
Prepayments as at 31 December were denominated in the following currencies:
2007
2006
2005
UAH
104,967
95,132
71,032
USD
1,173
1,534
1,733
EUR
3,871
–
–
RUR
4
257
467
110 015
96 923
73 232
15. Reconciliation of allowance accounts
The reconciliation of changes in allowance accounts during the years 2007, 2006 and 2005 is as follows:
Trade and other
receivables
Prepayments
Total
As at 1 January 2005
14,614
–
14,614
Charge for the year
21,652
–
21,652
Utilised
–
–
–
Unused amounts reversed
(19)
–
(19)
As at 31 December 2005
36,248
–
36,248
Charge for the year
13,165
–
13,165
Utilised
(53)
–
(52)
(3,840)
–
(3,840)
45,520
–
45,520
Charge for the year
13,607
43
13,650
Utilised
(3,271)
–
(3,271)
(188)
–
(188)
55,668
43
55,711
Kyivstar G.S.M.
16. Deferred connection costs
As at 31 December 2007, 2006 and 2005 deferred connection costs mainly consisted of costs of start packages and dealers’ bonuses for connection of new subscribers.
17. Short-term deposits
Short-term deposits are made for varying periods of between three months and one year depending on the Group’s immediate cash requirements. Short-term deposits earn interest at the respective short-term deposit rates.
As at 31 December short-term deposits split by currency, contractual maturity and interest rate earned was as follows,
including amounts due from related parties (see Note 31):
Currency
Maturity
Interest rate p.a.
2007
UAH
6 months
12–14.2%
600,000
USD
6 months
8.75–10.5%
138,370
EUR
6 months
8.5–8.75%
25,968
764 338
18. Cash and cash equivalents
Cash and cash equivalents consisted of the following as at 31 December:
2007
2006
2005
Short-term deposits
4,185,223
2,163,250
660,870
Cash at bank
426,444
435,689
268,897
Cash on hand
22
10
9
4 611 689
2 598 949
929 776
47
As at 31 December cash on hand and cash at bank were denominated in the following currencies:
2007
2006
2005
UAH
415,597
424,651
257,440
USD
8,960
7,509
5,228
EUR
1,909
3,539
6,213
–
25
CHF
–
426 466
435 699
268 906
As at 31 December short-term deposits split by contractual maturity, currency and interest rate earned was as follows:
Currency
Maturity
Interest rate
p.a
2007
2006
2005
UAH
0–30 days
6–11%
170,000
405,000
21,001
31–60 days
4.25–10.25%
1,600,000
505,000
–
61–90 days
4–12.5%
1,455,007
415,029
–
3,225,007
1,325,029
21,001
USD
EUR
0–30 days
3.8–6.5%
16,160
119,180
110,090
31–60 days
4–8.5%
666,600
387,840
380,265
61–90 days
5.5–8%
76,760
229,775
136,376
759,520
736,795
626,731
0–30 days
2.75%
31–60 days
5–7%
61–90 days
3.5–7%
5,935
–
–
24,276
–
13,138
194,761
77,150
–
200 696
101 426
13 138
4 185 223
2 163 250
660 870
Short-term deposits are made for varying periods of between one and three months, depending on the immediate cash
requirements of the Group and earn interest at the respective deposit rates.
Kyivstar G.S.M.
19. Share capital
As at 31 December 2007, 2006 and 2005 the authorised and
fully paid share capital comprised 10,687,389 ordinary
shares at a par value of UAH 50 each.
thousand being the foreign exchange difference, which
arose before 1 May 2004, when the Company’s functional
currency was US dollar.
As at 31 December 2007, 2006 and 2005 share capital is
stated at consideration received. Consideration received differs from share capital at par for the amount of UAH 122,130
The Group did not declare any dividends during the years
2007, 2006 and 2005.
20. Interest-bearing loans and borrowings
Interest-bearing loans and borrowings consisted of the following as at 31 December:
2007
2006
2005
Interest-bearing borrowings
2,214,021
–
–
Current
Interest accrued
66,415
–
–
Current portion of non-current loans and borrowings
–
46,039
47,581
Unamortized debt issue costs
–
–
–
2,280,436
46,039
47,581
–
2,575,342
2,580,950
Non-current
Interest accrued
–
66,496
66,111
Unamortized debt issue costs
–
(60,022)
(78,553)
Less: current portion of non-current loans and
borrowings
–
(46,039)
(47,581)
–
2,535,777
2,520,927
2,280,436
2,581,816
2,568,508
Total interest-bearing loans and borrowings
49
Non-current interest-bearing loans and borrowings are repayable as follows:
2006
2005
Within 2 years
445,246
66,111
2 to 3 years
1,312,842
378,750
3 to 5 years
–
1,318,450
Over 5 years
883,750
883,750
Unamortised debt issue costs
(60,022)
(78,553)
2 581 816
2 568 508
As at 31 December effective interest rate and currency split for interest-bearing loans and borrowings was as
follows:
Bank
Currency Effective interest rate
2007
2006
2005
Dresdner
bank
USD
Fixed Rate
7.93% –
12.22%
2,280,436
2,203,872
2,193,055
Citibank
N.A.
USD
Floating Rate
3m LIBOR +2.5
–
377,944
375,453
2 280 436
2 581 816
2 568 508
Kyivstar G.S.M.
Loans from Dresdner bank
As at 1 January 2005 the Company’s loans obtained
from Dresdner bank comprised the following:
• Loan of USD 266,420 thousand (UAH 1,413,465
thousand) bearing an interest at 10.375% per
annum and maturing on 17 August 2009;
• Loan of USD 40,504 thousand (UAH 214,890
thousand) bearing an interest at 12.75%
per annum, which was repaid in November
2005 according to the maturity schedule.
Both of these loans were funded by loan participation
notes (‘Eurobonds’) issued by, but without recourse to,
Dresdner Bank, for the sole purpose of funding the
loans to the Company.
On 19 April 2005 the Company made an Offer of USD
175,000 thousand of new loan participation notes
issued by, but without recourse to, Dresdner Bank for
the purpose of funding a USD 175,000 thousand loan
to the Company, bearing interest at 7.75% p.a. and
maturing on 27 April 2012.
The Dresdner bank loan agreements contain numerous
affirmative, financial and negative covenants and restrictions. In the event that the Company breaches any covenant or is not in compliance with any of the restrictions,
the lender has the right, at its discretion, to claim immediate repayment of indebtedness under the respective
loan agreement. Among other restrictions, contained in
the loan agreements, the most significant are as follows:
• the Company is required to maintain adequate
insurance covering losses and risks in such
amounts that are prudent and customary
in the business in which it is engaged;
• the Company is restricted in making investments;
merging or consolidating; or declaring and
paying dividends in the amount greater than
75% of the net income for the period;
• the Company shall not create, issue, incur,
assume, guarantee or in any manner become
directly or indirectly liable with respect to any
debt, other than permitted debt, unless the
ratio of total outstanding consolidated debt to
annualised consolidated cash flows, as defined
in the loan agreement, is less than 5 to 1.
On 22 May 2007 and 5 July 2007 the Company signed
amendments to its USD 266,420 thousand and
USD 175,000 thousand loan agreements. According to
these amendments, both loan agreements were changed
by including an early demand feature, whereby the
Company agreed to pay on demand at any time up to
and including 30 April 2008 all or any part of the principal
loan together with accrued but unpaid interest thereon.
In return the Company received an extension under the
covenants, provided by the loan agreements. In particular,
the Company was granted permission to submit audited
IFRS consolidated financial statements as at 31 December
2006 and for the year then ended by 30 April 2008.
In the consolidated balance sheet as at 31 December
2007 the oustanding balances of the abovementioned
loans and interest accrued thereon in the total amount
of UAH 2,280,436 thousand were presented as current
interest-bearing loans and stated at their nominal
amounts.
On 27 March 2008 and 16 April 2008 the Company
signed Consent Memorandums and new amendments
to its USD 266,420 thousand and USD 175,000 thousand loan agreements. According to the Consent
Memorandums and new amendments, the Company
agreed to pay on demand at any time up to and including 17 August 2009 all or any part of the principal loan
together with accrued but unpaid interest thereon. In
return the Company was granted permission to submit
audited IFRS consolidated financial statements as at 31
December 2006, 2007 and 2008 and for the years then
ended by 17 August 2009.
Citibank loan facility
On 12 May 2005 the Company entered into a USD
150,000 thousand three-year syndicated bank facility,
arranged by Citibank N.A. and comprising both a term
loan and a revolving credit facility.
In 2005 the Company drew USD 75,000 thousand
under the term loan facility maturing on 12 May 2008
and bearing an interest of USD 3 month LIBOR plus
2.5% per annum.
Financial covenants under the facility agreement with
Citibank N.A. include the following (all as defined in the
facility agreement):
• the ratio of ‘Net Debt’ to ’Income/(loss)
before financial and other income/
(expenses), provisions for income taxes
and depreciation and amortisation expense
(EBITDA)’ shall not exceed 1.75;
• the ratio of ‘EBITDA’ to ’Interest
expenses’ shall not be lower than 5;
• the ratio of ’Net Debt’ to ’Net
Capitalisation’ shall not exceed 0.9.
In February 2007 the Company fully repaid the facility.
51
21. Derivative financial instrument
The derivative financial instrument as at 31 December
was classified as follows:
2007
2006
2005
969
–
–
969
–
–
–
(36,960)
(33,484)
–
(36,960)
(33,484)
(7,513)
(8,142)
(575)
(7 513)
(8 142)
(575)
(6 544)
(45 102)
(34 059)
Non-current assets
Fair value of derivative financial instrument
Fair value of derivative financial instrument
Current liabilities
Interest accrued on derivative financial instrument
On 12 October 2004, the Company entered into a
‘pay floating – receive fixed’ interest rate swap agreement with Citibank N.A. (‘Citibank’) for the nominal
amount of USD 266,420 thousand effective until 17
August 2009 to manage the risk of changes in the fair
value of one of the loans received from Dresdner
Bank. Under initial terms of the swap agreement,
Citibank was making fixed rate payments at a rate of
4.195%, and the Company was making floating rate
payments at a rate of USD 6 month LIBOR in arrears.
Payments were to be made semi-annually in arrears,
starting on 17 February 2005. In February 2005, the
Company agreed to change the terms of the swap
agreement. The fixed rate of 4.195% was changed to
4.0% and the floating rate was changed to the lower
of 7% or USD 6 month LIBOR rate determined two
business days prior to the calculation period, as
defined in the original agreement.
Prior to 1 May 2005 the swap was not eligible for
hedge accounting according to IAS 39. With effect
from 1 May 2005, the hedging instrument became
effective and was designated by the Company as a
fair value hedge.
Accordingly, in the consolidated balance sheet as at
31 December 2005 derivative financial instrument is
stated at the fair value of UAH 33,484 thousand,
being the fair value of swap of UAH 35,734 thousand
reduced by the fair value of the embedded cap of
UAH 1,675 thousand and interest payable in amount
of UAH 575 thousand. As at 31 December 2005
derivative financial instrument at fair value is included
in non-current liabilities, while interest payable on
derivative financial instrument is included in current
liabilities. The amortised cost of the hedged item as
at 31 December 2005 was adjusted by UAH 26,972
thousand, being the change in its fair value for the
period since 1 May 2005 (the date when the swap
became an effective hedging instrument) through
31 December 2005.
Kyivstar G.S.M.
2006 the derivative financial instrument is stated at
the fair value of UAH 36,960 thousand, being the fair
value of swap of UAH 45,351 thousand reduced by
the fair value of the embedded cap of UAH 249 thousand, and interest payable in amount of UAH 8,142
thousand. As at 31 December 2006 derivative financial instrument at fair value is included in non-current
liabilities, while interest payable on derivative financial instrument is included in current liabilities.
2007 the derivative financial instrument is recognised
at fair value of swap in amount of UAH 969 thousand,
included in non-current assets and interest payable
in amount of UAH 7,513 thousand, included in current
liabilities.
In 2007, 2006 and 2005 the net change in fair value of
interest rate swap was recognised in finance costs or
finance income (see Note 7).
Since February 2007 the interest rate swap ceased to
be effective and, accordingly, the Company discontinued hedge accounting.
22. Employee benefit liability
The Group, pursuant to the terms of personnel motivation programme, has established post-employment benefit pension plan, covering substantially all
of its employees, who achieve regular pension age
and retire from the Group companies. In addition, the
Group pays jubilee benefits to its employees.
Defined employee benefit liability as at 31 December consisted of the following:
2007
2006
2005
Post-employment defined benefit liability
8,763
4,700
2,029
Jubilee payments
10,267
6,167
2,062
19,030
10,867
4,091
Less: Current portion
(1,469)
(1,289)
(981)
Defined employee benefit liability – noncurrent portion
17,561
9,578
3,110
53
Post-employment defined employee benefits
As at 31 December 2007 4,147 employees (2006:
3,197 employees, 2005: 2,359 employees) were entitled to benefits under post-employment defined
employee benefits.
Changes in the present value of the defined benefit
obligation as at 31 December were as follows:
2007
2006
2005
Defined benefit obligation at 1 January
8,789
1,773
1,491
Interest cost
562
167
134
Current service cost
3,435
2,691
521
Benefits paid
(63)
(185)
(116)
Actuarial loss (gain) for the year
1,133
4,343
(257)
Defined benefit obligation at 31 December
13,856
8,789
1,773
Unrecognised actuarial loss (gain)
(5,093)
(4,089)
256
Defined benefit liability at 31 December
8,763
4,700
2,029
Defined benefit liability – current portion
336
471
563
Defined benefit liability – non-current
8,427
4,229
1,466
Classified as
Benefit expense
2007
2006
2005
Interest cost
562
167
134
3,434
2,692
520
Net actuarial losses (gains) recognised in the year
130
(3)
–
Total expenses recognised in the income statement
4,126
2,856
654
Kyivstar G.S.M.
Benefit liability
2007
2006
2005
Net liability at 1 January
4,700
2,029
1,491
Benefits expense
4,126
2,856
654
Benefits paid
(63)
(185)
(116)
Net liability at 31 December
8,763
4,700
2,029
Jubilee payments
As at 31 December 2007 3,963 employees were entitled to jubilee benefits (2006: 3,135 employees, 2005:
2,310 employees).
2007
2006
2005
10,267
6,167
2,062
Benefit liability – current portion
1,133
818
419
Benefit liability – non-current
9,134
5,349
1,643
10 267
6 167
2 062
Present value of unfunded obligations
Classified as
The principal assumptions used in determining the post-employment defined employee benefits are shown
below:
2007
2006
2005
Discount rate
6.40%
9.40%
9.00%
Future benefit increases
12.15%
15.20%
4.33%
2007
2006
2005
965
299
(472)
Experience adjustment
55
23. Deferred revenue
As at 31 December deferred revenue consisted of the following:
2007
2006
2005
Deferred revenue – dealers and subscribers
(ii)
575,233
489,468
309,502
Deferred connection and subscription fees
(i)
248,645
300,172
315,660
Customer loyalty programs
(iii)
24,654
25,207
15,583
848 532
814 847
640 745
i.
ii.
Deferred connection and 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 recognised in the income statement over the
periods that the fees are earned;
Deferred revenue – dealers – represents deferred
revenue from unused time on prepaid cards, which
were sold to dealers, but have not yet been activated
by subscribers. Deferred revenue – dealers is
recognised in the balance sheet until the prepaid cards
have been activated by subscribers or the prepaid
card has expired. Deferred revenue – subscribers –
mainly consists of deferred revenue from unused time
on prepaid cards, which were activated by subscribers.
Deferred revenue – subscribers is recognised as
revenue in the income statement on the basis of actual
airtime usage by subscribers.
iii. Customer loyalty programs – represent various loyalty
programs, established by the Company, whereby
enrolled subscribers are eligible for bonuses, which
may then be used for discount on future calls or
purchase of mobile handsets.
The movements in deferred connection and subscription fees are as follows:
2007
2006
2005
At 1 January
300,172
315,660
225,867
Deferred during the year
174,074
204,343
256,334
Released to the income statement
(225,601)
(219,831)
(166,541)
At 31 December
248,645
300,172
315,660
Kyivstar G.S.M.
24. Provisions
As at 31 December 2007 the Group recognised provision in respect of potential penalties, which may arise
on VAT paid to suppliers at 20% rate on purchase of
assets and services in amount of UAH 3,325 thousand.
The management believes that the risk of accrual of
such penalties by the tax authorities upon the next tax
review is probable.
25. Taxes payable, other than income tax
Taxes payable, other than income tax consisted of the following as at 31 December:
2007
2006
2005
VAT payable
88,554
39,812
57,100
Pension fund for mobile services
–
15,632
1,279
Miscellaneous other taxes
2,409
1,738
1,781
90 963
57 182
60 160
26. Trade and other payables
As at 31 December trade and other payables consisted of the fol- As at 31 December trade and other payables
lowing, including amounts due to related parties (see also Note 31): were denominated in the following currencies:
2007
2006
Interconnection
276,155
40,412
24,850
Equipment and
construction works
197,381
400,538
176,129
Software
78,529
51,876
45,308
Dealers
42,690
39,251
24,731
Rent
13,422
5,309
13,473
Roaming
33,580
13,909
12,530
Management fees
2,509
2,065
1,262
Due to employees
161
37
55
Other payables
27,133
26,001
9,951
671 560
579 398
308 289
2007
2006
2005
UAH
325,526
304,945
126,909
USD
306,894
259,619
165,609
EUR
39,140
14,834
15,771
671,560
579,398
308,289
2005
As at 31 December 2007, 2006 and 2005 trade and
other payables are non-interest bearing and settled
in the normal course of business.
57
27. Advances received
As at 31 December advances received consisted of the following:
2007
2006
2005
Advances received from subscribers
103,456
90,100
82,564
Advances received from partners
21,763
–
–
Advances received from dealers
7,510
3,065
–
Other advances received
301
–
–
133 030
93 165
82 564
As at 31 December 2007, 2006 and 2005 advances received were denominated in UAH.
28. Other current liabilities
As at 31 December other current liabilities consisted of the following:
2007
2006
2005
Bonuses accrued
125,840
89,487
64,728
Accrual for unused vacations
33,288
17,620
10,127
Accruals for future dealers' reimbursement
4,341
11,776
12,814
Other
19
3
2,824
163 488
118 886
90 493
As at 31 December 2007, 2006 and 2005 other current liabilities are non-interest bearing and denominated in UAH.
Kyivstar G.S.M.
29. Assets of disposal group classified as held for sale
On 4 July 2007 the Company entered into an assets
swap (‘buy back’) agreement (‘the swap agreement’)
with Ericsson AB. Based of the terms and conditions of
this agreement, Ericsson AB supplies to the Company
new telecommunication equipment for mobile telephone network in exchange for the used mobile telecommunication equipment acquired from Ericsson AB
in the past for the total amount of USD 57,848 thousand.
The Company exchanged part of the network equipment
subsequent to the balance sheet date (see Note 35).
2007 the equipment for exchange under the swap
agreement is classified as held for sale with a carrying
value of UAH 170,268 thousand.
30. Earnings per share
Basic earnings per share amounts are calculated by equity holders of the parent by the weighted ave-rage
dividing net profit for the year attributable to ordinary number of ordinary shares outstanding during the year.
Basic earnings per share for the years ended 31 December is as follows:
2007
2006
2005
Net profit attributable to ordinary equity holders of the parent
for basic earnings
3,521,899
2,754,540
1,644,797
Weighted average number of ordinary shares for basic
earnings per share
10,687,389
10,687,389
10,687,389
Basic earnings per share, UAH
329.54
257.74
153.90
As at 31 December 2007, 2006 and 2005 there are no shares between the reporting dates and the date of
potential ordinary shares. There have been no trans- issue of these consolidated financial statements.
actions involving ordinary shares or potential ordinary
59
31. Related party disclosure
The Group’s transactions with its related parties for the years ended 31 December were as follows:
2007
Cost of materials
and traffic
charges
Revenue (Note 7) (Note 7)
Salaries and
personnel costs
(Note 7)
Finance
income
(Note 7)
Entities affiliated with Telenor Mobile
Communications AS
19 701
4 637
–
–
Key management personnel of the
Group
–
–
39 223
–
Entities affiliated with Storm LLC
356 194
309 801
–
31 046
375 895
314 438
39 223
31 046
Cost of materials
and traffic
charges
Revenue (Note 7) (Note 7)
Salaries and
personnel costs
(Note 7)
Finance
income
(Note 7)
6 946
6 635
–
–
–
35 085
2006
Communications AS
Key management personnel of the
Group
–
–
190 199
70 168
–
13 235
197 145
76 803
35 085
13 235
Kyivstar G.S.M.
Revenue
(Note 7)
2005
Communications AS
7 009
Key management personnel of the Group
–
Cost of
materials and Salaries and
Finance
traffic charges personnel costs income
(Note 7)
(Note 7)
(Note 7)
5 581
–
–
–
24 940
97 386
53 174
104 395
58 755
–
–
939
24 940
939
The outstanding balances from related parties as at 31 December were as follows:
2007
Trade
and other
receivables
(Note 12)
Short–term
deposits
(Note 17)
Prepayments
(Note 14)
Cash and cash
equivalents
(Note 18)
Total
Entities affiliated
with Telenor Mobile
Communications AS
2 794
Entities affiliated with Storm
LLC
36 719
99 366
5 982
518 853
660 920
39 513
99 366
5 982
518 853
663 714
–
–
–
2 794
61
2006
Trade and other Cash and cash
receivables
equivalents
(Note 12)
(Note 18)
Total
Entities affiliated with Telenor Mobile Communications AS
961
19 985
433 713
453 698
20 946
433 713
454 659
–
961
2005
Trade and other
receivables
(Note 12)
Cash and cash
equivalents
(Note 18)
Total
419
–
419
4 863
195 242
200 105
5 282
195 242
200 524
The outstanding amounts due to entities affiliated with Storm LLC as at 31 December were as follows:
Trade and other payables (Note 26)
2007
23 217
2006
2 153
2005
3 098
Kyivstar G.S.M.
Terms and conditions of transactions
with related parties
Outstanding balances on settlements with related
parties at the year-end are unsecured, interest free
and settlement occurs in cash. There have been no
financial guarantees provided to or received from any
related party. For the years ended 31 December 2007,
2006 and 2005, the Group has not recorded any
impairment of receivables as regards to the amounts
owed by related parties.
Revenue and trade receivables
In 2007 the Group sold to domestic and overseas telecom operators, being the Group’s related parties, roaming services, access to network and interconnection
services in total amount of UAH 375,895 thousand (2006:
UAH 197,145 thousand, 2005: UAH 104,395 thousand).
Trade payables to entities affiliated with Storm
LLC comprise amounts due for interconnection
services.
Trade payables to related parties are non-interest
bearing and are settled in the normal course of
business.
Finance income
In 2007 finance income included UAH 31,046 thousand of interest on deposit received from Ukrainian
bank affiliated with Storm LLC (2006: UAH 13,235
thousand, 2005: UAH 939 thousand).
Short-term deposits
and cash and cash equivalents
As at 31 December 2007, 2006 and 2005 short-term
deposits and cash and cash equivalents were placed
Trade receivables as at 31 December 2007, 2006 in Ukrainian bank affiliated with Storm LLC.
and 2005 due from related parties are non-interest Compensation
bearing, unsecured and are settled in the normal
to management personnel
course of business.
As at 31 December 2007 key management personnel
Cost of materials and traffic charges and trade payables consisted of 38 top executives of the Group (2006: 39,
Cost of materials and traffic charges from related par- 2005: 36). For the years ended 31 December total
ties include roaming and interconnection services, compensation to key management personnel included
provided by entities affiliated with Telenor Mobile in salaries and personnel costs comprised:
Communications AS and Storm LLC.
2007
2006
2005
Short-term employee benefits
39,120
34,773
24,870
Long-term employee benefits
103
312
70
Total compensation to key management personnel
39,223
35,085
24,940
63
32. 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, and paid and accrued all taxes
that are applicable. Where the risk of outflow of
resources is probable, the Group has accrued provisions based on management’s best estimate. The
Group identified certain possible tax contingencies,
which are not required to be accrued in the financial
statements. Such possible tax contingencies could
materialise and require the Group to pay additional
amounts of tax.
2007 the Group’s exposure to presented third parties’
claims is UAH 1,000 thousand (2006: UAH 1,000 thousand, 2005: nil). Management believes that the ultimate liability, if any, arising from such claims and
complaints, both presented and potential, 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
As at 31 December 2007 the Group had outstanding
commitments in respect of purchase and construction of property, plant and equipment in amount of
UAH 95,247 thousand (2006: UAH 153,846 thousand,
2005: UAH 876,621 thousand).
As at 31 December 2007 the Group had outstanding
commitments in respect of purchasing intangible
assets in amount of UAH 1,239 thousand (2006: UAH
As at 31 December 2007 management estimates 31,075 thousand, 2005: UAH 22,558 thousand).
such tax contingencies to be approximately UAH
68,125 thousand (2006: 1,725 thousand, 2005: 46,571 (iv) Lease commitments
thousand).
Operating lease – group as a lessee
(ii) Legal matters
Future minimum rentals payable under a nonIn the ordinary course of business, the Group is sub- cancellable operating lease as at 31 December were
ject to legal actions and complaints. As at 31 December as follows:
2007
2006
2005
Within one year
7,805
9,222
8,741
After one year but not more
than five years
51,857
17,109
10,252
More than five years
19,371
21,493
828
79,033
47,824
19,821
Kyivstar G.S.M.
33. Fair value of
financial instruments
34. Financial instruments
and risk management
As at 31 December 2007, 2006 and 2005 the carrying The Group’s principal financial instruments, other that
value of the Group’s financial instruments approxi- derivatives comprise bank loans and borrowings, cash in
mates their fair values.
bank and short-term deposits. The Group has various
other financial instruments, such as trade payables and
In assessing the fair value of financial instruments, the trade receivables, which arise directly from its operations.
Group uses a variety of methods and makes assumptions based on market conditions existing at the bal- The Group enters into derivative transactions to
ance sheet date. Quoted market prices or dealer hedge its interest rate risk arising on interest-bearing
quotes for the specific or similar instruments or the loans and borrowings. It is the Group’s policy not to
discounted value of future cash flows are used for trade with financial instruments.
long-term debt. To determine the fair value of the
remaining long-term financial instruments, the dis- The Group is exposed to market risk, credit risk and
liquidity risk.
counted values of future cash flows are used.
The face values of financial assets and liabilities with a The Group’s overall risk management program focusmaturity of less than one year, less any estimated credit es on the unpredictability and inefficiency of the
Ukrainian financial markets and seeks to minimize
adjustments, are assumed to be their fair values.
potential adverse effects on the financial performance
The fair value of financial liabilities is estimated by dis- of the Group. The Group’s senior management overcounting the future contractual cash flows at the cur- sees the management of these risks. The Group’s
rent market interest rate available to the Group for senior management is supported by a risk committee
similar financial instruments.
that advises on financial risks and the appropriate
financial risk governance framework for the Group.
Fair value of the interest rate swap is estimated by the The financial risk committee provides assurance to
present value of future cash flows, calculated by using the Group’s senior management that the Group’s
quoted swap curves and exchange rates as at the financial risk-taking activities are governed by approbalance sheet date.
priate policies and procedures and that financial risks
are identified, measured and managed in accordance
with group policies.
The policies for managing each of these risks are
summarized below.
65
Market risk
Interest rate 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 prices comprise three types of
risk: interest rate risk, currency risk and other price risk.
Financial instruments affected by market risk include loans
and borrowings, deposits and derivative financial instruments.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt
obligations with floating interest rates and derivatives.
Interest income and interest expense in the income statement are influenced by changes in interest rates in the market. The objective for interest rate risk management is to
minimise interest cost and at the same time keep the volatility of future interest payments within acceptable limits.
The sensitivity analyses in the following sections relate to
the position as at 31 December 2007, 2006 and 2005.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variThe sensitivity analyses have been prepared on the basis ables held constant, of the Group’s profit before tax (through
that the amount of net debt, the ratio of fixed to floating the impact on floating rate borrowings). There is no impact
interest rates of the debt and derivatives and the proportion on the Group’s equity.
of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at
31 December 2007, 2006 and 2005.
The analyses exclude the impact of movements in market
variables on the carrying value of post-retirement obligations and provisions.
The following assumptions have been made in calculating
the sensitivity analyses:
• The balance sheet sensitivity relates only to derivatives.
• The sensitivity of the income statement is the effect
of the assumed changes in interest rates on the net
interest income for one year, based on the floating
rate non-trading financial assets and financial
liabilities held at 31 December 2007, 2006 and
2005 including the effect of hedging instruments.
2007
Increase/
Effect
(decrease)
on profit
in basis points before tax
Change in USD
LIBOR
+0,75
Change in USD
LIBOR
–1,25
(2 064)
3 441
Kyivstar G.S.M.
2006
Increase/
(decrease) in
basis points
Effect on profit
before tax
Change in USD
LIBOR
+0,50
Change in USD
LIBOR
–1,00
2005
Increase/
(decrease) in
basis points
Effect
on profit
before tax
(2 062)
Change in USD
LIBOR
+1.00
(2,188)
4 125
Change in USD
LIBOR
–0.50
4,377
The Group has entered into the interest rate swap agreement to manage the risk of changes in the fair value of one
of the loans received from Dresdner Bank (Note 21).
The table below shows the effective and the ineffective parts of the Group’s fair value hedges.
2007
2006
2005
Net gain recognised in income statement on hedged
item
–
5,607
17,039
Net loss recognised in income statement on hedging
instrument
–
(2,051)
(24,218)
Amount of hedge ineffectiveness
–
3,556
(7,179)
Effect of de-designation – object re-measured at
principal amount (Note 20)
(17,277)
–
–
67
Foreign currency risk
Foreign currency risk is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group’s exposure to the risk of changes in foreign
exchange rates relates primarily to the Group’s financing activities (when interest-bearing borrowings are
denominated in different currency from the Group’s
functional currency).
In common with many other businesses in Ukraine, foreign
currencies, in particular the US dollar (‘USD’) and the Euro
(‘EUR’) play a significant role in the underlying economics
of the Group’s business transactions. The exchange
rates for foreign currencies, in which the Group’s financial
assets and liabilities were denominated, against Ukrainian
hryvnia (‘UAH’), as declared by the National Bank of
Ukraine (‘NBU’) as at the dates stated, were as follows:
USD
EUR
1 January 2005
5.3054
7.2175
Average for 2005
5.1247
6.3899
31 December 2005
5.0500
5.9716
Average for 2006
5.0500
6.3369
31 December 2006
5.0500
6.6508
Average for 2007
5.0500
6.9179
31 December 2007
5.0500
7.4195
Kyivstar G.S.M.
The following tables demonstrate the sensitivity to a of the Group’s profit before tax (due to changes in the
reasonably possible change in the corresponding fair value of monetary assets and liabilities). There is
exchange rates, with all other variables held constant, no impact on the Group’s equity.
2007
Increase/(decrease) in basis
points
Effect on profit before
tax
Change in USD exchange rate
+3.10
(77,098)
Change in EUR exchange rate
+10.10
1,235
–2.90
72,124
–8.40
(1,156)
Зміна обмінного курсу євро
–8,40
(1 156)
2006
Increase/(decrease) in
basis points
+3.00
(83,744)
+10.30
711
–2.80
78,161
–8.50
(664)
Effect on profit before
tax
69
2005
Increase/(decrease)
in basis points
Effect on profit
before tax
+3.10
(97,411)
+11.70
(23,300)
Change in GBP exchange rate
+8.90
(109)
Change in CHF exchange rate
+10.50
14
Change in RUR exchange rate
+7.20
(12)
–3.10
97,411
–11.70
23,300
Change in GBP exchange rate
–8.90
109
Change in CHF exchange rate
–10.50
(14)
–7.20
12
Liquidity risk
The Group’s objective is to maintain continuity and
flexibility of funding through the use of credit terms
provided by suppliers and bank loans and borrowings.
The Group analyses the aging of its assets and the
maturity of its liabilities and plans its liquidity depending on the expected repayment of various instruments. The Group emphasises financial flexibility. An
important part of this emphasis is to minimise liquidity
risk through ensuring access to a diversified set of
funding sources. The Group uses cash and credit
facilities to manage short-term liquidity. Long term
liquidity needs are managed by raising funds in the
capital markets.
The tables below show the maturity profile of the
Group’s financial liabilities, other than derivative financial instrument, as at 31 December based on contractual undiscounted payments.
Kyivstar G.S.M.
2007
On demand
Less than 3
months
3 to 6
months
6 to 12
months
1 to 5 years
Total
Interest–bearing
loans and
borrowings
2,280,436
69,794
34,245
104,039
379,305
2,867,819
597,647
15,597
14,998
43,318
671,560
2,280,436
667,441
49,842
119,037
422,623
3,539,379
2006
Less than 3
months
3 to 6
months
6 to 12
months
1 to 5 years
More than 5 Total
years
Interest–bearing
loans and
borrowings
129,858
55,889
119,430
2,287,563
917,995
Trade and other
payables
533,101
8,908
32,026
5,363
662,959
64,797
151,456
2,292,926
Trade and other
payables
–
–
3,510,735
579,398
917,995
4,090,133
2005
Less than 3
months
3 to 6
months
6 to 12
months
1 to 5 years
More than 5 Total
years
Interest–bearing
loans and borrowings
128,698
55,407
119,128
2,457,753
986,486
Trade and other
payables
301,337
472
6,480
430,035
55,879
125,608
–
2,457,753
–
986,486
3,747,472
308,289
4,055,761
71
Cash flows arising on the Group’s interest rate swap, The following tables show the reconciliation of gross
recognised in the consolidated balance sheet as a and net expected cash flows from derivative financial
derivative financial instrument, are settled on net instrument as at 31 December:
basis (Note 21).
2007
Less than 3
month
3 to 12 month
1 to 5 years
Total
Inflows
26,908
26,908
26,908
80,724
Outflows
(37,476)
(20,086)
(11,869)
(69,431)
Net
(10,568)
6,822
15,039
11,293
2006
Less than 3
month
3 to 12 month
1 to 5 years
Total
Inflows
26,908
26,908
80,724
134,540
Outflows
(38,543)
(35,823)
(69,431)
(143,797)
Net
(11,635)
(8,915)
11,293
(9,257)
2005
Less than 3
month
3 to 12 month
1 to 5 years
Total
Inflows
26,908
26,908
134,540
188,356
Outflows
(27,687)
(33,349)
(143,797)
(204,833)
Net
(779)
(6,441)
(9,257)
(16,477)
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
and trade and other receivables.
Kyivstar G.S.M.
The Group’s maximum credit risk exposure at 31 December comprised:
2007
2006
2005
4,611,689
2,598,949
929,776
Short–term deposits
764,338
292,640
283,684
393,481
5,668,667
2,882,633
1,323,257
–
–
The Group’s cash is primarily held with major repu- basis. Credit evaluations are performed of all customtable banks located in Ukraine.
ers requiring credit over a certain amount. Credit risk
arising from financial transactions is reduced through
Accounts receivable are presented net of allowances. diversification, through accepting counterparties with
The Group does not require collateral in respect of high credit ratings only and through defining limits on
financial assets. Concentrations of credit risk with aggregated credit exposure towards each counterrespect to trade receivables are limited by the fact party. The Group’s credit risk exposure is monitored
that the Company’s customer base contains signifi- and analysed on a case-by-case basis, and the
cant number of small customers, which are consi- Group’s management believes that credit risk is
dered unrelated.
appropriately reflected in impairment allowances
Management has a credit policy in place and the recognised against assets.
exposure to credit risk is monitored on an ongoing
As at 31 December 2007, 2006 and 2005, the ageing of the Group’s trade receivables and other receivables
was as follows:
Total
Fully
impaired
Neither past
due, nor
impaired
Past due, but not impaired
30–60
days
60–90
days
90–120
days
More
than 120
days
днів
2007 г.
292 640
55 667
203 201
56 610
29 255
1 986
10
1 578
2006 г.
283 684
45 521
199 410
68 758
343
230
681
14 262
2005 г.
393 481
36 249
319 767
57 202
156
662
–
15 694
Financial derivatives also represent credit risk. The Group’s maximum exposure for financial derivative instruments is described in the liquidity table above.
73
Capital management
The Group considers debt and shareholders’ equity
as primary capital sources. 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
Interest-bearing loans and borrowings (Note 20)
operating requirements, capital expenditures and further the Group’s development strategy. The Group’s
capital management policies aim to ensure and maintain an optimal capital structure to reduce the overall
cost of capital and flexibility relating to the Group’s
access to capital markets.
2007
2006
2005
2,280,436
2,581,816
2,568,508
671,560
579,398
308,289
Less cash and cash equivalents
(4 611 689)
(2 598 949)
(929 776)
(Note 18)
(4,611,689)
(2,598,949)
(929,776)
Net debt
(1,659,693)
562,265
1,947,021
Total equity
10,179,947
6,658,048
3,903,508
Capital and net debt
8,520,254
7,220,313
5,850,529
Gearing ratio
n/a
8%
33%
Management believes that the gearing ratio up to and may adjust its capital management policies and
35% is acceptable to the Group. Management moni- targets following changes in its operating environtors on a regular basis the Group’s capital structure ment, market sentiment or its development strategy.
Kyivstar G.S.M.
35. Events after the
balance sheet date
(i) The assets swap agreement
for exchange of network
equipment with Ericsson AB
On 21 February 2008 the Company signed
Amendment 2 to the assets swap agreement with
Ericsson AB. According to the provisions of the
Amendment 2 the composition of assets for exchange
was changed and the contract amount was reduced
to USD 56,492 thousand.
Subsequent to the date of Amendment 2 to the assets
swap agreement with Ericsson AB the Company
exchanged network equipment for the amount of USD
32,860 thousand. The Company plans to exchange
the remaining part of network equipment under the
swap agreement till the end of 2009.
(ii) Shareholders’ Meetings
On 16 December 2008 the General Meeting of the
Shareholders of the Company approved distribution
of the profits for the years of 2004 and 2005 in amount
of UAH 3,460,000 thousand among the shareholders
in the form of dividends pro rata to the number of
shares held by them. Dividends proposed were paid
by the Company in cash.
Shareholders of the Company also approved election
of new members of Board of Directors and amendments to the Company’s Charter.
(iii) Repayment of interestbearing loans and borrowings
Subsequent to the balance sheet date the Company
repaid significant part of loans, funded by participation notes, in amount of USD 379,289 thousand.
Closed Joint Stock
Company Kyivstar G.S.M.
Independent
Auditors’ Report
TO THE SHAREHOLDERS
OF CLOSED JOINT STOCK
COMPANY KYIVSTAR G.S.M.
5
We have audited the accompanying consolidated financial statements of Closed Joint Stock Company Kyivstar G.S.M. and its subsidiary (hereinafter together referred to as the ‘the Group’), which
comprise the consolidated balance sheet as at 31 December
2008 and the consolidated income statement, 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 notes.
Management’s
Responsibility for the
Financial Statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards. This responsibility
includes: designing, implementing and maintaining
internal control relevant to the preparation and fair
presentation of consolidated financial statements
that are free from material misstatement, whether
due to fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
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
comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures
in the financial statements. The procedures selected
depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments,
the auditor considers internal control relevant to
the entity’s preparation and fair presentation of
the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating
the appropriateness of accounting policies used
and the reasonableness of accounting estimates
made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
5
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Group as at 31 December
2008, and its financial performance and its cash
flows for the year then ended in accordance with
International Financial Reporting Standards.
30 July 2009
Closed Joint Stock
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2008
Notes
2008
2007
Revenues
8
12,711,111
10,923,716
Costs of materials and traffic charges
8
(2,142,745)
(1,820,424)
8
(786,954)
(644,000)
8
(2,267,021)
(2,034,040)
8
6,782
(51,399)
8
(1,635,566)
(1,486,732)
Impairment losses
8
(83,636)
(79,182)
5,801,971
4,807,939
Finance income
8
1,023,585
244,152
Finance costs
8
(190,505)
(304,234)
Foreign exchange gain, net
298,447
22,704
Profit before tax
6,933,498
4,770,561
(1,860,045)
(1,248,662)
5,073,453
3,521,899
474.71
329.54
Income tax expense
9
Profit for the year
Earnings per share, UAH
31
Signed and authorised for release on behalf of Closed Joint Stock Company Kyivstar G.S.M. on 30 July 2009:
Igor Lytovchenko,
President
Andrew Simmons,
Chief Financial Officer
Lesya Samoylovich,
Deputy Chief Financial Officer,
Chief Accountant
7
CONSOLIDATED BALANCE SHEET
Notes
2008
2007
10
6,883,797
6,603,393
Intangible assets
11
1,205,023
1,390,421
22
Deferred tax asset
ASSETS
Non-current assets
–
969
12
88,599
147,654
9
110,934
241,424
8,288,353
8,383,861
Current assets
58,330
52,290
Inventories
13
628,244
292,640
22
37,014
–
5,776
–
Prepaid income tax
Prepaid taxes, other than income tax
14
38,305
8,970
Prepayments
15
57,070
110,015
Deferred expenses
17
93,227
107,606
Short-term deposits
18
3,063,312
764,338
19
5,068,369
4,611,689
Assets of disposal group classified as held for sale
30
TOTAL ASSETS
9,049,647
5,947,548
90,267
170,268
9,139,914
6,117,816
17,428,267
14,501,677
Closed Joint Stock
CONSOLIDATED BALANCE SHEET (continued)
Notes
2008
2007
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
Share capital
20
Retained earnings
656,499
656,499
11,136,901
9,523,448
11,793,400
10,179,947
19,798
17,561
19,798
17,561
23
Current liabilities
21
985,055
2,280,436
22
–
7,513
23
4,453
1,469
Deferred revenue
24
730,331
848,532
Provisions
25
4,891
3,325
34,848
103,853
Income tax payable
Taxes payable, other than income tax
26
92,300
90,963
Dividends payable to equity holders of the
parent
20
2,905,653
–
27
530,997
671,560
Advances received
28
121,453
133,030
Other current liabilities
29
205,088
163,488
5,615,069
4,304,169
17,428,267
14,501,677
TOTAL EQUITY AND LIABILITIES
9
CONSOLIDATED CASH FLOW STATEMENT
(in thousands of Ukrainian Hryvnia
Notes
2008
2007
6,933,498
4,770,561
Depreciation of property, plant and equipment
1,232,665
1,144,943
Impairment of property, plant and equipment
83,636
79,182
Amortisation of intangible assets
402,901
341,789
Loss on disposal of property, plant and equipment and intangibles
50,026
48,507
Gain on disposal of assets, classified as held for sale
(46,307)
–
Interest income
(992,763)
(231,042)
Interest expense related to bank loans
172,012
285,636
Other finance costs
18,493
18,598
Gain on derivative financial instrument
(30,822)
(13,110)
Movements in provisions and defined employee benefit liability
6,787
11,488
Unrealised foreign exchange gain
205,253
19,343
(Increase)/decrease in inventories
(6,040)
10,537
Increase in trade and other receivables and prepayments
(123,995)
(9,685)
Increase in short-term deposits
(2,298,974)
(764,338)
Decrease in deferred expenses
14,379
29,447
Decrease in trade and other payables
(24,597)
(84,342)
OPERATING ACTIVITIES
Profit before tax
Adjustments to reconcile profit before tax to net cash
flows:
Working capital adjustments:
(Decrease)/increase in deferred revenue
(118,201)
33,685
(Decrease)/increase in advances received
(11,577)
39,865
Increase in other liabilities
42,935
78,382
Interest received
866,534
216,736
Interest paid
(232,111)
(215,959)
Income taxes paid
(1,804,335)
(1,289,957)
Net cash flows from operating activities
4,339,397
4,520,266
Closed Joint Stock
CONSOLIDATED CASH FLOW STATEMENT (continued)
Notes
2008
2007
Purchase of property, plant and equipment
(1,631,654)
(1,609,496)
Purchase of intangible assets
(294,016)
(449,804)
Proceeds from sale of property, plant and equipment
10,745
3,602
Proceeds from disposal of assets,
classified as held for sale
77,655
–
Net cash flows used in investing activities
(1,837,270)
(2,055,698)
Investing activities
Financing activities
Dividends paid to equity holders of the parent
(543,996)
–
Withholding tax paid on dividends
(10,351)
–
Repayment of loans and borrowings
(1,777,464)
(393,900)
Payment of financial fees
(16,331)
(18,035)
Proceeds from derivative financial instrument
6,546
–
Payments on derivative financial instrument
(10,568)
(20,550)
Net cash flows used in financing activities
(2,352,164)
(432,485)
Net increase in cash and cash equivalents
149,963
2,032,083
Net foreign exchange difference
306,717
(19,343)
4,611,689
2,598,949
5,068,369
4,611,689
Non-cash transactions
2008
2007
Release to the income statement of deferred
connection and subscription fees
207,967
225,601
Release to the income statement of
deferred connection costs
(65,782)
(99,056)
Cash and cash equivalents as at 1 January
19
as at 31 December
19
NOTES
11
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Attributable to equity holders of the parent
Share capital
(Note 20)
Retained
earnings
Total equity
Balance at 1 January 2007
656,499
6,001,549
6,658,048
Profit for the year
–
3,521,899
3,521,899
656,499
9,523,448
10,179,947
Profit for the year
–
5,073,453
5,073,453
Dividends declared (Note 20)
–
(3,460,000)
(3,460,000)
656,499
11,136,901
11,793,400
Closed Joint Stock
1. Corporate information
Closed Joint Stock Company Kyivstar G.S.M.
(hereinafter referred to as ‘Kyivstar G.S.M.’ 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 telecommunications network and provides a wide range
of mobile communication services in Ukraine.
In October 1997, the Company was granted a
900 MHz (GSM) cellular licence for operation in
Ukraine. In addition to that, during 2002 and 2003,
the Company obtained 1800 MHz (GSM) cellular
licences for operations in defined regions of Ukraine
and started providing GSM-1800 services in those
regions. These licences give the Company the right
to operate using the GSM standard for 15 years
from the commencement of operations. In addi-
tion, the Company was granted other licences that
give the Company the right to develop and operate
wireless, long-distance, local wire networks, and a
data transfer network throughout the country. These
licences are provided for a 13 to 15 year period.
The Company began commercial operations on
9 December 1997 in Kyiv. Currently, it operates
through 6 branches located in Kyiv, Dnipropetrovsk,
Odessa, Kharkiv, Lviv and Simferopol.
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, Degtyrivska St., Kyiv, 03113, Ukraine.
As at 31 December 2007 and 2008 the
Company’s shareholders and their respective declared interests were as follows:
2008
2007
Interest
Number
of shares
Interest
Number
of shares
Telenor Mobile Communications
AS (Norway)
56.52%
6,040,255
56.52%
6,040,258
Storm LLC (Ukraine)
43.48%
4,647,124
43.48%
4,647,127
Other shareholders
less than 0.01%
10
less than 0.01% 4
100.00%
10,687,389
100.00%
The Company has one wholly owned subsidiary – Joint Stock Company ‘Staravto’,
which was established in order to provide transportation services to the Company. The
Company and its subsidiary are hereinafter together referred to as ‘the Group’.
10,687,389
at 31 December 2008
13
2. Operating environment,
risks 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.
The Ukrainian economy is vulnerable to market
downturns and economic slowdowns elsewhere in
the world. The ongoing global financial crisis has
resulted in considerable instability in the capital
markets, significant deterioration in the liquidity
of banks, much tighter credit conditions where
credit is available, and significant devaluation of
the national currency against major currencies.
Furthermore, in the fourth quarter of 2008, international agencies began to downgrade the country’s
credit ratings. Whilst the Ukrainian Government is
introducing various stabilisation measures aimed
at providing liquidity and supporting debt refinancing for Ukrainian banks, there continues to be
uncertainty regarding access to capital and its
cost for the Group and its counterparties. These
factors could affect the Group’s financial position,
results of operations and business prospects.
Whilst management believes it is taking appropriate measures to support the sustainability
of the Group’s business in the current circumstances, unexpected further deterioration in
the areas described above could negatively
affect the Group’s 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
derivative financial instruments measured at fair value, and certain financial instruments measured
in accordance with the requirements of IAS 39 Financial instruments: recognition and measurement.
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).
• IAS 23 Borrowing Costs (Revised)
The Group has early adopted the following IFRS
and IFRIC interpretation since 1 January 2005,
the date of the Group’s transition to IFRS:
The principal effects of adopting these
IFRS and IFRIC are as follows:
effective 1 January 2009
• IFRIC 13 Customer Loyalty Programmes
effective 1 July 2008
Closed Joint Stock
IAS 23 Borrowing Costs (Revised)
The IASB issued an amendment to IAS 23 in April
2007. The revised IAS 23 requires capitalisation
of borrowing costs that are directly attributable to
the acquisition, construction or production of a
qualifying asset. Therefore, the Group capitalises
borrowing costs on qualifying assets with a commencement date on or after 1 January 2005.
IFRIC 13 Customer Loyalty Programmes
The IFRIC issued IFRIC 13 in June 2007. This
interpretation requires customer loyalty credits
to be 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. This is then recognised as revenue over
the period that the award credits are redeemed.
Improvements to IFRSs
In May 2008 IASB issued the first omnibus
of amendments to its standards, primarily with a view to removing inconsistencies
and clarifying wording. There are separate
transitional provisions for each standard.
The Group has early adopted the following amendments to standards:
• IAS 16 Property, Plant and Equipment:
Replace the term ‘net selling price‘ with
‘fair value less costs to sell’. The Group
amended its accounting policy accordingly, which did not result in any change in
the financial position and performance.
• IAS 23 Borrowing Costs:
The definition of borrowing costs is revised
to consolidate the two types of items that are
considered components of ‘borrowing costs’ into
one – the interest expense calculated using the
effective interest rate method in accordance with
IAS 39. The Group has amended its accounting
policy accordingly, which did not result in any
change in its financial position and performance.
• IAS 36 Impairment of Assets:
When discounted cash flows are used to estimate
‘fair value less cost to sell’ additional disclosure
is required about the discount rate, consistent
with disclosures required, when the discounted
cash flows are used to estimate ‘value in use’.
This amendment has no immediate impact on
the financial statements of the Group because
the recoverable amount of its cash generating
units is currently estimated using ‘value in use’.
These consolidated financial statements are presented in thousands of Ukrainian Hryvnia (‘UAH’)
and all values are rounded off to the nearest
thousand except where otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company
and its wholly-owned subsidiary. The subsidiary’s financial statements are prepared as at
the same reporting date as the Company’s,
using consistent accounting policies.
All intra-group balances, income and expenses
and unrealised gains and losses resulting from
intra-group transactions are eliminated in full.
Functional and presentation
currencies
The Group’s functional and presentation currency is Ukrainian Hryvnia.
Foreign currency translation
Transactions denominated in currencies other than
the relevant functional currency (foreign currencies)
are initially recorded in the functional currency at the
rate in effect at the date of transaction. Monetary
assets and liabilities denominated in foreign currencies are translated at the functional-currency rate
of exchange in effect at the balance sheet date.
Non-monetary items that were measured in terms
of historical cost in a foreign currency are translated using the exchange rate as at the date of the
initial transaction. Non-monetary items measured
at fair value in a foreign currency are translated
using the exchange rates at the date when the
fair values were determined. The resulting gains
and losses are recognised in income statement.
at 31 December 2008
15
4. Changes in accounting policies
The accounting policies adopted are
consistent with those of the previous financial year except as follows:
The Group has adopted the following new and
amended IFRS and IFRIC interpretations during
the year. Adoption of these revised standards
and interpretations did not have an effect on the
financial performance or position of the Group.
• IFRIC 11 IFRS 2 – Group and
• IFRIC 12 – Service Concession Arrangements
• IFRIC 14 IAS 19 – The Limit on a Defined
Benefit Asset, Minimum Funding
The principal effects of these
changes are as follows:
IFRIC 11 IFRS 2 – Group and
The Group has adopted IFRIC Interpretation 11 insofar as it applies to consolidated financial statements.
This interpretation requires arrangements whereby
an employee is granted rights to an entity’s equity
instruments to be accounted for as an equity-settled
scheme, even if the entity buys the instruments
from another party, or the shareholders provide the
equity instruments needed. The Group amended its
accounting policy accordingly. The Group has not
issued instruments caught by this interpretation.
IFRIC 12 – Service Concession Arrangements
The IFRIC issued IFRIC 12 in November 2006.
This interpretation applies to service concession operators and explains how to account for
the obligations undertaken and rights received in
service concession arrangements. No member
of the Group is an operator and, therefore, this
interpretation has no impact on the Group.
IFRIC 14 IAS 19 – The Limit
on a Defined Benefit Asset, Minimum Funding
IFRIC Interpretation 14 provides guidance on
how to assess the limit on the amount of surplus in a defined benefit scheme that can be
recognised as an asset under IAS 19 Employee
Benefits. The Group amended its accounting
policy accordingly. The Group’s defined benefit
plans are unfunded, therefore, the adoption of
this interpretation had no impact on the financial position or performance of the Group.
Closed Joint Stock
5. Summary of significant accounting policies
Revenue recognition
and measurement
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured.
Revenues are measured at the fair value of the discounts, rebates and sales taxes. These taxes are
regarded as collected on behalf on the authorities.
Revenues primarily comprise sales of:
• Services: revenue from air time charges,
interconnection fees, subscription and connection fees, fees for data network services;
• Customer equipment: telephony
handsets, modems, etc.
Air time revenue
The Company earns air time revenue by providing
its prepaid and post-paid subscribers with access to
the cellular network and routing their calls through
the network and its roaming partners’ networks.
Revenue from interconnection
Revenue from interconnection represents the
revenue earned for the termination of calls
from other telecommunications service providers’ networks on the Company’s network.
Air time and interconnection revenue is recognised in the period when
the respective service is rendered.
Connection and subscription fees
Connection fees are paid by subscribers for the
first time activation of network service. Revenues
from connection that are linked to other elements in a way that the commercial effect cannot be understood without reference to the other
transactions are deferred and recognised over
the periods that the fees are earned, which is the
expected period of the customer relationship and
approximates 3 years. The expected period of the
customer relationship is based on past history of
churn and expected development of the Company.
Subscription fees mainly consist of various
supplementary subscriptions and also include
change of subscription type and transfer of
subscriptions from one location to another. One
time subscription fees that are linked to other
elements in a way that the commercial effect cannot be understood without reference to the other
transactions are deferred and recognised over
the periods that the fees are earned, which is the
subscription validity period or, in case of no validity period, the expected period of the customer
relationship, which approximates 3 years.
Periodic fees
Periodic fees are recognised in the period
when the respective service is rendered.
Sales of telephony handsets and modems
Revenues from sales of handsets and modems are
normally recognised, when the related significant
risks and rewards are transferred to the buyer.
Discounts
Discounts are often provided in the form of cash
discount, free or discounted products or services
delivered by the Company or by external parties.
Discounts are recorded on a systematic basis
over the period the discount is earned. Cash discounts or free products are recorded as revenue
reductions. Free products or services delivered
by external parties are recorded as expenses.
Presentation
Where the Company’s role in a transaction is a
principal, revenue is recognised on a gross basis.
The evaluation of whether the Company is acting
as principal or agent is based on an evaluation
of the substance of the transaction, the responsibility for providing the goods or services and
setting prices and the underlying financial risk
and rewards. This evaluation requires revenue
to comprise the gross value of the transaction
billed to the customer, after trade discounts, with
any related expenditure charged as an operating
cost. Where the Company’s role in a transaction
is that of an agent, revenue is recognised on a
net basis and represents the margin earned.
at 31 December 2008
Interest income
Interest income is recognised as interest accrued (using the effective interest method). Interest income is included in
finance income in the income statement.
Deferred revenue
Cellular service revenue is recognised on the
basis of actual airtime usage by the end customer. Unused time on sold prepaid cards
is recognised as deferred revenue until the
related services have been provided to the
subscribers or the prepaid card has expired.
Loyalty programs
Customer loyalty credits are accounted for as a
separate component of the sales transaction, in
which they are granted. A portion of the fair value of
the consideration received is allocated to the award
credits and deferred, based on estimated number
of award credits that will actually be earned by the
customer. This is then recognised as revenue over
the period that the award credits are redeemed.
Costs related to connection fees
Initial direct costs incurred in earning connection fees are deferred over the same period as
the revenue, limited to the amount of the deferred
connection fees. Costs incurred consist primarily
of the cost of the SIM card and dealers’ bonuses.
In some cases costs associated with connection fees exceed the revenues and the amount
of connection costs exceeding the amount
of deferred connection fees is expensed.
Advertising costs, marketing
and sales commissions
Advertising costs, marketing and sales commissions are expensed as incurred, unless they form
part of the costs that are deferred in relation to
deferral of connection fees as described above.
Property, plant and equipment is stated at cost
less accumulated depreciation and any accumulated impairment losses. Cost includes professional fees and, for qualifying assets, borrowing
costs are capitalised. Depreciation is calculated
17
to reduce the cost of assets, other than land, to
their estimated residual value, if any, over their
estimated useful lives. Depreciation commences,
when the assets are ready for their intended use.
Repair and maintenance is expensed as
incurred. If new parts are capitalised, replaced
parts are derecognised and any remaining net book value is recorded to operating profit (loss) as loss on disposal.
Depreciation is calculated on a straightline basis over the estimated remaining useful life of the asset as follows:
Asset category
Useful life
(years)
Local, regional & trunk networks
20
Mobile telephone network and switches
3 –15
Radio installations
7
Buildings
15 –30
Corporate administrative assets
3 –4
Depreciation method, estimated useful life and
residual value are evaluated at least annually and
adjusted prospectively, if appropriate. Residual
value is estimated to be zero for most assets,
except for vehicles, which are included in corporate administrative assets, that the Group does not
expect to use for the assets’ whole economic life.
Changes in estimates are accounted for prospectively. Depreciation commences on the first day
of the month following the date of putting the item
into operation. Freehold land is not depreciated.
An item of property, plant and equipment is
derecognised upon disposal or when no future
economic benefits are expected to arise from
the continued use of the asset or disposal. Any
gain or loss arising on derecognition of the asset
(calculated as the difference between the net
disposal proceeds and the carrying amount
of the item) is included in the income statement in the year the item is derecognised.
Assets held under finance leases and 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.
Closed Joint Stock
Construction in progress
Assets in the course of construction are capitalised
as a separate component of property, plant and
equipment. On completion, the cost of construction is transferred to the appropriate category.
Construction in progress is not depreciated.
Dismantled equipment
When equipment, which was used by the Group,
is temporarily dismantled or transferred from one
location to another, it is continued to be depreciated on a straight-line basis over the original
estimated useful life. This is based on the fact that
telecommunication equipment is subject to moral
(functional) depreciation due to technical innovation
rather than physical (wear and tear) depreciation.
When the dismantled equipment is put back in
service, the cost of the base station, into which it
is included, is increased by the cost of the previously dismantled equipment and accumulated
depreciation is increased by the amount of depreciation of the previously dismantled equipment,
accumulated for the period, during which the item
was accounted for as dismantled equipment.
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 balance sheet at its
historical cost. Freehold land is not depreciated.
Leases
Leases are classified as finance leases whenever
the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All
other leases are classified as operating leases.
The evaluation is based on the substance of the
transaction. However, situations that individually
would normally lead the Group to classify a lease as
a finance lease is if the lease term is more than 75
percent of the estimated economic life or the present value of the minimum lease payments exceeds
90 percent of the fair value of the leased asset.
The Group may enter into an arrangement that does
not take the legal form of a lease but conveys a right
to use an asset in return for a payment or series of
payments. Determining whether an arrangement
is, or contains, a lease is based on the substance
of the arrangement and requires an assessment
of whether: (a) fulfilment of the arrangement is
dependent on the use of a specific asset; and (b)
the arrangement conveys a right to use the asset.
The Group as lessee
Plant and equipment acquired by way of
finance lease is capitalised and carried at the
lower of its fair value and the present value of
the minimum lease payments at inception of
the lease, less accumulated depreciation and
impairment losses. Leased assets are depreciated over the useful life of the asset.
Operating lease payments are charged to profit or
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. Prepaid lease
payments made on entering into operating leases or
acquiring leaseholds are amortised over the lease
term in accordance with the pattern of benefits
provided and included in the line item ‘depreciation and amortisation’ in the income statement.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of
time to get ready for its intended use or sale are
capitalised as part of the cost of the respective
assets. All other borrowing costs are expensed
in the period they occur. Borrowing costs consist
of interest and other costs that an entity incurs
in connection with the borrowing of funds.
Intangible assets
Intangible assets acquired are initially measured at
cost. Following initial recognition, intangible assets
are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Intangible assets with finite useful lives are
amortised over the useful economic lives.
Useful lives and amortisation method for intangible assets is reviewed at least annually,
and adjusted prospectively if appropriate.
at 31 December 2008
19
Amortisation is provided using the straightline basis over the estimated useful lives
of the related assets as follows:
Asset category
Useful life (years)
Licences
10–15
5
Gains and losses arising from derecognition of
an intangible asset are measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognised
as other expenses in the income statement.
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. Impairment losses of continuing
operations are recognised in the income statement.
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. In identifying whether cash inflows from an asset (or group
of assets) are largely independent of the cash
inflows from other assets (or group of assets), the
management considers various factors including
how management monitors the entity’s operations
(such as by product or service lines, businesses,
geographical areas). Based on the specifics of the
Group’s operations, the management has identified that the Group has one cash generating unit,
which is the Company’s network as a whole.
An assessment is made at each reporting date as
to whether there is any indication that previously
recognised impairment losses may no longer exist
or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously
recognised impairment loss is reversed only if
there has been a change in the estimates used to
determine the asset’s recoverable amount since the
last impairment loss was recognised. If that is the
case the carrying amount of the asset is increased
to its recoverable amount. That increased amount
cannot exceed the carrying amount that would
have been determined, net of depreciation, had no
impairment loss been recognised for the asset in
prior years. Such reversal is recognised in profit or
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
Financial assets within the scope of IAS 39 are
classified as financial assets at fair value through
profit or loss, loans and receivables, held-tomaturity 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.
Financial assets are recognised initially
at fair value plus, in the case of investments not at fair value through profit or loss,
directly attributable transaction costs.
Purchases or sales of financial assets that
require delivery of assets within a time frame
established by regulation or convention in the
marketplace (regular way purchases) are recognised on the trade date, i.e., the date that the
Group commits to purchase or sell the asset.
The Group’s financial assets include cash and
short-term deposits, trade and other receivables,
loans, and derivative financial instruments.
Closed Joint Stock
The subsequent measurement of financial assets
include financial assets held for trading and financial
assets designated upon initial recognition at fair
value through profit or loss. Financial assets are
classified as held for trading if they are acquired
for the purpose of selling in the near term. This
category includes derivative financial instrument
entered into by the Group that do not meet the
hedge accounting criteria as defined by IAS 39.
Financial assets at fair value through profit and loss
are carried in the balance sheet at fair value with
gains or losses recognised in the income statement.
Loans and receivables
Loans and receivables are non derivative
financial assets with fixed or determinable payments that are not quoted in an active market.
Such financial assets are carried at amortised
cost using the effective interest rate method.
Gains and losses are recognised in the consolidated income statement when the loans and
receivables are derecognised or impaired, as
well as through the amortisation process.
Held-to-maturity investments
Non derivative financial assets with fixed or determinable payments and fixed maturities are classified
as held-to-maturity, when the Group has the positive
intention and ability to hold it to maturity. After initial
measurement held-to-maturity investments are measured at amortised cost using the effective interest
method. This method uses an effective interest rate
that exactly discounts estimated future cash receipts
through the expected life of the financial asset to
the net carrying amount of the financial asset.
Gains and losses are recognised in the consolidated income statement, when the investments
are derecognised or impaired, as well as through
the amortisation process. The Group did not
have any held-to-maturity investments during the
years ended 31 December 2008 and 2007.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative
financial assets that are designated as availablefor-sale or are not classified in any of the three
preceding categories. After initial measurement,
available-for-sale financial assets are measured
at fair value with unrealised gains or losses recognised directly in equity until the investment is
derecognised, at which time the cumulative gain
or loss recorded in equity is recognised in the
income statement, or determined to be impaired,
at which time the cumulative loss recorded in
equity is recognised in the income statement.
The Group did not have any availablefor-sale financial assets during the years
ended 31 December 2008 and 2007.
Initial recognition
Financial liabilities within the scope of IAS 39
are classified as financial liabilities at fair value
through profit or loss, loans and borrowings, or
as derivatives designated as hedging instruments in an effective hedge, as appropriate.
The Group determines the classification of
its financial liabilities at initial recognition.
Financial liabilities are recognised initially at
fair value plus in the case of loans and borrowings, directly attributable transaction costs.
The Group’s financial liabilities mainly include
trade and other payables, loans and borrowings, and derivative financial instruments.
The measurement of financial liabilities
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or
loss includes financial liabilities held for trading
and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for
trading if they are acquired for the purpose of
selling in the near term. This category includes
derivative financial instruments entered into
by the Group that do not meet the hedge
accounting criteria as defined by IAS 39.
Gains or losses on liabilities held for trading
are recognised in the income statement.
at 31 December 2008
Loans and borrowings
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost using the effective interest rate method.
Gains and losses are recognised in the income
statement when the liabilities are derecognised
as well as through the amortisation process.
Offsetting of financial instruments
Financial assets and financial liabilities are
offset and the net amount reported in the consolidated balance sheet if, and only if, there
is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net basis, or to realise the
assets and settle the liabilities simultaneously.
Fair value of financial instruments
The fair value of financial instruments that are
actively traded in organised financial markets is
determined by reference to quoted market bid
prices at the close of business on the balance
sheet date. For financial instruments where there
is no active market, fair value is determined using
valuation techniques. Such techniques may include
using recent arm’s length market transactions;
reference to the current fair value of another instrument that is substantially the same; discounted
cash flow analysis or other valuation models.
Amortised cost of
Amortised cost is computed using the effective
interest method less any allowance for impairment
and principal repayment or reduction. The calculation takes into account any premium or discount on
acquisition and includes transaction costs and fees
that are an integral part of the effective interest rate.
Impairment of financial assets
The Group assesses at each balance sheet 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’)
21
and that loss event has an impact on the estimated
future cash flows of the financial asset or the group
of financial assets that can be reliably estimated.
Evidence of impairment may include indications that
the debtors or a group of debtors is experiencing
significant financial difficulty, default or delinquency
in interest or principal payments, the probability
that they will enter bankruptcy or other financial
reorganisation and where observable data indicate
that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
Assets carried at amortised cost
For assets carried at amortised cost, the Group first
assesses individually whether objective evidence
of impairment exists for financial assets that are
individually significant, or collectively for financial
assets that are not individually significant. If the
Group determines that no objective evidence of
impairment exists for an individually assessed
financial asset, whether significant or not, it includes
the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses
them for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is, or continues to be, recognised are not
included in a collective assessment of impairment.
If there is objective evidence that an impairment
loss has been incurred, the amount of the loss is
measured as the difference between the asset’s
carrying amount and the present value of estimated
future cash flows (excluding future expected credit
losses that have not yet been incurred). The carrying amount of the asset is reduced through the
use of an allowance account and the amount of the
loss is recognised in the income statement. Interest
income continues to be accrued on the reduced
carrying amount based on the original effective
interest rate of the asset. Loans and receivables
together with the associated allowance are written off when there is no realistic prospect of future
recovery and all collateral has been realised or has
been transferred to the Group. If, in a subsequent
year, the amount of the estimated impairment
loss increases or decreases because of an event
occurring after the impairment was recognised,
the previously recognised impairment loss is
increased or reduced by adjusting the allowance
account. If a future write-off is later recovered, the
recovery is recognised in the income statement.
Closed Joint Stock
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.
Available-for-sale financial investments
For available-for-sale financial investments, the
Group assesses at each balance sheet date
whether there is objective evidence that an investment or a group of investments is impaired.
In the case of equity investments classified as
available-for-sale, objective evidence would
include a significant or prolonged decline in the
fair value of the investment below its cost. Where
there is evidence of impairment, the cumulative
loss – measured as the difference between the
acquisition cost and the current fair value, less
any impairment loss on that investment previously recognised in the income statement – is
removed from equity and recognised in the income
statement. Impairment losses on equity investments are not reversed through the income
statement; increases in their fair value after
impairment are recognised directly in equity.
In the case of debt instruments classified as
available-for-sale, impairment is assessed
based on the same criteria as financial assets
carried at amortised cost. Interest continues
to be accrued at the original effective interest rate on the reduced carrying amount of the
asset. If, in a subsequent year, the fair value of
a debt instrument increases and the increase
can be objectively related to an event occurring after the impairment loss was recognised
in the income statement, the impairment loss
is reversed through the income statement.
Derecognition
of financial instruments
Financial assets
A financial asset (or, where applicable a part
of a financial asset or part of a group of similar financial assets) is derecognised when:
• the rights to receive cash flows from
the asset have expired; or
• the Group has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under
a ‘pass-through’ arrangement; and either (a)
the Group has transferred substantially all
the risks and rewards of the asset, or (b) the
Group has neither transferred nor retained
substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Group has transferred its rights to receive
cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the
asset, a new asset is recognised to the extent of
the Group’s continuing involvement in the asset.
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.
When continuing involvement takes the form of a
written and/or purchased option (including a cash
settled option or similar provision) on the transferred
asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the
Group may repurchase, except that in the case of
a written put option (including a cash settled option
or similar provision) on an asset measured at fair
value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the
transferred asset and the option exercise price.
A financial liability is derecognised when
the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or
modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the respective carrying
amounts is recognised in the income statement.
at 31 December 2008
Employee benefits
The Group makes defined contributions to the
State Pension fund at the relevant statutory rates
in force during the year, based on gross salary
payments; such an expense is charged in the
period when the related salaries are earned.
In addition to the above, employees of the Group are
entitled to jubilee and post-employment benefits.
Jubilee benefits are paid out on occasion of anniversary, while post-employment benefits are paid out
as a one-off benefit upon retirement. The amount
of those benefits depends on the tenure with the
Company and the average salary. The benefits
payable under these arrangements are unfunded.
The expected cost of providing employee benefits
is determined annually using the projected unit
credit actuarial valuation method to calculate the
net present value of benefit obligations at the balance sheet 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 balance sheet
date. Demographic information and information
on staff turnover are based on historical data.
Gains and losses resulting from the use of actuarial valuation methodologies to calculate postemployment benefits are recognised when the
cumulative unrecognised actuarial gains or losses
for the plan at the end of the previous reporting
period exceed 10% of defined benefit obligation
at that date. These gains or losses are recognised
as income or expense over the expected average
remaining working lives of the employees participating in the plan. Any actuarial gains or losses
relating to jubilee benefits are recognised in the
income statement in the period in which they arise.
The past service cost is recognised as an
expense on a straight-line basis over the average period until the benefits become vested.
23
If the benefits are already vested following the
introduction of, or changes to, a pension plan,
past service cost is recognised immediately.
The defined benefit liability is the aggregate of
the present value of the defined benefit obligation
and actuarial gains and losses not recognised
reduced by past service cost not yet recognised.
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 balance sheet date.
Deferred income tax
Deferred income tax is provided using the
liability method on temporary differences
at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• where the deferred tax liability arises from
the initial recognition of goodwill or of an
asset or liability in a transaction that is not
a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences
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.
Closed Joint Stock
Deferred income tax assets are recognised for all
deductible temporary differences and carry-forward
of unused tax losses, to the extent that it is probable
that taxable profit will be available against which the
deductible temporary differences, and the carryforward of unused tax losses can be utilised except:
• where the deferred income tax asset relating to
the deductible temporary difference arises from
the initial recognition of an asset or liability in a
transaction that is not a business combination
and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss;
in respect of deductible temporary differences
deferred tax assets are recognised only to the
extent that it is probable that the temporary
differences will reverse in the foreseeable future
and taxable profit will be available against which
the temporary differences can be utilised.
The carrying amount of deferred income tax
assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset
to be utilised. Unrecognised deferred income tax
assets are reassessed at each balance sheet
date and are recognised to the extent that it has
become probable that future taxable profit will
allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are
measured at the tax rates that are expected to
apply to 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 balance sheet date.
Deferred tax assets and deferred tax liabilities are
offset, if a legally enforceable right exists to set
off current tax assets against current tax liabilities
and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value-added tax
Revenues, expenses and assets are recognised net
of the amount of value-added tax (“VAT”) except:
• where VAT incurred on a purchase of assets or
services is not recoverable from the taxation
authority, in which case VAT is recognised as
part of the cost of acquisition of the asset or
as part of expense item as applicable; and
• receivables and payables are stated
with the amount of VAT included.
The net amount of VAT recoverable from, or payable to, the taxation authority is disclosed in
the notes to the consolidated balance sheet.
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 in, the
Group’s normal operating cycle, it is held
primarily for the purpose of being traded,
or it is expected/due to be realised or settled
within twelve months after the balance sheet
date. Other assets/liabilities are classified as
non-current. Financial instruments are classified
based on expected life, except for the trading
instruments, and consistent with the underlying
hedged item. Deferred revenues and respective
costs of connection are classified as current.
Cash and cash equivalents include cash at
banks and on hand and short-term deposits with
an original maturity of three months or less.
For the purpose of consolidated cash flow
statement, cash and cash equivalents consists of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
at 31 December 2008
25
Provisions
Inventories
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of a provision
to be reimbursed, for example under an insurance
contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented in the income statement net of
any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a
current pre-tax rate that reflects, where appropriate,
the risks specific to the liability. Where discounting
is used, the increase in the provision due to the
passage of time is recognised as a finance cost.
Inventories are valued at the lower of cost or
net realisable value for items that will be sold
as a separate product. Inventories that will be
sold as part of a transaction with several components, which the Group expects to earn net
income from, are valued at cost even if the selling price of the inventory is below cost price.
Cost is determined using the FIFO method.
Contingent assets and liabilities
A contingent asset is not recognised in the
financial statements but disclosed when an
inflow of economic benefits is probable.
Contingent liabilities are not recognised in the financial statements unless it is probable that an outflow
of economic resources will be required to settle the
obligation and it can be reasonably estimated. They
are disclosed unless the possibility of an outflow of
resources embodying economic benefits is remote.
Events
after the balance sheet date
Events after the balance sheet date that provide additional information on the Group’s
position at the balance sheet date (adjusting events) are reflected in the consolidated
financial statements. Events after the balance
sheet date that are not adjusting events are
disclosed in the notes when material.
Change
in presentation of
comparative information
Certain reclassifications have been made
to the 2007 amounts in order to conform with the 2008 information.
Closed Joint Stock
6. Critical accounting
judgements and key
sources of estimation
uncertainty
Key sources of estimation
uncertainty – critical
accounting estimates
Certain amounts included in or affecting the consolidated financial statements and related disclosures
must be estimated, requiring management to make
assumptions with respect to values or conditions
which cannot be known with certainty at the time
the consolidated financial statements are prepared.
A ‘critical accounting estimate’ is one, which is both
important to the portrayal of the Group’s financial
condition and results and requires management’s
most difficult, subjective or complex judgments,
often as a result of the need to make estimates
about the effect of matters that are inherently
uncertain. Management evaluates such estimates
on an ongoing basis, based upon historical results
and experience, consultation with experts, trends
and other methods, which management considers reasonable in the particular circumstances, as
well as the forecasts as to how these might change
in the future. However, uncertainty about these
estimates could result in outcomes that require
a material adjustment to the carrying amount of
the asset or liability affected in future periods.
Revenue recognition
The main part of the Group’s revenues is based
on usage, such as traffic or periodic subscriptions. The Company has many subscribers and
offers a number of different services with different
price plans. The Company provides discounts of
various types, often in connection with different
campaigns. Management has to make a number
of estimates related to recognising revenues. To
some extent, management has to rely on information from other operators on amounts of services
delivered. For some services, the other parties
may dispute the prices charged. Management
makes estimates of the final outcome. Some
revenues are recorded in the balance sheet as
deferred revenue, e.g. some connection fees,
which means that the management has to estimate the average customer relationship period.
Employee benefits
The cost of long-term employee benefits and
other post employment benefits is determined
using actuarial valuations. The actuarial valuation involves making assumptions about discount
rates, future salary increases and future pension increases. All assumptions are reviewed at
each reporting date. In determining the discount
rate, the management considers the market
yields on government bonds. The turnover rate
is calculated based on the past experience.
Further details about the assumptions used are given in Note 23.
Deferred tax assets
Deferred tax assets are recognised for all deductible temporary differences to the extent that it
is probable that taxable profit will be available
against which the losses can be utilised. Significant
management judgment is required to determine
the amount of deferred tax assets that can be
recognised, based upon the likely timing and the
level of future taxable profits together with future
tax planning strategies. Please refer to Note 9 for
additional information on the Group’s tax position.
at 31 December 2008
Depreciation and amortisation is based on management estimates of the future useful life of property, plant and equipment and intangible assets.
Estimates may change due to technological developments, competition, changes in market conditions
and other factors and may result in changes in
the estimated useful life and in the amortisation or
depreciation charges. Technological developments
are difficult to predict and the Group’s views on the
trends and pace of development may change over
time. Some of the assets and technologies, in which
the Group invested several years ago, are still in use
and provide the basis for the new technologies. The
useful lives of property, plant and equipment and
intangible assets are reviewed at least annually taking into consideration the factors mentioned above
and all other important factors. In case of significant
changes in estimated useful lives, depreciation and
amortisation charges are adjusted prospectively.
27
significant changes in the use of assets or the strategy for the Group’s overall business, including assets
that are decided to be phased out or replaced and
assets that are damaged or taken out of use, significant negative industry or economic trends and significant cost overruns in the development of assets.
Estimating recoverable amounts of assets must
in part be based on management’s evaluations,
including determining appropriate cash generating
units, estimates of future performance, revenue
generating capacity of the assets, assumptions
of the future market conditions and the success in marketing of new products and services.
Changes in circumstances and in management’s
evaluations and assumptions may give rise to
impairment losses in the relevant periods.
Legal proceedings, claims
and regulatory discussions
The Group is a subject to various legal proceedings and claims including regulatory discussions,
the outcomes of which are subject to significant
The Group has made significant investments in
uncertainty. Management evaluates, among other
property, plant and equipment and intangible
factors, the degree of probability of an unfavourable
assets. These assets are tested, as described, for
outcome and the ability to make a reasonable estiimpairment annually or when circumstances indicate mate of the amount of loss. Unanticipated events or
there may be a potential impairment. Factors conchanges in these factors may require to increase or
sidered important which could trigger an impairment decrease the amount to be accrued for any matter
evaluation include the following: significant fall in
or accrue for a matter that has not been previously
market values; significant underperformance relative accrued because it was not considered probable
to historical or projected future operating results;
or a reasonable estimate could not be made.
Closed Joint Stock
7. IFRSs and IFRIC
Interpretations
not yet effective
The Group has not adopted the following IFRS
and IFRIC interpretations published but not yet
effective. Adoption of these standards and interpretations will not have any effect on the financial performance or position of the Group. They
will however give rise to additional disclosures,
including revisions to accounting policies.
• Amendments to IFRS 1 First-time Adoption
of International Financial Reporting
Standards and IAS 27 Consolidated
• IFRS 3R Business Combinations
and IAS 27R Consolidated
• IAS 1 Presentation of Financial
• IAS 32 Financial Instruments:
Presentation and IAS 1 Presentation of
Financial Statements – Puttable Financial
Instruments and Obligations Arising
on Liquidation
• IAS 39 Financial Instruments:
• IFRS 2 Share-based payments (Revised)
• IFRS 8 Operating Segments
• IFRIC 15 Agreement for the
• IFRIC 16 Hedges of a Net Investment
• IFRIC 17 Distributions of
Non-cash Assets to Owners
• IFRIC 18 Transfers of Assets from Customers
• Certain improvements to IFRS issues by
IASB in its first omnibus of amendments
Amendments to IFRS 1 Firsttime Adoption of International
Financial Reporting Standards
and IAS 27 Consolidated and
Separate Financial Statements
The amendments to IFRS 1 allows an entity to
determine the ‘cost’ of investments in subsidiaries,
jointly controlled entities or associates in its opening
IFRS financial statements in accordance with IAS
27 or using a deemed cost. The amendment to IAS
27 requires all dividends from a subsidiary, jointly
controlled entity or associate to be recognised in
the income statement in the separate financial statements. Both revisions will be effective for financial
years beginning on or after 1 January 2009. The
revision to IAS 27 will have to be applied prospectively. The new requirements affect only the parent’s
separate financial statement and do not have an
impact on the consolidated financial statements.
IFRS 3R Business Combinations
and IAS 27R Consolidated and
Separate Financial Statements
The revised standards were issued in January 2008
and become effective for financial years beginning on or after 1 July 2009. IFRS 3R introduces
a number of changes in the accounting for business combinations occurring after this date that
will impact the amount of goodwill recognised, the
reported results in the period that an acquisition
occurs, and future reported results. IAS 27R requires
that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an
equity transaction. Therefore, such transactions will
no longer give rise to goodwill, nor will it give rise
to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred
by the subsidiary as well as the loss of control of
a subsidiary. Other consequential amendments
were made to IAS 7 Statement of Cash Flows, IAS
12 Income Taxes, IAS 21 The Effects of Changes
in Foreign Exchange Rates, IAS 28 Investment in
Associates and IAS 31 Interests in Joint Ventures.
The changes by IFRS 3R and IAS 27R will affect
future acquisitions or loss of control. The standards
may be early applied. However, the Group does
not intend to take advantage of this possibility.
at 31 December 2008
29
IAS 1 Presentation of Financial
IFRS 2 Share-based
payment (Revised)
The revised Standard was issued in September 2007
and becomes effective for financial years beginning
on or after 1 January 2009. The Standard separates
owner and non-owner changes in equity. The statement of changes in equity will include only details of
transactions with owners, with non-owner changes
in equity presented as a single line. In addition,
the Standard introduces the statement of comprehensive income: it presents all items of recognised
income and expense, either in one single statement,
or in two linked statements. The Group is still evaluating whether it will have one or two statements.
This amendment to IFRS 2 was published in
January 2008 and becomes effective for financial
Standard restricts the definition of ’vesting condition’
to a condition that includes an explicit or implicit
requirement to provide services. Any other conditions are non-vesting conditions, which have to be
taken into account to determine the fair value of the
equity instruments granted. In case that the award
does not vest as the result of a failure to meet a
non-vesting condition that is within the control of
either the Group of the counterparty, this must be
accounted for as a cancellation. The Group has not
entered into share-based payment schemes and,
therefore, the Standard will not have impact on the
financial position or performance of the Group.
Presentation and IAS 1 Presentation
of Financial Statements – Puttable
IFRS 8 Operating Segments
Financial Instruments and
IFRS 8 was issued in November 2006. It sets out
Obligations Arising on Liquidation
requirements for disclosure of information about
These amendments to IAS 32 and IAS 1 were issued
in February 2008 and become effective for financial
revisions provide a limited scope exception for puttable instruments to be classified as equity if they
fulfil a number of specified features. The amendments to the standards will have no impact on the
financial position or performance of the Group,
as the Group has not issued such instruments.
These amendments to IAS 39 were issued in August
2008 and become effective for financial years
beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided
risk in a hedged item, and the designation of
inflation as a hedged risk or portion in particular
situations. It clarifies that an entity is permitted to
designate a portion of the fair value changes or
cash flow variability of a financial instrument as
hedged item. The Group has concluded that the
amendment will have no impact on the financial
position or performance of the Group, as the
Group has not entered into any such hedges.
an entity’s operating segments and also about the
entity’s products and services, the geographical
areas in which it operates, and its major customers.
This IFRS replaces IAS 14 Segment Reporting. An
entity shall apply this IFRS in its annual financial
statements for periods beginning on or after 1
January 2009. Segment information for prior years
that is reported as comparative information for
the initial year of application shall be restated to
conform to the requirements of this IFRS, unless
the necessary information is not available and the
cost to develop it would be excessive. The Group
expects that this standard will not result in additional disclosures as the Group’s structure is noncomplex and it has only one reportable segment.
Closed Joint Stock
IFRIC 15
Agreement for
the Construction of Real Estate
FRIC 15 was issued in July 2008 and becomes
effective for financial years beginning on or
after 1 January 2009. The interpretation is to
be applied retrospectively. It clarifies when and
how revenue and related expenses from the sale
of a real estate unit should be recognised if an
agreement between a developer and a buyer
is reached before the construction of the real
estate is completed. Furthermore, the interpretation provides guidance on how to determine
whether an agreement is within the scope of IAS
11 or IAS 18. IFRIC 15 will not have an impact on
the consolidated financial statements because
the Group does not conduct such activity.
IFRIC 16
Hedges of a Net Investment
IFRIC 16 was issued in July 2008 and becomes
October 2008. The interpretation is to be applied
prospectively. IFRIC 16 provides guidance on the
accounting for a hedge of a net investment. As
such it provides guidance on identifying the foreign
currency risks that qualify for hedge accounting
in the hedge of a net investment, where within the
group the hedging instruments can be held in the
hedge of a net investment and how an entity should
determine the amount of foreign currency gain or
loss, relating to both the net investment and the
hedging instrument, to be recycled on disposal of
the net investment. IFRIC 16 will not have an impact
on the financial statements, because the Company
does not have investments in foreign operations.
IFRIC 17 Distributions of
Non-cash Assets to Owners
IFRIC 17 was issued in November 2008 and
becomes effective for financial years beginning on
or after 1 July 2009 with early application permitted. This interpretation should be applied prospectively. IFRIC 17 provides guidance on accounting
for distributions of non-cash assets to owners. As
such it provides guidance on when to recognise
a liability, how to measure it and the associated
assets, and when to derecognise the asset and
liability and the consequences of doing so. IFRIC
17 will have no impact on the financial position
or performance of the Group, as the Group does
not distribute non-cash assets to its owners.
IFRIC 18 Transfers of
Assets from Customers
IFRIC 18 was issued in January 2009 and becomes
July 2009 with early application permitted, provided
valuations were obtained at the date those transfers
occurred. This interpretation should be applied prospectively. IFRIC 18 provides guidance on accounting for agreements in which an entity receives from
a customer an item of property, plant and equipment
that the entity must then use either to connect the
customer to a network or to provide the customer
with ongoing access to a supply of goods or services or to do both. The interpretation clarifies the
circumstances in which the definition of an asset is
met, the recognition of the asset and its measurement on initial recognition, the identification of the
separately identifiable services, the recognition of
revenue and the accounting for transfers of cash
from customers. IFRIC 18 will have no impact on the
financial position or performance of the Group, as
the Group does not receive assets from customers.
at 31 December 2008
Improvements to IFRS
As stated in Note 3 the Group has early adopted
some of the amendments to standards following the 2007 ‘Improvement to IFRSs’ project.
The Group has not yet adopted the following
amendments to standards and anticipates that
these changes will have no material effect
on the consolidated financial statements:
IAS 1 Presentation of Financial Statements:
• Assets and liabilities classified as held for trading
in accordance with IAS 39 Financial Instruments:
Recognition and Measurement are not automatically classified as current in the balance sheet.
IFRS 7 Financial Instruments: Disclosures:
31
IAS 20 Accounting for Government Grants
and Disclosures of Government Assistance:
• Loans granted in the future with no or low
interest rates will not be exempt from the
requirement to impute interest. The difference between the amount received and
the discounted amount is accounted for as
government grant. Also, revised various terms
used to be consistent with other IFRS.
IAS 27 Consolidated and Separate
Financial Statements:
• When a parent entity accounts for a sub-
• Removal of the reference to ‘total interest
income’ as a component of finance costs.
IAS 8 Accounting Policies, Change in
Accounting Estimates and Errors:
sidiary at fair value in accordance with IAS
39 in its separate financial statements, this
treatment continues when the subsidiary is
subsequently classified as held for sale.
IAS 29 Financial Reporting
in Hyperinflationary Economies:
• Clarification that only implementation guidance
• Revised the reference to the exception to
that is an integral part of an IFRS is mandatory when selecting accounting policies.
IAS 10 Events after the Reporting Period:
• Clarification that dividends declared after the
end of the reporting period are not obligations.
IAS 16 Property, Plant and Equipment:
measure assets and liabilities at historical cost,
such that it notes property, plant and equipment
as being an example, rather than implying
that it is a definitive list. Also, revised various
terms used to be consistent with other IFRS.
IAS 34 Interim Financial Reporting:
• Earnings per share is disclosed in interim financial
reports if an entity is within the scope of IAS 33.
rental that are routinely sold in the ordinary course IAS 39 Financial Instruments:
of business after rental, are transferred to invento- Recognition and Measurement:
ry when rental ceases and they are held for sale.
• Changes in circumstances relating to derivatives
IAS 18 Revenue:
do not result in reclassifications and therefore
derivatives when circumstances related to
• Replacement of the term ‘direct costs’ with
them change may be either removed from, or
‘transaction costs’ as defined in IAS 39.
included in, the ‘fair value through profit or loss’
IAS 19 Employee Benefits:
classification after initial recognition. Removed
the reference in IAS 39 to a ‘segment’ when
• Revised the definition of ‘past service costs’,
determining whether an instrument qualifies as a
‘return on plan assets’ and ‘short term’
hedge. Require the use of the revised effective
and ‘other long-term’ employee benefits.
interest rate when remeasuring a debt instrument
Amendments to plans that result in a reducon the cessation of fair value hedge accounting.
tion in benefits related to future services are
• Items of property, plant and equipment held for
accounted for as curtailment. Deleted the
reference to the recognition of contingent
liabilities to ensure consistency with IAS 37.
Closed Joint Stock
IAS 40 Investment Property:
IAS 28 Investment in Associates:
• Revision of the scope such that property under
• If an associate is accounted for at fair value in
construction or development for future use as
an investment property is classified as investment property. If fair value cannot be reliably
determined, the investment under construction
will be measured at cost until such time as
fair value can be determined or construction
is complete. Also, revised the conditions for
a voluntary change in accounting policy to
be consistent with IAS 8 and clarified that
the carrying amount of investment property
held under lease is the valuation obtained
increased by any recognised liability.
IAS 41 Agriculture:
• Removed the reference to the use of
a pre-tax discount rate to determine fair
value. Removed the prohibition to take
into account cash flows resulting from any
additional transformations when estimating fair value. Also, replaced of the term
‘point-of-sale costs’ with ‘costs to sell’.
accordance with IAS 39, only the requirement
of IAS 28 to disclose the nature and extent of
any significant restrictions on the ability of the
associate to transfer funds to the entity in the
form of cash or repayment of loans applies.
This amendment has no impact on the Group
as it does not have investments in associates.
IAS 38 Intangible Assets:
• Expenditure on advertising and promotional
activities is recognised as an expense when
the Company either has the right to access
the goods or has received the service.
• The reference to there being rarely, if ever,
persuasive evidence to support an amortisation method of intangible assets other than
a straight-line method has been removed.
The Group reassessed the useful lives of
its intangible assets and concluded that the
straight-line method was still appropriate.
at 31 December 2008
33
8. Revenues and expenses
Revenues
2008
2007
7,212,434
6,330,195
Interconnection revenue
2,696,400
2,213,091
Periodic fees
1,225,790
916,981
Value added services
872,544
816,846
Air time charges
Connection and subscription fees
207,967
225,601
Roaming revenue (subscribers)
214,048
199,159
Roaming and access to network
230,840
185,952
Fixed lines
17,241
10,980
Other revenue
33,847
24,911
12,711,111
10,923,716
Air time charges include revenue from providing prepaid and post-paid subscribers
with access to the cellular network and routing their calls through the network.
Interconnection includes revenues earned
for the termination of calls from other telecommunications service providers’ networks on the Company’s network.
Periodic fees include periodic fees for subscription to new tariff plans and periodic fees for
supplementary subscriptions such as periodic
subscription to voicemail, itemised invoice etc.
Value added services include outgoing SMS
and MMS, circuit of switched data and packet
switched data (WAP, GPRS, EDGE etc.).
Connection and subscription fees consist of
revenues from initial connection and one-time
fees for supplementary subscriptions, which are
realised in the current period, and also include
change of subscription type and transfer of
subscriptions from one location to another.
Roaming revenue (subscribers) includes
revenue from services provided to the
Company’s subscribers within the networks
of the Company’s roaming partners.
Roaming and access to network includes revenue
from services provided to subscribers of other
operators and termination of incoming calls.
Fixed lines include revenue from
fixed network operations.
Closed Joint Stock
Costs of materials
and traffic charges
2008
Interconnection
1,779,840
2007
1,471,901
Roaming expenses
188,565
183,881
Cost of materials
169,392
157,795
Leased line costs
4,948
6,847
2,142,745
1,820,424
2008
2007
Salaries and holiday pay
609,723
508,359
Social security taxes
133,782
105,962
Medical insurance
25,772
13,451
Training
14,056
8,462
Other personnel costs
3,621
7,766
786,954
644,000
The average number of employees of the
Group in 2008 was 5,311 (2007: 4,885).
at 31 December 2008
35
2008
2007
Repair and maintenance
654,395
424,018
Marketing and sales commission
597,840
753,991
Advertising
392,754
446,865
Operating leases of building, land and equipment
225,181
154,593
Local taxes and VAT
124,244
41,436
Insurance
61,029
60,989
Consultancy fees and external personnel
52,107
30,201
Materials and supplies
35,178
25,565
Business trip expenses
31,491
25,398
License and research fees
28,981
21,234
Bad debts
22,720
13,650
Postage, freight, distribution and telecommunication
12,756
11,869
Bank charges
9,335
6,445
19,010
17,786
2,267,021
2,034,040
2008
2007
Gain on disposal of assets, classified as held for sale
46,307
–
Other income
13,244
1,736
Contributions and donations
(2,743)
(4,628)
Loss on disposal of property, plant and equipment and
intangible assets
(50,026)
(48,507)
6,782
(51,399)
Closed Joint Stock
Amortisation, depreciation and impairment losses
Details of amortisation, depreciation and impairment losses are as follows:
Intangible assets
2008
2007
2008
2007
1,232,665
1,144,943
402,901
341,789
Impairment losses
83,636
79,182
–
–
1,316,301
1,224,125
402,901
341,789
The impairment losses in 2008 and 2007 were recognised based on internal indications of impairment of various components of network equipment. Accordingly, the carrying values of the
respective components of network equipment were reduced to their recoverable amounts. The
recoverable amounts were based on value in use as determined for individual assets.
Finance income
2008
2007
Interest income
992,763
231,042
Net gain on financial instrument at fair value
through profit and loss
30,822
13,110
1,023,585
244,152
Finance costs
2008
2007
Interest expenses related to bank loans
191,348
303,017
Other finance costs
18,493
18,598
209,841
321,615
(19,336)
(17,381)
190,505
304,234
Less – interest capitalised
at 31 December 2008
37
9. Income tax
The Group’s income was subject to taxation in Ukraine only. During the years
ended 31 December 2008 and 2007 Ukrainian corporate income tax was levied on taxable income less allowable expenses at a rate of 25%.
The major components of income tax expense for the year ended 31 December 2008 and 2007 are:
2008
2007
Current income tax charge
1,729,555
1,329,705
Deferred tax related to origination and reversal
of temporary differences
130,490
(81,043)
Income tax expense
1,860,045
1,248,662
Reconciliations between tax expense and the product of accounting profit multiplied by
the tax rate for the years ended 31 December 2008 and 2007, are as follows:
2008
2007
Profit before tax
6,933,498
4,770,561
Income tax at statutory rate of 25%
1,733,375
1,192,640
Non-tax deductible expenses
78,071
56,022
Reassessment of temporary differences
48,599
–
Income tax expense
1,860,045
1,248,662
Closed Joint Stock
31-Dec-08
Charged
to Income
Statement
31-Dec-07
68,672
28,935
39,737
Deferred expenses (iii)
23,307
(3,594)
26,901
Prepayments (iii)
18,311
2,849
15,462
Inventories (ii)
–
(595)
595
9,254
9,254
–
8,990
8,546
444
128,534
45,395
83,139
13,272
3,452
9,820
6,740
(32,864)
39,604
6,062
1,305
4,757
213,394
(55,352)
268,746
NET DEFERRED TAX ASSET
–
(1,636)
1,636
239,468
(85,095)
324,563
110,934
(130,490)
241,424
at 31 December 2008
39
31-Dec-07
Charged to Income
Statement
31-Dec-06
Property, plant and equipment and intangible
assets (i)
39,737
(27,068)
66,805
Deferred expenses (iii)
26,901
(7,362)
34,263
Prepayments (iii)
15,462
6,743
8,719
Inventories (ii)
595
316
279
–
(23,150)
23,150
444
444
83,139
(50,077)
133,216
–
9,820
8,559
1,261
39,604
9,883
29,721
4,757
2,040
2,717
–
(117)
117
268,746
20,240
248,506
1,636
(9,639)
11,275
324,563
30,966
293,597
241,424
81,043
160,381
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 valuation models and the periods of recognition;
(iii) Advances received and deferred revenue, prepayments and deferred
expenses – differences in period of recognition;
(iv) Interest-bearing borrowings and derivative financial instrument – differences in valuation models (cost vs. fair values or amortised cost);
(v) Other liabilities and receivables – differences in valuation and recognition principles.
Closed Joint Stock
10. Property, plant and equipment
The movement of property, plant and equipment is as follows:
Land
Corporate
administrative
assets
Construction
in progress,
uninstalled
and
dismantled
equipment
(iii)
Total
235,066
13,759
407,068
1,365,773
8,445,912
92,516
814
1,347
12,016
1,653,251
1,791,966
(3,357)
(8,271)
(167)
(29)
(6,235)
(95,283)
(113,433)
107,817
678,429
(70,169)
209,438
28
65,643
(1,250,416)
(259,230)
573,288
4,414,922
2,264,932
445,151
15,105
478,492
1,673,325
9,865,215
Additions (i)
6,684
39,393
10,207
341
88,182
15,594
1,504,354
1,664,755
–
(14,092)
(143,714)
(173,974)
Local,
regional&
trunk
networks
Mobile
telephone
network
and
switches
Radio
installations
Buildings
457,132
3,716,258
2,250,856
Additions (i)
8,430
23,592
Disposals
(91)
Transfers and
At 31 December 2007
Cost:
At 1 January 2007
Disposals
–
(5,043)
(11,125)
–
Transfers and
98,948
567,417
118,029
276,440
117
86,719
(1,149,173)
(1,503)
At 31 December 2008
678,920
5,016,689
2,382,043
721,932
103,404
566,713
1,884,792
11,354,493
at 31 December 2008
Local,
regional&
trunk
networks
41
Mobile
telephone
network
and
switches
Radio
installations
Buildings
Land
Corporate
administrative
assets
Construction
in progress,
uninstalled
and
dismantled
equipment
(iii)
Total
Accumulated depreciation and impairment
losses:
At 1 January 2007
39,971
1,054,144
620,628
26,090
–
190,019
278,075
2,208,927
Depreciation charge
for the year
22,899
599,055
318,014
24,582
–
99,060
81,333
1,144,943
Impairment (Note 8)
–
–
–
–
–
–
79,182
79,182
Disposals
(21)
(1,533)
(3,641)
(167)
–
(3,757)
(73,149)
(82,268)
Transfers and
(7,001)
(116,700)
(79,738)
1,322
–
(12,710)
125,865
(88,962)
At 31 December
2007
55,848
1,534,966
855,263
51,827
–
272,612
491,306
3,261,822
Depreciation charge
for the year
31,667
645,837
307,132
50,800
–
111,137
86,092
1,232,665
Impairment (Note 8)
–
–
–
–
–
–
83,636
83,636
Disposals
–
(4,385)
(1,823)
–
–
(6,081)
(106,994)
(119,283)
Transfers and
(30)
(76,777)
(67,085)
(1,078)
–
(3,763)
160,589
11,856
At 31 December
2008
87,485
2,099,641
1,093,487
101,549
–
373,905
714,629
4,470,696
Net book value:
At 1 January 2007
417,161
2,662,114
1,630,228
208,976
13,759
217,049
1,087,698
6,236,985
At 31 December
2007
517,440
2,879,956
1,409,669
393,324
15,105
205,880
1,182,019
6,603,393
At 31 December
2008
591,435
2,917,048
1,288,556
620,383
103,404
192,808
1,170,163
6,883,797
(i) The amount of borrowing costs capitalised for the year ended 31 December 2008 comprised UAH 19,336 thousand (2007: UAH 17,381
thousand) (Note 8).
(ii) In 2008 and 2007 equipment for exchange was reclassified from property, plant and equipment to assets held for sale and vice versa (Note 30).
(iii) Dismantled equipment is continued to be depreciated over the estimated remaining useful life.
Closed Joint Stock
11. Intangible assets
The movement of intangible assets is as follows:
Licenses
Network and
Total
billing software
COST:
At 1 January 2007
385,840
1,724,195
2,110,035
Additions
1,335
435,466
436,801
Disposals
–
(50,988)
(50,988)
At 31 December 2007
387,175
2,108,673
2,495,848
Additions
22,563
201,020
223,583
Disposals
–
(19,248)
(19,248)
At 31 December 2008
409,738
2,290,445
2,700,183
ACCUMULATED AMORTISATION AND IMPAIRMENT LOSSES:
At 1 January 2007
128,151
665,531
793,682
25,715
316,074
341,789
–
Disposals
(30,044)
(30,044)
At 31 December 2007
153,866
951,561
1,105,427
22,242
380,659
402,901
Disposals
–
(13,168)
(13,168)
At 31 December 2008
176,108
1,319,052
1,495,160
At 1 January 2007
257,689
1,058,664
1,316,353
At 31 December 2007
233,309
1,157,112
1,390,421
At 31 December 2008
233,630
971,393
1,205,023
12. Other non-current assets
Other non-current assets as at 31 December were as follows:
2008
2007
Prepayments for property, plant and equipment
79,815
135,726
Prepayments for intangible assets
3,486
6,872
5,298
5,056
88,599
147,654
at 31 December 2008
43
13. Trade and other receivables
Trade and other receivables consisted of the following as at 31 December:
2008
2007
Trade receivables – interconnection and
access to network
234,202
181,176
Trade receivables – dealers for prepaid cards
and packages
88,810
35,318
Trade receivables – dealers for post-paid
subscriber's advances
314
1,093
Trade receivables – subscribers
52,956
49,923
Trade receivables – roaming
94,242
38,479
Accounts receivable – for assets sold under
buy-back agreement
62,012
–
Interest receivable
149,594
23,365
Other receivables
10,965
18,954
693,095
348,308
Allowance for impairment
(64,851)
(55,668)
628,244
292,640
Trade and other receivables, net of allowance for impairment as at 31 December were denominated in the following
currencies:
2008
2007
UAH
259,879
126,051
USD
243,137
91,254
EUR
125,228
75,335
628,244
292,640
As at 31 December 2008 and 2007 trade and other receivables are non-interest bearing and are settled in the normal course
of business.
Closed Joint Stock
14. Prepaid taxes, other than income tax
Prepaid taxes, other than income tax consisted of the following as at 31 December:
2008
2007
31,407
8,276
Withholding tax prepaid
5,590
–
Other taxes prepaid
1,308
694
38,305
8,970
Prepayments to State Pension Fund for mobile
services
(i)
(i) The Law “On mandatory contribution to the Pension Fund” establishes a 7.5% contribution for mandatory state
pension insurance on the price of mobile services. The subscribers of mobile services are defined as payers of this
contribution, while the providers of mobile services act as their tax agents. The Company includes 7.5% surcharge in
the price of its mobile services and pays contributions to State Pension Fund.
15. Prepayments
Prepayments as at 31 December were denominated in the following currencies:
2008
2007
UAH
56,867
104,967
EUR
162
3,871
USD
33
1,173
RUR
8
4
57,070
110,015
at 31 December 2008
45
16. Reconciliation of allowance accounts
The reconciliation of changes in allowance accounts during the years 2008 and 2007 is as follows:
Prepayments
Total
As at 1 January 2007
45,520
–
45,520
Charge for the year
13,607
43
13,650
Utilised
(3,271)
–
(3,271)
(188)
–
(188)
55,668
43
Charge for the year
21,196
1,524
Utilised
(10,301)
–
(10,301)
(1,712)
–
(1,712)
64,851
55,711
22,720
1,567
66,418
17. Deferred expenses
As at 31 December deferred expenses consisted of the following:
2008
2007
(i)
78,954
86,486
Deferred costs of start packages and scratch-cards
(ii)
14,273
21,120
93,227
107,606
(i) As at 31 December 2008 and 2007 deferred connection costs mainly consisted of costs of start packages and dealers’
bonuses for connection of new subscribers.
(ii) Deferred costs of start packages and scratch-cards represent costs of start packages and scratch-cards sold to dealers,
but not yet activated by subscribers.
The movement in deferred connection costs is as follows:
2008
2007
At 1 January
86,486
137,053
58,250
48,489
(65,782)
(99,056)
At 31 December
78,954
86,486
Closed Joint Stock
18. Short-term deposits
Short-term deposits are made for varying periods of between three months and one year depending on the Group’s immediate cash requirements.
As at 31 December short-term deposits split by currency, contractual maturity and interest rate earned was as follows:
Currency
Contractual
maturity
Interest rate p.a.
2008
UAH
6 months
12–18.5%
1,325,000
600,000
USD
6 months
8.75–13.2%
1,456,070
138,370
EUR
6 months
8.5–13%
282,242
25,968
3,063,312
764,338
2007
19. Cash and cash equivalents
As at 31 December cash on hand and cash at bank were
denominated in the following currencies:
Cash and cash equivalents consisted of the following
as at 31 December:
2008
2007
2008
2007
Short-term deposits
4,964,457
4,185,223
UAH
88,187
415,597
Cash at bank
103,889
426,444
USD
11,548
8,960
Cash on hand
23
22
EUR
4,177
1,909
5,068,369
4,611,689
103,912
426,466
As at 31 December short-term deposits split by contractual maturity, currency and interest rate earned was as follows:
Currency
Maturity date
Interest rate p.a.
2008
2007
UAH
0–30 days
6–36%
235,000
170,000
31–60 days
4.25–36%
2,085,000
1,600,000
61–92 days
4–28%
1,810,000
1,455,007
4,130,000
3,225,007
0–30 days
3.8–6.5%
–
16,160
31–60 days
4–12.5%
245,630
666,600
61–92 days
5.5–12.25%
266,420
76,760
512,050
759,520
–
5,935
USD
EUR
0–30 days
2.75%
31–60 days
5–13%
61–92 days
3.5–16%
113,982
–
208,425
194,761
322,407
200,696
4,964,457
4,185,223
at 31 December 2008
47
20. Share capital
As at 31 December 2008 and 2007 the authorised
and fully paid share capital comprised 10,687,389
ordinary shares at a par value of UAH 50 each.
As at 31 December 2008 and 2007 share capital
is stated at consideration received. Consideration
received differs from share capital at par for the amount
of UAH 122,130 thousand being the foreign exchange
difference, which arose before 1 May 2004, when
the Company’s functional currency was US dollar.
Shareholders of the Company approved distribution of
the profits for the years of 2004 and 2005 in amount of
UAH 3,460,000 thousand among the shareholders in the
form of dividends pro rata to the number of shares held
by them (UAH 323.75 per share). In 2008 the Company
paid in cash dividends to its shareholders in amount
of UAH 543,996 thousand, net of withholding tax.
21. Interest-bearing
loans and borrowings
Interest-bearing loans and borrowings consisted of the following
as at 31 December:
2008
2007
from Dresdner Bank
(USD-denominated)
956,232
2,214,021
Interest accrued
28,823
66,415
985,055
2,280,436
As at 31 December 2007 the Company’s loans obtained from
Dresdner bank comprised the following:
• Loan of USD 266,420 thousand (UAH 1,345,421
thousand)bearing an interest at 10.375% per
annum with initial maturity on 17 August 2009;
• Loan of USD 172,000 thousand (UAH 868,600 thou-
Both of these loans were funded by loan participation notes (‘Eurobonds’) issued by, but
without recourse to, Dresdner Bank, for the sole
purpose of funding the loans to the Company.
During 2007 and 2008, several amendments to the loan
agreements with Dresdner Bank were signed, whereby
the Company agreed to pay on demand at any time
up to and including 17 August 2009 all or any part of
the principal loan together with accrued but unpaid
interest thereon. In return the Company received an
extension under the covenants, provided by the loan
agreements. In particular, the Company was granted
permission to submit audited IFRS consolidated financial
statements as at 31 December 2006, 2007 and 2008
and for the years then ended by 17 August 2009.
Following the agreed amendments to the loan
agreements, USD 314,234 thousand of the
loans were repaid by the Company in 2008.
The Dresdner bank loan agreements contain numerous
affirmative, financial and negative covenants and restrictions. In the event that the Company breaches any covenant or is not in compliance with any of the restrictions,
the lender has the right, at its discretion, to claim immediate repayment of indebtedness under the respective loan
agreement. Among other restrictions, contained in the
loan agreements, the most significant are as follows:
• the Company is required to maintain adequate
insurance covering losses and risks in such
amounts that are prudent and customary
in the business in which it is engaged;
• the Company is restricted in making invest-
ments; merging or consolidating; or declaring
and paying dividends in the amount greater
than 75% of the net income for the period;
• the Company shall not create, issue, incur,
assume, guarantee or in any manner become
directly or indirectly liable with respect to any
debt, other than permitted debt, unless the
ratio of total outstanding consolidated debt to
annualised consolidated cash flows, as defined
in the loan agreement, is less than 5 to 1.
sand) bearing an interest at 7.75% per annum
with initial maturity on 27 April 2012.
Closed Joint Stock
22. Derivative financial
instrument
Company was making floating rate payments at a rate
of USD 6 month LIBOR in arrears. Payments were to be
made semi-annually in arrears, starting on 17 February
2005. In February 2005, the Company agreed to
change the terms of the swap agreement. The fixed
rate of 4.195% was changed to 4.0% and the floating
rate was changed to the lower of 7% or USD 6 month
LIBOR rate determined two business days prior to the
calculation period, as defined in the original agreement.
The derivative financial instrument as at 31
December was classified as follows:
2008
2007
–
969
–
969
Fair value of derivative financial
instrument
30,565
–
Interest accrued on derivative financial
instrument
6,449
–
37,014
–
–
(7,513)
The Group, pursuant to the terms of personnel motivation programme, has established post-employment
benefit pension plan, covering substantially all of its
employees, who achieve regular pension age and
retire from the Group companies. In addition, the
Group pays jubilee benefits to its employees.
–
(7,513)
Employee benefit liability as at 31
December consisted of the following:
Non-current assets
Fair value of derivative financial
instrument
Current assets
Current liabilities
Interest accrued on derivative financial
instrument
The interest rate swap agreement was designated
by the Company as a fair value hedge and was
accounted for as such till February 2007, when the
instrument ceased to be effective in achieving offsetting
changes in fair value attributable to the hedged risk.
In 2008 and 2007 the net change in fair
value of interest rate swap was recognised in finance income (see Note 8).
23. Employee benefit liability
37,014 (6,544)
On 12 October 2004, the Company entered into a ‘pay
floating – receive fixed’ interest rate swap agreement
with Citibank N.A. (‘Citibank’) for the nominal amount
of USD 266,420 thousand effective until 17 August
2009 to manage the risk of changes in the fair value of
one of the loans received from Dresdner Bank. Under
initial terms of the swap agreement, Citibank was making fixed rate payments at a rate of 4.195%, and the
2008
2007
Post-employment defined benefit liability
13,177
8,763
Jubilee payments
11,074
10,267
24,251
19,030
Less: Current portion
(4,453)
(1,469)
Defined employee benefit liability – noncurrent portion
19,798
17,561
at 31 December 2008
49
Post-employment defined employee benefits
As at 31 December 2008 4,412 employees (2007: 4,147 employees) were entitled to benefits under post-employment defined employee benefits.
Changes in the present value of the defined benefit obligation as at 31 December were as follows:
2008
2007
Defined benefit obligation at 1 January
13,856
8,789
Interest cost
2,162
562
2,099
3,435
Benefits paid
–
(63)
Actuarial loss (gain) for the year
(5,483)
1,133
Defined benefit obligation at 31 December
12,634
13,856
Unrecognised actuarial gain/(loss)
543
(5,093)
Defined benefit liability at 31 December
13,177
8,763
Defined benefit liability – current portion
2,636
336
Defined benefit liability – non-current
10,541
8,427
Benefit expense
2008
2007
Classified as
Interest cost
2,162
562
2,099
3,434
Net actuarial losses recognised in the year
153
130
Total expenses recognised in the income statement
4,414
4,126
Net benefit expense was included into Salaries and personnel costs, except for interest cost charged to Finance costs.
Benefit liability
2008
2007
Net liability at 1 January
8,763
4,700
Benefits expense
4,414
4,126
–
(63)
Benefits paid
Net liability at 31 December
13,177
8,763
Closed Joint Stock
Jubilee payments
As at 31 December 2008 4,344 employees were entitled to jubilee benefits (2007: 3,963 employees).
2008
2007
11,074
10,267
Benefit liability – current portion
1,817
1,133
Benefit liability – non-current
9,257
9,134
Present value of unfunded obligations
Classified as
The principal assumptions used in determining the post-employment defined employee benefits are shown below:
2008
2007
Discount rate
15.60%
6.40%
Future benefit increases
17.00%
12.15%
Experience adjustment
2008
2007
2006
2005
(549)
965
299
(472)
24. Deferred revenue
As at 31 December deferred revenue consisted of the following:
2008
2007
Deferred revenue – dealers and subscribers
(i)
524,754
575,233
Deferred connection and subscription fees
(ii)
173,240
248,645
Customer loyalty programs
(iii)
32,337
24,654
730,331
848,532
(i) Deferred revenue – dealers – represents deferred revenue from unused time on prepaid cards, which
were sold to dealers, but have not yet been activated by subscribers. Deferred revenue – dealers is recognised in the balance sheet until the prepaid cards have been activated by subscribers or the prepaid
card has expired. Deferred revenue – subscribers – mainly consists of deferred revenue from unused
time on prepaid cards, which were activated by subscribers. Deferred revenue – subscribers is recognised as revenue in the income statement on the basis of actual airtime usage by subscribers.
(ii) Deferred connection and 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 recognised in the income statement over the periods that the fees are earned;
(iii) Customer loyalty programs – represent various loyalty programs, established by
the Company, whereby enrolled subscribers are eligible for bonuses, which may then
be used for discount on future calls or purchase of mobile handsets.
at 31 December 2008
51
The movements in deferred connection and subscription fees are as follows:
2008
2007
At 1 January
248,645
300,172
132,562
174,074
(207,967)
(225,601)
At 31 December
173,240
248,645
25. Provisions
The movement in provisions is as follows:
At 1 January
2008
2007
3,325
–
Arising during the year
(i)
4,891
3,325
(ii)
(3,325)
–
4,891
3,325
At 31 December
(i) As at 31 December 2008 the Group recognised provision in amount of UAH 4,891 thousand in respect of legal
proceeding against the Company initiated by its counterparty in respect of consulting services provided by the
counterparty, but not accepted by the Company. The management believes that the risk of loss of the case is probable.
(ii) As at 31 December 2007 the Group recognised provision in respect of potential penalties, which might have arisen on VAT
paid to suppliers at 20% rate on purchase of assets and services in amount of UAH 3,325 thousand. As at 31 December 2007 the
management considered that the risk of accrual of such penalties by the tax authorities upon the next tax review was probable.
(iii) As at 31 December 2008 the management revised its estimates and considered that the risk of accrual of penalties on
VAT paid to suppliers by the tax authorities is remote and the respective provision was reversed.
26. Taxes payable, other than income tax
Taxes payable, other than income tax consisted of the following as at 31 December:
2008
2007
VAT payable
90,155
88,554
Miscellaneous other taxes
2,145
2,409
92,300
90,963
Closed Joint Stock
27. Trade and other payables
28. Advances received
As at 31 December trade and other payables
consisted of the following:
As at 31 December advances received consisted of the
following:
2008
2007
233,641
275,788
Software
89,425
163,244
Professional fees
47,700
60,164
Accounts payable for roaming
44,040
Dealers
2008
2007
Advances received from
subscribers
100,068
103,456
33,504
Advances received from
partners
13,990
21,763
32,876
42,690
Advances received from dealers
6,495
7,510
Content services
20,494
19,618
Other advances received
900
301
Rent
12,829
13,422
Interconnection
10,781
19,724
Handsets
10,082
3,978
Management fees
3,188
2,509
Insurance
1,538
508
Due to employees
41
165
Other payables
24,362
36,246
Equipment and construction
works
530,997 671,560
As at 31 December trade and other payables were
denominated in the following currencies:
121,453 133,030
As at 31 December 2008 and 2007 advances received were
denominated in UAH.
29. Other current liabilities
As at 31 December other current liabilities consisted of the
following:
2008
2007
Bonuses accrued
167,189
125,840
Accrual for unused vacations
37,069
33,288
2008
2007
UAH
386,113
327,352
Accruals for future dealers'
reimbursement
808
4,341
USD
111,288
306,818
Other
22
19
EUR
31,987
37,390
GBR
602
–
RUR
1,007
–
530,997
671,560
As at 31 December 2008 and 2007 trade and other
payables are non-interest bearing and settled in the normal
course of business.
205,088 163,488
As at 31 December 2008 and 2007 other current liabilities
are non-interest bearing and denominated in UAH.
at 31 December 2008
53
30. Assets of disposal group classified as held for sale
On 4 July 2007 the Company entered into an assets
swap (‘buy back’) agreement with Ericsson AB
(‘the swap agreement’). Based on the terms and
conditions of the swap agreement, Ericsson AB
supplies to the Company new telecommunication equipment for mobile telephone network and
agrees to buy back the used mobile telecommunication equipment for the total consideration
of USD 57,848 thousand to be paid in cash.
On 21 February 2008 the Company signed the
amendment to the swap agreement, whereby
the composition of used assets to be sold to
Ericsson AB was changed and the consideration was reduced to USD 56,492 thousand.
tion of UAH 30,550 thousand, previously included
in assets held for sale, was reclassified to property,
plant and equipment. Conversely, additional network equipment, identified for sale by amendment
to the swap agreement, with a total cost of UAH
80,087 thousand and accumulated depreciation of
UAH 18,694 thousand was reclassified from property, plant and equipment to assets held for sale.
During 2008, a portion of the used network equipment identified for sale under the swap agreement
was sold to Ericsson AB for the total consideration
of USD 26,874 thousand. The respective gain
on disposal in amount of UAH 46,307 thousand
was recognised in other income (see Note 8).
Consequently, network equipment with a cost of
UAH 78,584 thousand and accumulated deprecia-
31. 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 is as follows:
2008
2007
Net profit attributable to ordinary equity holders of the parent for basic earnings
5,073,453
3,521,899
Weighted average number of ordinary shares for basic earnings per share
10,687,389
10,687,389
Basic earnings per share, UAH
474.71
329.54
As at 31 December 2008 and 2007 there are no potential ordinary shares. There have been
no transactions involving ordinary shares or potential ordinary shares between the reporting dates and the date of issue of these consolidated financial statements.
Closed Joint Stock
32. Related party disclosure
The Group’s transactions with its related parties for the years ended 31 December were as follows:
2008
Revenue
Cost of materials
and traffic charges
Salaries and
personnel costs
Finance income
Communications AS
26,039
5,813
–
–
–
–
51,378
–
659,902
481,969
–
172,698
685,941
487,782
51,378
172,698
2007
Revenue
Cost of materials
and traffic charges
Salaries and
personnel costs
Finance income
Communications AS
19,701
4,637
–
–
–
–
39,223
–
356,194
309,801
–
31,046
375,895
314,438
39,223
31,046
The outstanding balances from related parties as at 31 December were as follows:
2008
Trade and other
receivables
Short-term
deposits
Prepayments Cash and cash
equivalents
Total
Entities affiliated with Telenor
Mobile Communications AS
6,635
–
–
–
6,635
68,023
796,105
2
640,916
1,505,046
74,658
796,105
2
640,916
1,511,681
2007
Trade and other
receivables
Short-term
deposits
Prepayments
Cash and cash
equivalents
Total
Entities affiliated with Telenor
Mobile Communications AS
2,794
–
–
–
2,794
36,719
99,366
5,982
518,853
660,920
39,513
99,366
5,982
518,853
663,714
at 31 December 2008
55
The outstanding amounts due to related parties as at 31 December were as follows:
2008
2007
277
–
1,656
23,217
1,933
23,217
Terms and conditions of
transactions with related parties
Outstanding balances on settlements with related parties at the year-end are unsecured, interest free and
settlement occurs in cash. There have been no financial
guarantees provided to or received from any related party.
For the years ended 31 December 2008 and 2007, the
Group has not recorded any impairment of receivables
as regards to the amounts owed by related parties.
Revenue and trade receivables
In 2008 the Group sold to domestic and overseas telecom
operators, being the Group’s related parties, roaming services,
access to network and interconnection services in total amount
of UAH 685,941 thousand (2007: UAH 375,895 thousand).
Trade receivables as at 31 December 2008 and 2007 due
from related parties are non-interest bearing, unsecured
and are settled in the normal course of business.
Finance income
In 2008 finance income included UAH 172,698 thousand
of interest on deposit placed in Ukrainian bank affiliated with Storm LLC (2007: UAH 31,046 thousand).
Short-term deposits and cash
and cash equivalents
As at 31 December 2008 and 2007 short-term deposits and cash and cash equivalents were placed
in Ukrainian bank affiliated with Storm LLC.
Compensation
to management personnel
As at 31 December 2008 key management personnel consisted of 38 top executives of the Group (2007:
38). For the years ended 31 December total compensation to key management personnel included
in salaries and personnel costs comprised:
Cost of materials and traffic
charges and trade payables
Cost of materials and traffic charges from related
parties include roaming and interconnection services, provided by entities affiliated with Telenor
Mobile Communications AS and Storm LLC.
Trade payables to entities affiliated with Storm LLC comprise amounts due for interconnection services.
2008
2007
Short-term employee benefits
51,289
39,120
Long-term employee benefits
89
103
Total compensation to key 51,378
management personnel
39,223
Trade payables to related parties are non-interest bearing and are settled in the normal course of business.
Closed Joint Stock
33. Commitments
and contingencies
(i) Tax risks
(iii) Other capital commitments
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.
As at 31 December 2008 the Group had
outstanding commitments in respect of purchase and construction of property, plant
and equipment in amount of UAH 125,710
thousand (2007: UAH 95,247 thousand).
Management believes that the Group has complied with all regulations, and paid and accrued
all taxes that are applicable. Where the risk of
outflow of resources is probable, the Group has
accrued provisions based on management’s best
estimate. The Group identified certain possible
tax contingencies, which are not required to be
accrued in the financial statements. Such possible
tax contingencies could materialise and require
the Group to pay additional amounts of tax.
As at 31 December 2008 the Group had outstanding commitments in respect of purchasing intangible assets in amount of UAH 51,231
thousand (2007: UAH 1,239 thousand).
(iv) Lease commitments
Operating lease – the Group as a lessee
Future minimum rentals payable under
a non-cancellable operating lease as
at 31 December were as follows:
As at 31 December 2008 management estimates
such tax contingencies to be approximately UAH
342,780 thousand (2007: 68,125 thousand).
(ii) Legal matters
In the ordinary course of business, the Group
is subject to legal actions and complaints. As
at 31 December 2008 the Group’s exposure to
presented third parties’ claims is UAH 1,000 thousand (2007: UAH 1,000 thousand). Management
believes that the ultimate liability, if any, arising
from claims and complaints, both presented and
potential, 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.
2008
2007
Within one year
82,694
7,805
After one year but not more than
five years
28,188
51,857
More than five years
3,013
19,371
113,895
79,033
at 31 December 2008
34. Fair value of
As at 31 December 2008 and 2007 the carrying value of the Group’s financial instruments approximates their fair values.
The face values of financial assets and
liabilities with a maturity of less than one
year, less any estimated credit adjustments,
are assumed to be their fair values.
The fair value of financial liabilities is estimated
by discounting the future contractual cash flows
at the current market interest rate available to
the Group for similar financial instruments.
Fair value of the interest rate swap is estimated
by the present value of future cash flows, calculated by using quoted swap curves and
exchange rates as at the balance sheet date.
35. Financial instruments
and risk management
The Group’s principal financial instruments, other
that derivatives, comprise interest-bearing loans
and borrowings, cash in bank and short-term
deposits. The Group has various other financial
instruments, such as trade payables and trade
receivables, which arise directly from its operations.
The Group enters into derivative transactions to
hedge its interest rate risk arising on interestbearing loans and borrowings. 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
57
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 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 prices comprise three types of risk:
interest rate risk, currency risk and other price
risk. Financial instruments affected by market
risk include loans and borrowings, deposits and derivative financial instruments.
The sensitivity analyses in the following sections relate to the position as
at 31 December 2008 and 2007.
The sensitivity analyses have been prepared
on the basis that the amount of net debt, the
ratio of fixed to floating interest rates of the debt
and derivatives and the proportion of financial instruments in foreign currencies are all
constant at 31 December 2008 and 2007.
The analyses exclude the impact of movements
in market variables on the carrying value of
post-retirement obligations and provisions.
The following assumptions have been made
in calculating the sensitivity analyses:
• The balance sheet sensitivity
relates only to derivatives.
• The sensitivity of the income statement is
the effect of the assumed changes in interest rates on the net interest income for one
year, based on the floating rate non-trading
financial assets and financial liabilities held
at 31 December 2008 and 2007.
Closed Joint Stock
Interest rate risk
The Group’s exposure to the risk of changes
in market interest rates relates primarily to the
Group’s derivatives. Interest expense in the income
statement are influenced by changes in interest rates in the market. The objective for interest
rate risk management is to minimise interest cost
and at the same time keep the volatility of future
interest payments within acceptable limits.
The following table demonstrates the sensitivity to a
reasonably possible change in interest rates, with all
other variables held constant, of the Group’s profit
before tax (through the impact on derivatives).
2008
Increase/
(decrease)
in basis
points
Effect
on profit
before
tax
Change in USD LIBOR
+0.55%
(7,522)
Change in USD LIBOR
–0.55%
7,522
2007
Increase/
(decrease)
in basis
points
Change in USD LIBOR
Change in USD LIBOR
underlying economics of the Group’s business
transactions. The exchange rates for foreign currencies, in which the Group’s financial assets and liabilities were denominated, against Ukrainian hryvnia
(‘UAH’), as declared by the National Bank of Ukraine
(‘NBU’) as at the dates stated, were as follows:
RUR
USD
EUR
1 January 2007
0.1918
5.0500
6.6508
Average for 2007
0.1980
5.0500
6.9179
31 December 2007
0.2058
5.0500
7.4195
Average for 2008
0.2113
5.2672
7.7080
31 December 2008
0.2621
7.7000
10.8555
The following tables demonstrate the sensitivity to
a reasonably possible change in the corresponding
exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities).
2008
Effect
on profit
before
tax
Increase/
(decrease)
in basis
points
Effect
on profit
before
tax
+33.80
49,553
+39.70
24,480
+0.75
(2,064)
+36.40
(1,388)
–1.25
3,441
Change in USD exchange rate –33.80
Foreign currency risk
Foreign currency risk is the risk that the fair value
or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange
rates. The Group’s exposure to the risk of changes
in foreign exchange rates relates primarily to the
Group’s financing activities (when interest-bearing
borrowings are denominated in different currency from the Group’s functional currency).
In common with many other businesses in Ukraine,
foreign currencies, in particular the US dollar (‘USD’)
and the Euro (‘EUR’) play a significant role in the
(49,553)
Change in EUR exchange rate –39.70
(24,480)
Change in RUR exchange rate –36.40
1,388
2007
Increase/
(decrease)
in basis
points
Effect
on profit
before
tax
+3.10
(77,098)
+10.10
1,235
Change in USD exchange rate –2.90
72,124
Change in EUR exchange rate –8.40
(1,156)
at 31 December 2008
59
Liquidity risk
The Group’s objective is to maintain continuity and flexibility of funding through the
use of credit terms provided by suppliers and bank loans and borrowings.
The Group analyses the aging of its assets and
the maturity of its liabilities and plans its liquidity
depending on the expected repayment of various instruments. The Group emphasises financial
flexibility. An important part of this emphasis is to
minimise liquidity risk through ensuring access to
a diversified set of funding sources. The Group
uses cash and credit facilities to manage shortterm liquidity. Long-term liquidity needs are managed by raising funds in the capital markets.
The tables below show the maturity profile of the
Group’s financial liabilities, other than derivative financial instrument, as at 31 December
based on contractual undiscounted payments.
2008
On
demand
Less than
3 months
3 to 6
months
6 to 12
months
Total
985,055
–
–
–
985,055
Dividends payable to equity holders of the
parent
–
2,905,653
–
–
2,905,653
–
522,352
985,055
3,428,005 7,860
Less than
3 months
7,860
3 to 6
months
785
530,997
785
4,421,705
2007
On
demand
2,280,436
–
–
2,280,436
–
597,647
15,597
58,316
671,560
2,280,436
597,647
15,597
58,316
2,951,996
–
6 to 12 Total
months
Closed Joint Stock
Cash flows arising on the Group’s interest
rate swap, recognised in the consolidated
balance sheet as a derivative financial instrument, are settled on net basis (Note 22).
The following tables show the reconciliation of
gross and net expected cash flows from derivative financial instrument as at 31 December:
2008
Less than 3
month
3 to 12 month
1 to 5 years
Total
Inflows
41,029
41,029
Outflows
(31,983)
(18,098)
–
(50,081)
82,058
Net
9,046
22,931
–
31,977
2007
Less than 3
month
3 to 12 month
1 to 5 years
Total
Inflows
26,908
26,908
26,908
80,724
Outflows
(37,476)
(20,086)
(11,869)
(69,431)
Net
(10,568)
6,822
15,039
11,293
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 and trade
and other receivables.
The Group’s maximum credit risk exposure at 31 December comprised:
2008
2007
5,068,369
4,611,689
Short-term deposits
3,063,312
764,338
628,244
292,640
8,759,925
5,668,667
at 31 December 2008
61
The Group’s cash is primarily held with major
reputable banks located in Ukraine.
requiring credit over a certain amount. Credit risk arising
from financial transactions is reduced through diversification, through accepting counterparties with high
credit ratings only and through defining limits on aggregated credit exposure towards each counterparty. The
Group’s credit risk exposure is monitored and analysed
on a case-by-case basis, and the Group’s management believes that credit risk is appropriately reflected
in impairment allowances recognised against assets.
As at 31 December 2008 and 2007, the ageing of the Group’s trade receivables and
other receivables was as follows:
Accounts receivable are presented net of allowances.
The Group does not require collateral in respect of financial assets. Concentrations of credit risk with respect
to trade receivables are limited by the fact that the
Company’s customer base contains significant number
of small customers, which are considered unrelated.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.
Credit evaluations are performed for all customers
Total
Fully
impaired
Neither
past
due, nor
impaired
Past due, but not impaired
Less than
30 days
30–60
days
60–90
days
90–120
days
More than
120 days
2008
628,244
64,851
515,498
47,254
63,635
1,225
450
182
2007
292,640
55,668
203,201
56,610
29,255
1,986
10
1,578
Financial derivatives also represent credit risk. The Group’s maximum exposure for financial derivative instruments is described in the
liquidity table above.
Capital management
The Group considers debt and shareholders’ equity as
primary capital sources. 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 require-
ments, capital expenditures and sustain the Group’s
development strategy. The Group’s capital management
policies aim to ensure and maintain an optimal capital
structure to reduce the overall cost of capital and flexibility relating to the Group’s access to capital markets.
2008
2007
Interest-bearing loans and borrowings (Note 21)
985,055
2,280,436
530,997
671,560
Dividends payable to equity holders of the parent
2,905,653
–
Less cash and cash equivalents (Note 19)
(5,068,369)
(4,611,689)
Net debt
(646,664)
(1,659,693)
Total equity
11,793,400
10,179,947
Capital and net debt
11,146,736
8,520,254
Gearing ratio
n/a
n/a
Management believes that the gearing ratio up to 35% is acceptable to the Group. 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.
Closed Joint Stock
36. Events after the balance sheet date
(i) Shareholders’ Meetings
On 1 June 2009 the General Meeting of the
Shareholders of the Company approved distribution of the profits for the years of 2006
and 2007 in amount of UAH 4,600,000 thousand among the shareholders in the form of
dividends pro rata to the number of shares held
by them(UAH 430.41 per share). Dividends proposed were paid by the Company in cash.
(ii) Repayment of interestbearing loans and borrowings
repaid significant part of loans, funded by participation notes, in amount of USD 75,760 thousand.
(iii) The assets swap agreement
for exchange of network
equipment with Ericsson AB
On 7 May 2009 the Company signed new
amendment to the assets swap agreement with
Ericsson AB. According to the provisions of the
new amendment, the composition of assets for
exchange was changed and the contract amount
was increased to USD 56,627 thousand.
exchanged network equipment for the amount
of USD 5,986 thousand. The Company plans to
exchange the remaining part of network equipment
under the swap agreement till the end of 2009.
(iv) Interconnection dispute
with Ukrtelecom
Subsequent to the balance sheet date the
Company has entered into legal proceeding with OJSC Ukrtelecom (‘Ukrtelecom’). The
case was initiated by Ukrtelecom in respect of
stepped up decrease in ‘fixed-mobile’ interconnect charge, based on the new tariffs enforced
by Ukrtelecom since 1 January 2009.
Management of the Group believes that the dispute
will not have backdate effect, accordingly no allowance for impairment was made for trade receivables
due from Ukrtelecom as at 31 December 2008.
CONTENTS
Why is CSR Important for Kyivstar? 4
Kyivstar’s Mission, Vision and Values 6
Collaboration with the United Nations 7
Our Contribution to the Social Development
of Ukraine in 2006-2008
«Communication for the Future 2007-2008» All-Ukrainian School Football Championship
‘DJUICE-GO:OAL’ Kyivstar: Territory Of Mobile Culture Environmental Care Corporate Charity 9
16
18
26
28
Думая о вас
Отчет о корпоративной социальной
ответственности компании «Киевстар»
Kyivstar is
a Responsible
Business
Igor Lytovchenko
3
We are glad to present Kyivstar’s corporate citizenship report
for 2006-2008. What does corporate citizenship mean to us?
It means acting in a responsible manner with respect to
the state, its institutions and its organizations, as well as
its citizens. We are striving to make our contribution to the
social and economic development of Ukraine and build our
business processes in accordance with this principle.
Kyivstar is a successful company — the leader among telecommunication companies
in Ukraine. So we are conscious of our role
as an example to be followed by the other
market players. And that’s why we are dedicated to the development and prosperity
of Ukraine.
«Mobile Culture at the Wheel». We started a
program for the reduction of CO2 emissions.
We run a wide-scale campaign, «Talk More
to your Children», that aims to help parents
better understand their children, talk to them
more and assist them further in developing
their lives.
We demonstrate our approach in practice.
We implemented numerous projects aimed
at delivering help for physically handicapped
people, orphaned children, isolated elderly people and at strengthening family values,
developing a culture of communication and
preserving the environment. In Kyivstar’s trusteeship, there are 25 orphanages and 11 residential homes all over Ukraine. In 2008, we
provided physically handicapped children in 7
specialized schools with the equipment they
needed. Together with DAI (Ukrainian traffic police) we implemented a program called
Our mission — to be the indisputable leader,
deserving the highest trust. And this mission
remains unchanged despite the difficult economic situation in the country and the world.
According to a survey by «Gvardiya» magazine,
Kyivstar is second among the leaders in corporate social responsibility. Still the most important for us is that every second Ukrainian, i.e.
all Kyivstar’s subscribers, supports our efforts in
corporate social responsibility and respects our
position: taking care of people and the development of Ukraine.
3
Why is CSR Important
for Kyivstar?
The social responsibility of the business is one of the principles
of Kyivstar’s work, which means that our company
considers it essential to take part in the development
of Ukrainian society. We choose this principle because
Ukraine is our home, where our parents and children
live. By developing our country we guarantee the stable
development of our business in the future.
When bringing into life different areas of CSR, we
are guided by the principles of the corporate
management of Kyivstar. We follow the Corporate
Code of Conduct, the United Nations Global
Convention,
the
conclusions
of
the
Social
Responsible Business Fund (our company is one
of its founders) as well as our mission, vision
and values.
5
Our Mission
We improve life by providing telecommunication services of
the highest quality.
Our Vision
To be the best company in Ukraine that deserves the highest trust.
Our Values
To be the best: we are aiming at continuous improvement
and the highest quality. Every action works for our customer.
To keep our word: in any situation we operate straight and fair.
We do what we promise. Our promises do not disagree with
our actions.
To inspire: we open possibilities and inspire to gain new
experiences. We make the life of people around us better.
To understand: we are a close-knit team. We always try to
be the best at understanding our customers, colleagues and
partners. We are active and ready for cooperation.
To give joy: we want to impress our customers — by
understanding their needs, with the quality of our communication,
diversity of our services, our enthusiasm and opportunities! We
give pleasure with our work.
7
Collaboration
with the United Nations
Kyivstar Joins the United
Nations Global Alliance
Developing in the direction of the international standards of Corporate Social Responsibility, Kyivstar
joined the United Nations Global Alliance in 2006.
This document makes an appeal to business circles to follow the nine framework principles in the
area of human rights, labour relations and environmental protection. Kyivstar’s accession to the
above treaty demonstrates that our company is
ready to increase its activity in the area of social and
civil responsibility, to take an active part in the development of a just society and fight for Environment
Protection. Besides this, we consider this admission as a chance to use the possibilities of the market to its maximum by relying more on social factors
when strategically planning or implementing proven methods of management and business affairs.
Supporting an initiative
to prevent human traffic
On April 25, 2007, Kyivstar, the Mission of
International Organization for Migration (IOM)
and UNO’s agency in Ukraine signed the
Memorandum of Understanding with the aim of
establishing the efficient collaboration to prevent human traffic in Ukraine. As the first step,
the parts initiated a free short mobile number
527 that operates on the non-commercial
basis. Calling this number, subscribers can
get reliable information on realias and potential
threats which migrants may experience beyond
Ukraine.
Our Contribution
to the Social
Development of
Ukraine
in 2006-2008
9
Ukraine-Wide Program
«Communication
for the Future» 2007-2008
The year 2007 marked an anniversary for Kyivstar. The tenth
anniversary celebrations of its activity were accompanied
by a large-scale program «Communication for the Future»,
which began in 2007 and lasted for 2 years. The prime goal
of the program, launched in 2007, is to inspire every Ukrainian
to think about their own future and, through the harmony of
communication and mutual understanding, take a firm step
into the future. The goal of the program in 2008 was to draw
the attention of Ukrainians to the importance of healthy as
well as quality communication with children for the sake of
a better future. Thanks to various activities «Communication
for the Future 2008» reached more than 20 million people, i.e.
every second Ukrainian.
9
2007: «Communication
for the Future»
2007 was an anniversary year for Kyivstar.
10 years of activity was marked with the
extensive program «Communication for the
Future». The main objective of the company is
to inspire every Ukrainian citizen to think about
their own future and to envisage tomorrow
through peaceful communication and understanding.
June 2007
June 2007
The Launch of the
Program. Conquest
of New Heights
10 Historical Films
The Citizens of Kyiv enjoyed the breathtaking official
opening of the first stage of the Program on June
25th, when the world famous «spiderman» Alain
Robert climbed to the top of the 63-meter headquarters of Kyivstar. This symbolic climb performed by
the French urban climber demonstrated how perseverance and motivation help in reaching a set goal.
Alain Robert climbing
63 meter high building
of Kyivstar’s head office
Throughout June Channel «1+1» broadcasted
the series «Your Story», which reminded us all
of the many events which we have witnessed
during the last 10 years.
June–July 2007
62 TV Stories —
Vision of the future
The second part of the project run with Channel
«1+1» was called «Your Future». This was a further series of TV clips, in which Ukrainians from
different parts of the country expressed their
vision of the future. Anyone who sent a letter to
Kyivstar with a short description of his/her project of the future could become the star of a clip.
This part of the program was momentous, since
it was the first program to give an opportunity to
envisage a Ukrainian-like vision of the future.
11
National
communication
To inspire Ukrainian people to think together
with Kyivstar about our future, we carried out
an extensive nation-wide information campaign
which included thousands of billboards and hundreds of TV promos.
August 2007
Public Discussions
About a Better Future
Within the framework of the anniversary program, Kyivstar initiated a series of brainstorming
public debates, aimed at imagining the future in
the Ukrainian society, through initiating discussions in public and in the media. Professionals
and experts from various areas — from philosophers and artists to TV journalists and businessmen — took part in these debates. Among
the participants were such opinion-makers as
the President of «Kyivstar» Igor Lytovchenko,
TV presenter Yuriy Makarov, Ukrainian Minister
of Culture Vasyl Vovkun, artist Yevgeniya
Gapchynska, Ukrainian NAS Academic Myroslav
Popovych and many others.
July-August 2007
Ukraine-Wide
Sociological Survey of
the Expectations and
Ambitions of Ukrainians
Along with the above ‘brainstorming’, Kyivstar
conducted, in collaboration with Kyiv International Institute of Sociology, a large-scale
Ukraine-wide survey among the various tiers of
society — ‘The Vision of Future by the People
of Ukrainian’. According to the results of the survey and discussion a ‘Blueprint of the Future of
Ukrainians’ was drafted, representing a generalized picture of the views of Ukrainians of their
future, their ambitions, and the factors affecting the improvement of their tomorrow. The
Blueprint shows the values that are the most significant for Ukrainians. Family and children took
first place. Health and material benefits are also
of great importance. Ukrainians then mentioned
the importance of confidence and self- development, career, education, spirituality and culture
on their future.
Professionals and experts from
various areas took part in public
discussions about the future
of the Ukrainian society
August 2007
September 2007
TV Programs about
the Success Stories
of Famous People
Show on the
Singing Field
The Way to Success’ Project, implemented by
Kyivstar jointly with «24» News TV channel, is a
series of programs, which tell the success stories of prominent people and how they reached
the top and see their future.
Participants in the TV programs were editor-inchief of the «Outstanding Ukrainians» Project
on «Inter» channel Vahtang Kipiani; designers Andre Tan and Diana Dorozhkina; principal
singer in the National Opera of Ukraine, Susana
Chahoyan; popular singer Olena Vinnytska, scientist Sergiy Sytko and producer Denys Ivanov,
as well as many others, whose professional and
personal achievements can be examples for
Ukrainians.
Mega-show on the Singing Field in Kyiv was
the climax of the nation-wide project
The climax of the ‘Communication for the Future’
Program was a mega-show on the Singing Field
in Kyiv. Nothing on this scale had been seen
before: with spectacular video effects; fireworks
and fire, light and water shows. On the day the
stage saw: the National Symphonic Orchestra
of Ukraine and the National Academic Choir
‘Dumka’; the ballets ‘Freedom’, ‘Quest’ and
‘Va-bank’; the mime theatre ‘Chernoenebobeloe’;
drummers ‘Ars Nova’; the principal singer of the
Prague Opera Mykola Nekrasov; the lead singer of the ‘Dumka’ choir Mykhailo Tyschenko and
principal singer of the National Opera of Ukraine
Susana Chahoyan. This theatrical and spectacular fairy tale was the climax of the nationwide
project, which was designed to join people and
their dreams together in hope of each of us finding our own way to a better future.
13
2008: «Talk More To Your Children»
Artistic Sculpture
Project
All-Ukrainian Social
Advertising Campaign
On August 16th as part of the «Communication
for the Future 2008» program Kyivstar started a large-scale social advertising campaign
designed to draw society’s attention to the problem of communication between parents and children. It lasted till November 15th and involved
TV and outdoor advertising. Preparing this campaign we wanted to do something more than the
usual advertisement does: to help people, and
primarily children, improve their lives.
Artistic Sculpture Project «Communication for the
Future» is a creative rethinking of a child’s loneliness. The opening of the project on August 7th
at Independence Square in Kyiv marked the start
of the Communication for the Future 2008 program. The sculptural group represents the world
of children and grown-ups in the form of generalized figures: twelve children and two grownups, a father and a mother. Each of the twelve
figures in the composition represents an actual
child that feels lonely. Six children hold mirrors to
reflect the child’s dreams: to be together with their
mum and dad, read books together and go for a
walk as a family. Each of the child figures can talk.
If you come closer, at a distance of two metres,
the figures start talking as if calling for the attention of their mum and dad. The Artistic Sculptural
Project Communication for the Future is a unique
combination of modern art and the latest technical developments. Its message to everyone is
to come closer to children and help parents and
children understand each other and establish
healthy communication in families.
«Kyivstar Family Holidays»
«Kyivstar Family Holidays» project is a practical step
towards improving the understanding between parents and
children in Ukrainian families and establishing full-fledged
communication in a family. Such holidays took place in 24
Ukrainian cities and towns from August till October. The
concept of «Kyivstar Family Holidays» assumes that in all
the contests and quizzes children should take part together with their parents.
The total area of entertainment parks in every city reached
4 square km. Every park was divided into different amusement zones. There were quizzes and dance contests, computer entertainment, Segway races, ghost shooting, funny
body-art and much more. During the course of the project more than 80,000 Ukrainian families took part in the
«Kyivstar Family Holidays».
“
Children are our future. It’s important not only to declare it,
but also to do everything so our children can grow happily.
Kyivstar is a socially responsible company. And we strive to
help parents and children communicate to the fullest extent.
Because there’s nothing more important and essential in our
life than the personal and trusted contact with a child.
”
Igor Lytovchenko,
15
«Warmth of Words» Musical Project
The song «Warmth of Words», which was presented together with a video clip on August 26th, was
written by the popular Ukrainian singer Gaitana
especially for the «Communication for the Future
2008» program. She used her own childhood memories when writing it. The song and the clip tell
about the wish of parents and children to spend
more time together. Children lack communication
with parents, while busy parents don’t find time for
their kids. Communication gives joy and makes all
the family happy.
“
I had a strong desire to record an album for children.
In my childhood I listened to many children’s songs
and that was wonderful. But now almost nobody
writes songs for kids, while the old classical
children’s songs are not up-to-date.
”
Gaitana, a singer
Ukrainian Wide School
Football Championship
«DJUICE-GO:OAL»
The target audience of the youth brand DJUICE
is made up of mainly children and teenagers. In
taking care of the future generation, we aim to
become a healthy lifestyle trendsetter for them.
And the ‘DJUICE-GO:OAL’ Championship, supported by the Ministry of Education and Science
of Ukraine, is intended to improve pupils’ team
spirit and to motivate their ambitions of success.
Teams of pupils from the 7th, 8th and 9th form,
who submitted an application to participate at
their school, could enlist in the Championship.
The number of the teams that participated in ‘DJUICE-GO:OAL’ Championship
Year
2006
2007
2008
Number of teams
900
1731
2380
Number of cities
45
61
64
“
The majority of DJUICE users are young people.
These are people that are just entering into adult
life. And we feel marketing responsibility for
this audience. The goal of DJUICE is to become
a pioneer of a healthy lifestyle and to make
wholesome things become trendy and interesting.
Nelya Us, head of the youth
segment business unit
”
17
Championship is held in 4 rounds: qualification, local, regional rounds and the national final in Kyiv,
which makes ‘DJUICE-GO:OAL’ very similar to a professional football tournament. Every year for
two and a half months, teams compete for the right to be named the best school team in Ukraine.
Throughout the rounds, football players are awarded exclusive DJUICE branded gifts from Kyivstar.
The schools, which hold the qualification rounds and other stages of the Championship, receive
sports equipment.
Concurrently with the ‘DJUICE-GO:OAL’ Championship in 2008 was a tournament of girls’ teams,
DJUICЕ-FAN. That year the winners of the tournament were girls from school #55 in Kherson. The
main prize for the winning team was a masterclass by the leading Ukrainian dancer Vlad Yama.
Winners of ‘DJUICE-GO:OAL’ Championship
2006
Winner: «Gloria» team from Ivano-Frankivsk school #1
Main prize: a trip to London to meet Andriy Shevchenko
2007
Winner: Sykhiv upper secondary school team from Lviv
Main prize: a trip to the home of football — Great Britain
2008
Winner: a team from Ternopil school #27
Main prize: A trip to Milan
Kyivstar: Territory Of
Mobile Culture
Kyivstar is the first communications operator in Ukraine to
run organised events to develop and build a culture of mobile
communication. The ‘Mobile Culture’ Program was designed
by the Company in 2005 to foster the practical and appropriate
use of mobile communications in Ukrainian society. During
the implementation of this program Kyivstar paid special
attention to helping the younger generation develop a social
mobile culture.
19
Program Development Stages:
2005
Launch of the Program
The first step was to shape the public understand- atres and cinemas, where a number of special
ing of a need to make the use of mobile phones in audio and video clips were shown and posters dispublic places more courteous, particularly in the- played to promote a mobile communication culture.
2006
Mobile Culture at the Wheel. First stage.
In 2006, the Program was complemented with a municating on mobiles whilst driving. The pronew aim: ‘Driving: Mobile Security Activated!’ Its gram was promoted in public places, including
goal is to draw attention to the dangers of com- the city transport.
2007
Initiative ‘For Mobile Communication
in Ukraine!’
In 2007, the Program became widely advertised
and acquired new teammates. Famous personalities including public figures, art and show business promoters and sociologists joined Kyivstar’s
Initiative.
The Ukrainian wide social research ‘The Impact
of Mobile Communication on Behavioural Norms
in Ukrainian Society’, carried out by the Institute of
Sociology of the National Academy of Sciences of
Ukraine and sponsored by Kyivstar, highlighted the
need to implement guidelines in civilized communication. The research findings were also examined by representatives of the Ministry of Culture
and Tourism of Ukraine, State Traffic Inspectorate
Department of the Ministry of Internal Affairs of
Ukraine and members of scientific organizations
as well as by show business stars.
This research led to the ‘Appropriate Rules of
Mobile Communication Usage’ which outlines the
principal recommendations of how to use a cell
phone, making a balanced combination between
personal freedom and respect for others. The
Rules are available on Kyivstar’s official site under
the Section ‘About Company’, then click ‘Social
Responsibility’ — ‘Commitment to Product’ —
‘Mobile Communication Usage Ethics’.
Mobile Culture
At Schools
Positive public recognition and research output led to a new development stage of ‘Mobile
Culture’ Program. In July 2007, the Ukrainian
Ministry of Education and Science and Kyivstar
entered into the Memorandum of Cooperation.
An educational course for pupils of the 5th — 8th
form, in line with the National Curriculum, was
introduced at all 20 thousand Ukrainian schools.
In Ethics and extracurricular reading classes
pupils learnt about the importance of appropriate
cell phone usage in public places, about technologies to enable them to keep talking without
disturbing others and about respecting private
information stored on a cell phone.
To put this program in practice parents and
teachers were provided with precise guidelines.
These guides were prepared by the best psychologists and specialists in the Ukrainian Ministry of
Education and Science as well as by the Ukrainian
Association of Parents’ Community. This guide is
recommended for educational use (classified by
the Ministry of Education and Science of Ukraine
No. 1.4/18-Г-2232 as of 14.12.2007).
As a part of Mobile Culture program, pupils of 5-8
forms had Ethics and extracurricular reading classes
Pupils received colourful illustrative materials —
posters engagingly showing the rules of mobile
conduct. Currently the methodological guides
and posters are distributed among the 22,000
schools in Ukraine.
21
Mobile Culture for Air Travellers
In 2007, the «Mobile Culture» Program enlisted the
help of Ukraine’s biggest airline company, Aerosvit.
The partnership between the two national companies, both leaders in their respective fields, is an
extremely important stage in the establishment of
a public mobile culture. This part of the program
deals with the respect, comfort and safety of travellers in the air. The results of this cooperation
encompassed a three-month information campaign on board of all Aerosvit’s planes.
Mobile Culture at the Wheel
Statistics shows that 5 to 10 percent of car accidents in Ukraine happen due to the use of mobile
phones by drivers while driving. In order to draw
the attention of society to the dangers of communicating on mobiles whilst driving, Kyivstar with
the support of the Traffic Police of the Ministry
of Internal Affairs of Ukraine has started a new
program called «Mobile Culture at the Wheel»
under the slogan «Either Drive or Talk!»
A social advertising campaign was held during 2008 in 37 cities and along 5 major roads.
It informed the general public about the rules of
talking safely on a mobile while driving using a
clear example, thus facilitating traffic safety, preventing violations of traffic laws and decreasing
the quantity of car accidents due to people talking on their mobile phones.
23
Explanatory Work on Advising on the Aspects
of Mobile Communications Operation
The goal of this program, run by Kyivstar since
2005, is to inform the public on the nature of radio
waves and the operating principles of mobile communications. As with any technology, mobile
communications raise a lot of questions, such as
how they work, do they influence the environment
and human beings, and what is the nature of
electromagnetic waves generally. Regular dialogue
with the mass media and independent experts
allows us to provide the public with comprehensive information on the nature of mobile communications, the operating principles of telecommunication equipment and norms and standards for
base stations used in Ukraine and in the world.
“
In order to give comprehensive and open information on its business related to the use of highfrequency equipment, Kyivstar organized several
tours for media representatives to see the operator’s base stations in operation. Journalists could
get details on the operating principles of a base
station. Using measuring instruments they could
ascertain that the base station’s radio-frequency
emission level was safe and obtain answers to
any questions from Kyivstar specialists and independent experts. By this initiative Kyivstar tries
to inform the population of Ukraine of the mobile
communications operating principles and prevent «radiophobia» among people.
Driving and talking on a mobile without a hands-free set
caused a significant number of car accidents.
That’s why we readily support this Kyivstar program
as it is aimed at road accident prevention
and fostering a culture of communication among
our drivers. Our mutual advisory work will allow
for a decrease in the accident levels on Ukrainian roads,
Sergiy Budnik, Deputy
Head of the Department
of Traffic Police
and this is extremely important both for drivers
and pedestrians.
”
Mobile Culture in Public Places
During July and August a social advertising
campaign was held in 23 Ukrainian cities with
the goal of drawing the public’s attention to the
necessity of respecting the etiquette of mobile
phone use in public places such as theaters,
cinemas and transport. The aim of this campaign is to increase the level of mobile culture
“
in society. The advertisement, with a message
to respect mobile culture, was placed on citylights near public transport stops, theaters and
cinemas. The formation of a mobile culture
in Ukrainian society at a European level is the
main task being undertaken by Kyivstar and the
Ministry of Culture and Tourism of Ukraine.
Shaping the integral cultural and informational space of
the state is the priority of the new policy of the Ukrainian
Ministry of Culture and Tourism. Our target is creating social
partnership and high level culture of our society.
Solving tasks essential for society, we want to rely
on the state sector as well as on social environment and
national business. We are supporting Kyivstar’s social
program — «Mobile Culture» as it will encourage better
Vasyl Vovkun, Ukrainian
Minister of Culture
and Tourism
business and social communication of Ukrainians.
”
25
Rules of Mobile Culture
Mastering knowledge of and sticking to the rules
of a mobile culture constitute a sign of intelligence and a high communication culture among
people.
Kyivstar advises all subscribers to observe the
recommendations that help resolutely to combine personal freedom and respect for others’
interests.
•
In the office or during business meetings one should switch to ‘meeting’ or
‘vibro’ profile, unless otherwise agreed.
•
In the theatre, cinema, or library one
should switch the sound off.
•
Please set a minimum cell phone volume in
public places, e.g. in a cafe or a restaurant.
•
Speak quietly and briefly in public transport.
•
In places with security requirements, e.g.
when travelling by plane or staying in a hospital, please switch off your cell phone.
•
It is recommended that you test the volume and select a ring tone on your cell
phone whilst at home, not in public places.
Environmental
Care
In 2008 Kyivstar joined the global «Green movement»
and started implementing a program of environmental
preservation and increasing energy efficiency. Kyivstar is a
nonindustrial business, but as a large and forward-looking
company we can’t avoid the threat of climate change and
global warning.
27
Kyivstar’s ecological program supposes the
implementation of energy-saving technologies
in different business sections. It covers electric
power supply, building and janitorial services, IT,
transportation, etc. Having explored this ques-
Kyivstar’s
«Green Office»
This program was worked out in 2008 and is
being implemented in 2009. It supposes the
implementation of a CO2 emission reduction
system. For example, we have installed videoconferencing equipment in our office, which
allows us to reduce the number of business trips.
Another example — our internal communication
program «Green Office» that reminds employees to turn off electric appliances and PC s at
the end of the working day and to use printing
paper sparingly.
tion we found out that the implementation of
advanced technologies allows us to reduce our
annual CO2 emission by 16% and thus increase
business efficiency and help to prevent the climate change.
CORPORATE CHARITY —
«For People, for Country»
29
The charitable initiative called «For People, for Country», which
provides systematic support for disadvantaged people, has
been run by the company since 2004. It covers 25 orphanages
and 11 residential homes and includes the provision of special
equipment for physically handicapped people. Talented
university students receive special scholarships from the
company.
Help for Victims of Flood in Western Ukraine
After the flooding that happened in the western regions of Ukraine in the end of July, 2008,
Kyivstar’s subscribers donated about UAH 2 million to help the victims of flood. They used free
call numbers and SMS which were started for
this aim. Kyivstar donated more than UAH 1 million for reconstruction of two village schools and
acquired four ambulance cars for regional hospitals in the most flooded territories. Restoration
works were completed in the December of 2008.
School in the village of Kosmyryn in the Ternopil region
after redecoration sponsored by Kyivstar.
Patronage Program to Overcome Loneliness
and Marginalization of Elderly People
The Program has been in operation since 2005.
We continually take care of 3.5 thousand lonely
elderly people, by applying an integral approach
to overcoming the problems of marginalization.
Kyivstar improves living conditions and arranges
leisure activities for veterans and the elderly, as
well as lending material aid to more specialized
organizations.
Specially organized concerts by Nina Matvienko
with ‘Zoloti Klyuchi’ (‘Golden Clefs’) marked a
key 2007 event for the residents in these centers. During the concert they were delighted to
hear their favourite songs sung by a national
Ukrainian artist, have warm conversations with
Nina Matvienko, who took her time to significantly
express her sympathy and support.
In this period residential homes were provided
with all necessary facilities: wheelchairs, specialised equipment, TV sets, refrigerators and
furniture, whilst medical care facilities were completely redecorated. Concerts, organized by the
operator, became a real highlight of the project.
All were truly loved by people and gave them the
pleasure of true communication.
It is of vital importance for elderly people to be
integrated into public life. For this reason, apart
from material aid supplied to centres, Kyivstar
pays for magazine and newspaper subscriptions.
Now, as pointed out by one of the senior staff, residents have become more interested in life around
them with articles providing stimulus, regular
topics to discuss and even creative inspiration.
Nina Matvientko’s concert in the
senior centre of Borodyanka, 2007
31
Taking Care of Veterans
Paying an enormous honour to the great deed,
heroism and commitment of the war veterans,
Kyivstar launched a social project as a part of
the program «For the people, for the country!»
Which supports World War II veterans.
Thanks to the initiative of Kyivstar in 2006 veteran organizations and hospitals received material
help. In honour of Victory Day veterans received
gifts and were also able to visit celebrations
devoted to such an important day.
On Victory Day, May 9, 2006, Kyivstar prepared
a special gift for veterans — «Signallers» offer.
On that day thanks to Kyivstar’s «Signallers»
offer veterans had the opportunity to communicate with their fellow soldiers from other cities,
recall battlefield events and send compliments
to each other.
In addition, for the last 3 years Kyivstar has been
running a traditional campaign on the Victory
Day, May 9 — ‘Call Your Battlefield Companion’.
On this day Kyivstar representatives perform
honour guard duties in the Park of Glory and
Memory and offer veterans the opportunity to
make calls to their battlefield companions and
fellow soldiers.
In 2008 in the central parks of 26 Ukrainian cities, veterans could call their friends in Ukraine,
Russia and Belarus free of charge. This initiative
allowed the veterans to greet their battle comrades on Victory Day and recall those times
when they fought shoulder to shoulder. The veterans received a lot of greetings and kind words,
listened to wartime songs and even took part in
the concerts themselves.
On the 9th of May 2007 Kyivstar launched a
Ukrainian wide campaign «A Letter to a Veteran».
Students of higher education establishments in
Ukraine came forward and wrote letters expressing warm words of gratitude to veterans of World
War II and respect for their heroic deeds. 16
higher education institutions from 10 cities of
Ukraine joined the campaign. Several thousand
messages were sent. All letters of congratulation
were addressed to the World War II veterans by
Kyivstar Company.
Celebrations dedicated to the
Victory day (Kyiv, 2006 May, 9)
Orphans’ and Parentless
Children’s Aid Program
The program covers 15 children’s homes and
boarding schools. Alongside regular material aid
to these institutions Kyivstar aids with the children’s development. Kyivstar regularly arranges
various events, which help children see something of the outside life and learn to feel more fully integrated into society.
In 2006 Kyivstar and the computer academy
«Krok» initiated the course «Communicate with
Internet» for graduates of 9-11 forms in the sponsored schools. It allowed children the opportunity
to broaden their worldview and social circle. They
learned how to communicate via E-mails, Internetpagers (ICQ) and Internet telephony (Skype).
Taking into account the particularities of work
in the boarding schools, in 2006 the number
“
of academic hours was doubled. The new program, with more information, allowed children
to learn material easier. The program orientation provides a practical approach to learning and the possibility to use this knowledge
in work, study or daily life. Also Kyivstar covered all the Internet expenses of the boarding
schools during the academic year. In the academic year 2006/2007 around 500 children
from these schools were able to gain basic
computer skills and build upon what they had
learnt earlier.
On New Year the children were visited by
Disney’s «Cars» — the most popular cartoon
film of 2006 — meeting the famous Ukrainian
actors who had dubbed the cartoon and real
racing drivers.
I want to express my gratitude to Kyivstar for the support
it gives our school. New equipment, room renovations,
festive events and the feelings that we are needed — this
all is very important for every child. Moreover, educational
programs by volunteers from Kyivstar help our graduates
enter into their own separate lives, not fearing self-reliance.
Valentyn Vyrkovskiy, Director of the
Volodymyr-Volynsky orphan school
”
33
Gaitana’ New Year concert for all
patronage orphanages, 2008
In December 2007 Kyivstar organized a series
of lectures for the graduates of the sponsored
children’s homes and boarding schools. The
lectures were by teachers of Ukrainian academies. They explained the entry requirements for
higher educational establishments; about the
assistance the residents of children’s homes
and boarding schools have during entrance and
studies; clarified the particularities of educational institutions and faculties; advised about the
prospects of employment after graduation from
educational institutions as well as the tendencies
on the labour market on the whole.
In 2008 graduates of 10 orphanages received
a special gift from Kyivstar on their graduation
dinner — a concert with the finalists of Chance
TV-project and show-biz stars such as Ostap
Stupka, Olga Sumska and Alyona Vinnitskaya
taking part. Besides the performance, concert participants talked with the graduates telling them their success stories. Thus the former
pupils could see that everyone who works hard
can achieve success. The goal of this event was
to show children that everyone has their chance
in life and that these opportunities shouldn’t be
missed.
In December 2008 the popular Ukrainian singer
Gaitana together with Kyivstar presented a children’s album called «Kookaburra». Her first listeners and guests at the album’s release were
about 500 orphan children from 11 boarding
schools which are in Kyivstar’s trusteeship. The
album was created by Gaitana together with
Kyivstar and Lavina Music.
Aid Program for Physically
Challenged Children
Since 2004 Kyivstar has been lending assistance
and equipment to rehabilitation centers, educational institutions and medical care establishments for children and adults all over Ukraine.
In 2006, within the framework of the large-scale
social program «Mobile Ambulance», Kyivstar
provided more than 500 mobile teams from
the 25 regional first-aid stations in the different
regions of Ukraine with special lightweight mobile
medical kits. The equipment is designed for field
doctors. Kyivstar also provided Kyiv municipal
first-aid station with computers.
In 2006 Kyivstar equipped a specialized computer classroom in the Institute of Correctional
Pedagogy and Psychology of National M. Dragomanov Pedagogical University. Blind and deaf
students, and also those students who work in
educational institutions for the study of children
with disabilities, use this classroom. Also on the
Day of Physically Disabled People 6 specialized
institutions all over Ukraine were given assistance.
In November 2007 Kyivstar supplied medical
equipment to 3 rehabilitation centers for disabled
children in Crimea, Lviv region and Kyiv. Yevpatoria
central children’s clinic resort, «Strumochok», rehabilitation centre; «Nadiya» («Hope»), Brody regional voluntary society for the protection of handicapped children and the social & medical rehabilitation unit for ICP children in the Solomyansky
public care centre. Kyiv received physical therapy,
electrical stimulation and electrotherapeutics, as
well as magnetic-laser therapy facilities.
The National Technical University of Ukraine
«KPI» and 8 public disabled organizations
were equipped with computers installed with
special workstations for physically disabled
students. Sets of special equipment were
acquired for blind and visually impaired children in 8 cities of Ukraine. Sponsored by Kyivstar, Scientific Society for the Disabled, the
«Institute of Social Policy» created and released
special information and education on www.isp.
rehab.org.ua.
In 2007, Kyivstar worked out a solution to allow
hearing and speaking impaired people to call
an ambulance by means of SMS. The Company
developed technical solutions and a dedicated
speed dial number — 10003. By sending an SMS
to this number, those with a hearing or speaking impairment can make use of an extra channel
of SMS and call ambulance without anybody’s
assistance.
In 2008, on the International Day for Persons with
Disabilities (December, 3) Kyivstar presented
electronic enlargers to seven Ukrainian schools
for children with sight problems. These devices
allow children to read texts, even those with only
2% of sight remaining.
Kyivstar also installed a computer classroom
in Kyiv specialized school #168, where physically challenged children study along side ordinary pupils. The new classroom is equipped with
special equipment and software for correcting
speech abnormality.
35
Partnership Program between Kyivstar and
the Zoos and Dolphinariums of Ukraine
Zoos in Ukraine are unique places for family days
out. Visiting zoos is a good tradition in many
Ukrainian families.
Since 2006 Kyivstar has been helping to preserve
and improve zoos not only in Kyiv, but also in
Kharkiv, Odesa, Mykolayiv and Mena, in addition to
dolphinariums in Yalta, Evpatoria, Odesa and
Sevastopol.
Holiday events ‘Family Weekend’, organized by
Kyivstar in the zoos and dolphinariums in Ukraine,
started in Kyiv and Kharkiv. On International Family
Day the company presented a gift to visitors of the
Kyiv zoo — an outdoor cinema and a unique exhibition called «If…» The displays in this astonishing
exhibition were fantasy household goods for animals: A comb for the lion, a barrel of honey for the
bear, a scarf for the giraffe, a thermos for the camel
and a rucksack for the kangaroo.
Thanks to this program zoos and dolphinariums in
Ukraine have managed to improve the conditions
of animals, to equip territories with proper facilities
and to introduce new animals to the public.
In 2007, zoos in Ukraine organized the festive event
‘Family Weekend’. Also held were children’s traditional birthday celebrations and giraffes, an adult
favourite, were brought to the capital’s zoo with the
help of Kyivstar. Special guests of this event were
residents of children’s homes from Zaporizhzhya
and Kirovograd both sponsored by Kyivstar. In
2007, visitors to Kyiv zoo could take part in the educational tours ‘Family Traditions with Kyivstar’ and
‘Family Traditions of Living Nature’.
Season opening in Kyiv Zoo, 2007
Additional information about Kyivstar’s corporate social
responsibility is available at our corporate site:
www.kyivstar.ua/responsibility
Contacts:
Email for your propositions and comments about CSR — [email protected]

ANNUAL REPORT

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