2014 Year Report and consolidated financial statements

Transcription

Annual report 2014
Corporate Report 2014
Stable development and social initiatives in 2014
Consolidated Financial Statements
Contents
Contents
2
CORPORATE REPORT 2014 8
About this Report 9
Kyivstar background 10
Kyivstar shareholders 11
Important events of the year 12
Important events of the year 13
Operational and financial results of 2014 14
Capital investment and marginality of business 15
Revenue from fixed-line communication, mobile and fixed Internet 16
Increasing the number of customers 17
Technical infrastructure of Kyivstar network 18
Voice transmission quality 19
Performance indexes of Kyivstar network 20
Modernization of the network according to the best world practices 21
Advantages of Kyivstar modern infrastructure 22
Traffic in Kyivstar network in 2014 23
Ecological building 24
Protection of network from suspicious SMS-mailing and spam 25
Reliability and security of network 25
Increasing of equipment productivity 26
Building of data transmission channels with a capacity of 100 Gbit/s 27
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CONTENTS
Provision of communication in Donbas 28
Focus on customer, improvement of tariffs and services 29
New tariffs and services 30
Special offers for schoolchildren and students 31
Free calls and Internet for Donbas 32
Calls to other mobile networks at 25 kopecks per minute 33
Calls to landline numbers at the rate of 30 kopecks per minute 33
International calls at favorable rates 34
New possibilities in international roaming 35
Proposals for business-clients. Tariff line «Business Optimum» 36
New services for convenient mobile communication 37
Mobile Internet – the rapid growth 38
The use of social networks via smartphones 39
Experts recognize Kyivstar a leader in mobile Internet 40
Home Internet 41
New proposals: 33% discount on the monthly fee during a year 42
«Home Internet» is available to small and medium businesses 43
Development of mobile applications and innovative services 44
Mobile applications for music fans 45
«Mobile money» – in a mobile application 46
Mobile library in smartphones 47
Popularity of content services 48
Service at the highest level 49
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CONTENTS
Innovations in customer service 50
Mobile application «My Kyivstar» for easy expenses control 51
A callback at a time convenient for the client 52
Star Call Center 53
STABLE DEVELOPMENT AND SOCIAL INITIATIVES IN 2014 54
About the Company 55
Kyivstar is part of the international telecom-holding 56
Key achievements and challenges in 2014 58
Upgrading of values 60
Kyivstar brand renewal 60
Investment development and assisting the community in 2014 61
Social initiatives concepts 62
Corporate charity 63
Support of education in Ukraine 64
Safety of children using the World Wide Web 65
Support for talented pupils and students 66
Free access to the knowledge base on the Internet 67
Investment in the country’s IT- future 67
Internship Programs for Students 67
Educational tours for pupils 67
Platform for the development of entrepreneurship and business education 4
KYIVSTAR
ANNUAL REPORT 2014
68
CONTENTS
Aid to parentless children and children from poor families 69
New Year Performances for children with the participation of Kyivstar volunteers 70
Care for the lonely elderly 71
Mobile communication helps in difficult life circumstances 72
Humanitarian aid to medical institutions 73
Charity sports events involving Kyivstar 74
Unique Kyivstar products to help the society 76
Mobile technologies for Ukrainians’ health 77
Preserving cultural and historical heritage 78
Online: Handwriting of the Ukrainian poet Taras Shevchenko 79
Ukrainians created thousands of unique Vyshyvankas within the Kyivstar special project 80
Caring for the environment 81
Kyivstar ecocommunication 82
Collecting waste batteries and accumulators at Kyivstar offices 83
Ecovolunteerism on the occasion of the Earth Day 84
For over 18 years, Kyivstar has been working
for the good of Ukraine and it remains one of the most socially responsible local businesses 85
CONSOLIDATED FINANCIAL STATEMENTS 86
Independent auditor’s report 87
Consolidated statement of comprehensive income 88
Consolidated statement of financial position 89
Consolidated cash flow statement 90
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CONTENTS
Consolidated cash flow statement 91
Consolidated statement of changes in equity 92
1. Corporate information93
2. Operating environment, risks, political and economic conditions in Ukraine94
3. Basis of preparation95
4. Adoption of new or revised standards and interpretations96
5. Summary of significant accounting policies97
6. Critical accounting judgements and key sources of estimation uncertainty109
7. IFRSs and IFRIC Interpretations not yet effective111
8. Acquisition of LLC «Golden Telecom» and its cessation112
9. Revenues and expenses113
10. Income tax115
11. Property, plant and equipment117
12. Intangible assets119
13. Other non-current assets120
15. Reconciliation of allowance accounts121
14. Trade and other receivables121
17. Cash and cash equivalents122
16. Deferred expenses122
19. Interest-bearing loans and borrowings123
20. Deferred revenue
123
18. Equity123
21. Provisions125
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CONTENTS
22. Taxes payable, other than income tax126
23. Trade and other payables127
26. Related party disclosure128
24. Advances received128
25. Other current liabilities 128
28. Fair value of financial instruments131
27. Commitments and contingencies131
29. Financial instruments and risk management132
31. Events after the reporting period135
30. Earnings per share135
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ANNUAL REPORT 2014
KYIVSTAR. CORPORATE REPORT 2014
Corporate Report 2014
Kyivstar’s network preparation
to fast implementation of 3G
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ANNUAL REPORT 2014
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About this Report
2014 brought a vast number of changes to Kyivstar as in the life of the country. The company has changed its management,
a lot of professionals came, the new organizational model completely
oriented on the client was formed.
New functional teams focusing on service
processes and implementation of innovations were established in the company. Difficult challenges for Kyivstar were the events
in the Crimea and in Eastern of Ukraine,
where the company was forced to stop its
work due to circumstances of force majeure.
At this, Kyivstar has fulfilled all obligations
to its customers, employees, and partners.
Meanwhile, an active preparation for the
implementation of 3G technology began:
during the year, modernization of the network was carried out, new equipment and
software were installed.
In 2014, the company launched a number
of important changes in the service rating
principles, which allowed the customers to increase the volume of voice and Internet usage.
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A regional approach to the formation
of commercial offers considering the characteristics and needs of each individual
region has gained development.
During the year, the company was carrying out all its social obligations to the state
and the society and launched a number
of importent projects aimed at the development of school education, entrepreneurship
support, humanitarian aid, and environmental conservation.
In complicated macroeconomic market
conditions the company has succeeded to improve the perception of quality
of its services and to overcome the negative
dynamic patterns of financial indicators.
During 2014,
the modernization
of the network was
conducted, new equipment
and software that greatly
improve the quality
of services was set up
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Kyivstar background
Kyivstar is the leading telecommunication operator in Ukraine, providing services
to over 26 million of mobile subscribers and around 820 thousand households –
customers of broadband Internet.
№1
telecommunication
operator
in Ukraine
26 million
of mobile
subscribers
ПРО КОМПАНІЮ
The company operates in the telecom market of Ukraine since 1997 and provides services for voice
communication and data transmission using both traditional and broadband mobile and fixed technologies,
including 3G since 2015. Kyivstar is one of the largest taxpayers and investors in the communications field,
a conscientious employer and a socially responsible company.
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KYIVSTAR
ANNUAL REPORT 2014
820 thousand
households – customers
of broadband Internet
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Kyivstar shareholders
VimpelCom is one of the world’s largest telecom
groups rendering services in 13 countries. The company
is included to the NASDAQ listing. It is headquartered
in Amsterdam. Jean Ives Yves Charlier is the CEO.
43%
of voting shares are
in the ownership of Telenor
group, which is the largest telecommunication group in Norway, the main shareholder
is the Government of Norway
9,2%
are minority shareholders
of NASDAQ, a US stock market,
the largest financial platform
according to market share
and trading volume
Countries
of VimpelCom:
Russia, Italy, Algeria,
Pakistan, Bangladesh,
Ukraine, Kazakhstan,
Uzbekistan, Armenia,
Tajikistan, Georgia,
Kyrgyzstan,
Laos
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ANNUAL REPORT 2014
47,9%
are owned by Letter One,
a financial company registered
in Luxembourg. Its activity profile is attraction of investments
to technology and telecommunications. The company is affiliated with Altimo consortium
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Important events of the year
01
January
The transformation
of the company
organizational structure
with the aim to create
a new customer-centered
management model started.
03
March
Kyivstar subscribers
gained the opportunity
to refill accounts of other
mobile operators
via «Mobile Money»
2014
02
February
The «Mobile Health»
program was recognized
the best innovation
of the year.
04
05
May
NCCIR* conducted
a technical «verification
of the Kyivstar network
on the part of NCCIR».
According to its conclusion,
there were no cases
of breach in maintaining
customers’ data, cases
of dissemination of the data
in the network.
April
In partnership
with «Microsoft Ukraine»
a mobile application
Vkraina, which allows
receive unique
knowledge in the history
of cartography of Ukraine
lands was developed.
06
07
July
Pontis iCLM,
an innovative system
for the development
of target marketing
proposals that include
individual client
preferences
was introduced.
June
Petro Chernyshov,
the new President
of «PJSC «Kyivstar»,
entered upon his duties.
* National Commission for the State Regulation of Communications and Informatization
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Important events of the year
09
September
On the occasion
of the 200th anniversary
of Taras Shevchenko,
a unique Kobzar KS font,
which fully reproduces
the Poet’s handwriting,
was generated.
11
01
November
Kyivstar submitted
to NCCIR a bid
to receive a license for 3G
communication services.
At the international
competition
in Las Vegas, Kyivstar
Contact Center
was honored
for the quality
of service.
2015
2014
08
August
Kyivstar has ceased
its activity in the Crimea
to prevent outside
interference
in the network.
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KYIVSTAR
January
ANNUAL REPORT 2014
10
October
Legal formalities in joining
of PJSC «Golden Telecom
Ukraine» to Kyivstar
are completed.
12
December
Kyivstar transferred
1 million UAH
in humanitarian aid
to medical institutions due
to the refusal from traditional
New Year gifts for employees
and partners.
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Operational and financial results of 2014
In 2014, Kyivstar business was influenced by the complicated macroeconomic situation that led to a
more conservative nature of expenses
Total
operating revenue is
Mobile communication
11,212
A slight decrease
of total revenue
billion UAH
12,231
Revenues from mobile
services
12,871
billion UAH
billion UAH
11,579
11,212
billion UAH
2014
2013
billion UAH
12,231
billion UAH*
Fixed communication
1,020
billion UAH
2014
2013
* Figures are given on the basis of VimpelCom Ltd report and include management adjustments at group reporting level
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Capital investment and marginality of business
Kyivstar continues to modernize the infrastructure with the aim to prepare the implementation of 3G technology.
Capital expenditures in fiscal year 2014 remained at the level of 1,7 billion UAH and were 14% of revenue
EBITDA operating profit was 5,526 billion UAH, and EBITDA margin was 45,2%
Capital expenditures
1,690
1,659
billion UAH
2014
2013
EBITDA
5,526
6,239
billion UAH
billion UAH
billion UAH
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2014
2013
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Revenue from fixed-line communication,
mobile and fixed Internet
Revenue from fixed-line communication declined due to reduction of transit traffic volumes.
It has been partially compensated by growth of revenues from the Internet services segment according
to the FTTB technology, which continues to grow. Revenues from mobile data transmission services
also increased due to growth of the customers’ traffic usage:
Net operating
revenue from fixedline communication
Growth of revenue
from broadband data
transmission
984
1,103
1,020
2014
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million UAH
billion UAH
443,4
billion UAH
million UAH
2013
ANNUAL REPORT 2014
Growth of revenue
from mobile data
transmission
2014
900
million UAH
407,6
million UAH
2013
2014
2013
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Increasing the number of customers
In 2014 Kyivstar had been introducing attractive price initiatives and perfecting
the quality of the network. These efforts have been honored by the customer growth
and increasing of volumes of services used.
Increasing of number of mobile
customers
26,2
million UAH
25,8
million UAH
25,1
million UAH
2014 20132012
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Growth of usage of voice
traffic (MoU)
524
min
504
min
Reducing of the average
monthly bill (ARPU)
512
min
2014 20132012
36,1
UAH
36,5
UAH
41,7
UAH
2014 20132012
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Technical infrastructure of Kyivstar network
1,657
14,5
180
45
billion UAH
thousand
thousand
thousand km
of capital investment
in development in 2014
of base stations
of transmitters
of optical fibers
Gb
72
NGN switches
30%
of radio network equipment was transferred
to IP-infrastructure (All-IP), which is a necessary
condition for the implementation of 3G technology
620
Gbps
– the capacity
of external channels
In 2014, the Government of Ukraine determined the priority of the communications sector development:
implementation of new technologies and the soonest conduction of the tender for 3G license.
Kyivstar started an active modernization process and building of the network.
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Voice transmission quality
In Kyivstar network the HD Voice broadband voice
technology is implemented. It allows significantly
improve the voice transmission quality by expanding
the band of reproduced frequencies from 3.4 kHz
to 7 kHz. Thus, the bandwidth is improved one octave
further, and the subscriber can hear clearly
both high components of the voice in the handset,
and low frequencies.
3,4 - 7 kHz
The HD Voice technology
of voice transmission
expands the band
of reproduced frequencies
to improve voice
transmission quality.
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Performance indexes
of Kyivstar network
Quarterly the company, a global equipment supplier,
audits GSM networks of 135 telecom operators.
According to this study, Kyivstar GSM network fully
meets the requirements of quality, and in many
parameters is among the world top ones. With Kyivstar
every customer can be confident in the quality
of communication, high signal, clear sound transmission,
fast and reliable connection.
Indicators of productivity and
quality of Kyivstar network
The share of traffic (calls) with high quality
of voice transmission (SQI Good)
Probability of breakage during
conversation (TCH Drop R)
The average data transfer speed in EDGE
network in the period of largest load
Average indicator during peak hours as of 4th quarter of 2014
Kyivstar
Europe
World
93,9%
94,3%
89,4%
0,74%
0,83%
1,21%
94 Kbit/s
92 Kbit/s
123 Kbit/s
* As per the date of Network Quality Benchmarking GSM Radio Network Report 2014, Ericsson
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Modernization of the network according
to the best world practices
Kyivstar applies the latest technologies and products to build and optimize the network, which have become the
key to quality. In 2014, to build 3G network the company used Single Ran architecture – the possibility to support
existing and future technologies on a single hardware platform.
GSM
HSPA+
LTE
5G
Kyivstar
network is ready
for the future
FUTURE PROOF
Single
RAN
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ANNUAL REPORT 2014
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Advantages of Kyivstar modern infrastructure
Full outdoor architecture
High energy efficiency
Compact equipment
Reducing distance between the base
station radio modules and the antenna reduces losses of signal power
Reducing electric energy
consumption
by each base station
Reducing the expenditures
for accommodation and service
of base stations
by 15%
up to 20%
up to 20%
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Traffic in Kyivstar network in 2014
Due to the high level of equipment of its network, Kyivstar can serve the rapidly growing
traffic without loss of quality
Number of minutes that
featured online were
183
billion
minutes
2014
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177
billion
minutes
2013
ANNUAL REPORT 2014
Number
of SMS
3,7
billion
minutes
2014
The volume of data
transmission in Kyivstar
3,5
17 055
tb
2013
2014
billion
minutes
9 800
tb
2013
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Ecological building
In October 2014, NCCIR issued Kyivstar a license
for frequencies in the range of 70-80 GHz
in 11 regions of Ukraine and Kyiv city. The use
of frequencies in this range allows deploy
a mobile network in territories where the most
careful attitude to the environment is required
and where construction works are difficult
or impossible. For example, city historic centers,
reserves, densely populated areas, rivers, etc.
License
for frequencies in the
70-80
GHz
range is received
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Reliability and security of network
Kyivstar network has special protection from the potentiality of being
listened by alien workstations or devices that are connected from the outside.
An important component of protection system is a powerful monitoring
center where in real-time around-the-clock the monitoring for the work
of each network element is conducted. Any suspicious attempts of remote
or direct access to the switches or information databases immediately
are detected and blocked.
Protection of network
from suspicious SMS-mailing
and spam
Kyivstar network has a system of AntiSPAM from the provider, Roamware
(Mobileum), USA. This system filters incoming SMS-traffic that comes
from other telecommunication networks – both Ukrainian and foreign,
detects and blocks spam and suspicious SMS-requests preventing their entry
to subscribers’ mobile phones.
23,6 million suspicious SMS were prevented
8 million spam mailings were stopped
In 2014
and
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Increasing of equipment
productivity
In January-February 2014, Kyivstar initiated a number
of technical measures to increase the capacity of traffic
processing systems. Thus, the capacity of SMS-center
was increased by 10%; additional modules for RBTS
system (online billing) were installed, thus allowing
to increase its productivity by 20%. Also, the capacity
of switching systems that process different types
of subscribers’ pre-paid traffic was improved.
The capacity
of SMS-center increased
by
26
10%
KYIVSTAR
ANNUAL REPORT 2014
The productivity of RBTS
system increased
by
20%
due to installing
additional modules
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Building of data transmission
channels with a capacity
of 100 Gbit/s
During 2014, at DWDM network 20 channels with capacity
of 100 Gbit/s each were built and put into operation.
This resulted in the increase of the network capacity
and setting technical preconditions for further
development of high speed services of a new generation.
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Provision of communication
in Donbas
2014 was marked by unprecedented measures concerning
securing the work capacity of network in Donbas. More than
1.000 base stations in the Donetsk and Luhansk oblasts,
as soon as it was possible, were switched to switchboards
located in other regions of Ukraine. It enabled avoid
downtime of 80-90% of equipment; in difficult for the region
times Kyivstar was able to provide subscribers the possibility
to communicate with friends and family.
1000
base stations
in Donetsk and Luhansk
oblasts were switched
to switchboards
in other regions
of Ukraine.
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ANNUAL REPORT 2014
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Focus on customer,
improvement of tariffs
and services
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New tariffs
and services
In 2014, Kyivstar introduced attractive price
proposals that gave its customers possibility
to increase the use of voice and Internet traffic.
An updated line of tariff plans for calls within
the network, services of mobile Internet
and calls to other networks became the
sales hit. Thanks to possibilities of this
offer the customers could save up to 33%
of the service cost when paying for the month.
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Special offers
for schoolchildren
and students
To support Ukrainian students and to provide
them an opportunity to communicate
at the lowest price, Kyivstar has developed
a special tariff plan, «Free Student». For a daily
subscription fee of 50 kopecks a subscriber
can make calls within Kyivstar network without
restrictions, use unlimited mobile Internet
and package of 50 SMS.
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Free calls and Internet
for Donbas
Kyivstar has provided residents of Donetsk
and Luhansk oblasts the opportunity to access
the new tariff plan, “Kyivstar. Free communication”.
Under this tariff plan the calls in the network
and the use of mobile Internet are not paid for.
Even clients with zero account balance could use it.
In 2014, the offer was used by more
than
in Eastern Ukraine
450.000 customers
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Calls to landline numbers
at the rate of 30 kopecks
per minute
Kyivstar’s prepaid subscribers received
the opportunity to make calls to landline numbers
at a reduced rate – only 30 kopecks per minute.
It’s 70% cheaper than a minute price of the same call
in most tariff plans of the mass market. This has been
possible due to launching of a new package offer
«30 minutes per 10 UAH».
70%
10 грн
30 коп
5 грн
20хв
80%
25 коп
80%
70%
30хв
Calls to other mobile
networks at 25 kopecks
per minute
Kyivstar’s prepaid subscribers received
the opportunity to make calls to other mobile
operators at a price of 25 kopecks per minute
and thus save up to 80% on such calls. The special
price is available subject to being connected
to «20 minutes to other mobiles» service.
The cost is 5 UAH per week, and the subscriber
receives 20 minutes of calls to other networks.
* The rates include VAT. A 7.5% duty of the service value (VAT not included) is additionally charged to the Pension Fund
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International calls
at favorable rates
In 2014, more than 1.5 million subscribers used «Favorite
Countries», a new offer. When connecting to this service
the subscribers can choose any of the three countries and call
at a special reduced rate. With «Favorite Countries» service
the price of a call abroad per minute starts from 0.5 UAH.
The use of international calls through «Favorite
Countries» service
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increased by 52%
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New possibilities in international roaming
In 2014, Kyivstar implemented a new service,
«Free Roaming» – discounts on connection
services in networks of foreign operators.
Having connected to the service the subscriber,
who is in the international roaming,
may call to any phone and any network
at a special reduced tariff.
Due to this service the use voice
traffic in international roaming
grew by 46%,
and the use of mobile Internet
increased
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by 200%
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Proposals for business-clients.
Tariff line «Business Optimum»
In response to the needs of business-clients
to optimize the expenses at a maximum,
the company introduced a number
of new proposals. Subscribers received
a new tariff line in which it is possible
to choose the tariff according to the needs
of each individual employee. The owner
of the company will pay for only those
services that each employee requires
within one’s duties.
In the new line of business tariffs «Business Optimum»
unlimited calls within network and unlimited internet
are offered. SMS and minutes for calls to other networks are included in the tariff plan, and «Business
Optimum 400» and «Business Optimum 700» tariffs
also have minutes for international calls. In addition,
for its business-clients Kyivstar has developed discount programs, considered business needs for additional services – «Direct Landline Number», «Fax
to E-mail» and «Voice Mail».
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New services for convenient
mobile communication
«Deferred Payment»
Service
Expense Report via
USSD-code
«Extra Money» Service
In May, Kyivstar launched a new
program, «Deferred Payment».
It enables to use mobile communication services in the current month and pay in the next,
after receiving a monthly bill.
Managers are able to instantly get the report on the use
on mobile communication
of their organization. Subscribers just have to dial a special
USSD-code – and the report
on expenses and balance of mobile numbers that the organization owns is sent to the mailbox
of the manager in few seconds.
Since April 2014, an updated
«Automatic Extra Money» service is available to subscribers.
By ordering this service the subscriber automatically receives
additional funds for communication in the most necessary
time, when the main mobile account balance is less than 1 UAH.
The service allows refill the account for 5, 10, 20, and 50 UAH.
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Automatic account
refilling from bank card
Subscribers can automatically refill the mobile account
by their Visa or MasterCard
card if the account balance
reaches the minimum level
set by the subscriber.
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Mobile Internet – the rapid growth
Mobile Internet in 2014 was
used by more than 11 million
subscribers. During the year,
data traffic was used
57% more.
Using mobile Internet
in Kyivstar network
The growth of mobile Internet
usage is conditioned by attractive
price proposals, high quality
of communication and increase
of number of smartphones
in the network.
The growth of number of smartphones
in the network
17 055 ТB
7 mln
4,5 mln
9 800 ТB
3,6 mln
54%
2013
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2012
23%
2013
2014
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The most popular devices
Android
iOS
4,9 mln
0,6 mln
Symbian
0,2 mln
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Every month about 3 million
of Kyivstar subscribers use different
social networks on their mobile
phones. The most active are the users
of Facebook. In 2014, their number
increased by 120%.
The growth of number
of mobile users of Facebook:
1 mln
Windows Phone
The use
of social networks
via smartphones
Bada
0,1 mln
2013
360 thousand
2014
810 thousand
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Experts recognize Kyivstar
a leader in mobile Internet
In 2014, Kyivstar took the first place in the integrated
rating of Ukrainian mobile internet providers. Such
data are presented by Expert & Consulting group in its
annual study. According to analysts, Kyivstar serves 59%
of all consumers of this service in Ukraine.
№1
mobile Internet provider
in Ukraine
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Home Internet
High-speed Internet service for households
under FTTB technology is in a stable demand
Advantages of «Home Internet»
•Speed up to 100 Mbit/s
•Router at 1 UAH
•Monthly bonuses that can be
transferred to mobile phones
•Reliable, stable connection
813
thousand in 2014
762
thousand in 2013
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Growth
of «Home Internet»
subscribers’ base
613 thousand in 2012
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New proposals:
33% discount
on the monthly fee
during a year
In 2014, for new subscribers of «Home Internet»
service Kyivstar gives a special offer –
«4 months of Internet without payment».
Subscribers who took advantage
of this proposal have reduced their annual
Internet expenses by 33%.
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«Home Internet»
is available
to small and medium
businesses
In 2014 Kyivstar has expanded access
to fixed broadband Internet. Not only
private subscribers can connect
to the service but also entrepreneurs,
small and medium businesses.
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Development
of mobile applications
and innovative services
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Mobile applications
for music fans
Since May 2014 the owners of smartphones
and tablets with Android and Windows Phone
operating systems received the possibility
to set a mobile application to use «Music
Club» service. With its help the subscribers
got instant access to the catalog of music tracks
that can be listened in a streaming mode.
250 thousand
clients used
«Music Club» service
in 2014
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«Mobile money» –
in a mobile application
The popular «Mobile Money» service has become
even more convenient. In 2014, Kyivstar developed
a new user friendly interface – a mobile application
for smartphones based on Android and iOS.
With this mobile application subscribers can easily and promptly pay
for utilities, Internet and TV, bills, fines, cosmetic products, replenish bank
card directly from their mobile phone. When paying for services, the money
from mobile accounts is used.
The number of «Mobile Money»
service users has
and the total
number of transactions carried out via
this service is
exceeded
200 thousand,
over 1.5 million
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Mobile library
in smartphones
In April 2014 users of Smart Kyivstar service
received the possibility of instant access
to the library of electronic books via a mobile
application for smartphones.
«Smart Content Shop» service offers over 3.5 thousand books of various genres in 55 categories. In particular, modern Ukrainian literature,
books for preschoolers, adventure literature, leadership and entrepreneurship, psychology, fiction, youth literature and many more. Mobile
library contains both classical works and contemporary authors.
About 20% of books are available in free access – mostly classical
works and school books.
41 thousand
subscribers used
«Smart Content Shop» service
in 2014
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Popularity
of content services
In 2014 more than 6 million Kyivstar subscribers took
advantage of content services. On mobile phones they listened
to music, read books, downloaded applications and games.
The most popular service is
«D-Jingle» – music instead of
rings. It was used by
Patriotic d-jingles were
installed on mobiles by
subscribers
subscribers
4,5 million
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400
thousand
Music, video, games,
e-library services were
used by
700
thousand
subscribers
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Service
at the highest level
In 2014, Kyivstar changed the organizational
structure and rebuilt the business processes
in order to be fully focused on the customer,
to predict and satisfy customer’s needs
and improve client experience. The company
is focused on improvement of service processes,
innovation, simplifying the cooperation
with services users.
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Innovations in customer service
In order to meet the needs of subscribers in a proactive form, Kyivstar
implemented a unique system of management of personal customer
experience by Pontis Ltd., an international provider of marketing solutions.
This solution enables marketers select individual approach to each client
analyzing his behavioral model.
In Kyivstar, an online chat system of advice
and assistance to subscribers works around-theclock. During the year the features of Internet
Assistant were benefited by more than 158 thousand of subscribers. Online-chat is available
in the self-service system «My Kyivstar».
The subscriber has just to go to his/her page
in a self-service system, choose the subsection
«Contact Us» and click «Online-Assistant».
The system of advice and assistance using online
chat is useful in cases where the client should
get step by step instructions on how to connect
a particular service or information in writing
or the client due to certain physical limitations
cannot use the phone call to the Call Center.
At the international
competition
«Crystal Headset»
Kyivstar was named
the best in the practice
of online customer
service
98% of appeals in Kyivstar online chat are taken in the first 20 seconds.
Average time of expert’s respond is 8 seconds. In 2014 the subscribers of the company
graded the chat as 4,7 according to a 5-point scale
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Mobile application «My Kyivstar»
for easy expenses control
In 2014, Kyivstar launched a mobile version of expenses control
system «My Kyivstar». Special mobile application became
available for smartphone users on operating systems Android,
Windows Phone 8 and iOS.
Besides the new design, «My Kyivstar» application was added
with useful features. Now Kyivstar prepaid subscribers in «Tariffs
and Services» section can choose the most advantageous for
their region tariff proposals.
385 thousand
subscribers downloaded
«My Kyivstar» application
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A callback at a time
convenient for the client
Since September 2014, Kyivstar clients of small and medium
business were able to use the service of consulting
with a specialist on telecommunications services
at convenient time. When calling to the contact-center
the subscriber can request a callback. The consultant
will call the client back and, if required, will offer a more
convenient time for a telephone consultation.
At this, the client will be able to discuss specific issues
of using telecom services at his company, learn about
optimizing costs and new services that enhance
the efficiency of a particular business.
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Star Call Center
Kyivstar has the largest own contact center in Ukraine.
About 1.500 employees in four cities of Ukraine daily receive
more than 60.000 customer appeals, and IVR system serves to 1.5 million
requests. The high quality of the contact center is confirmed by annual
research of subscribers’ satisfaction and many international awards.
Thus, in 2014 the company’s clients estimated the customer service work
at 4.71 points out of 5 possible.
The Global Association
for Contact Center & Customer
Engagement Best Practices
From June 23 till June 27, 2014 in Lisbon (Portugal) an international conference, The Global
Association for Contact Center & Customer Engagement Best Practices, which brought together
representatives of contact centers from Europe,
Middle East and Africa, was held. Its participants
presented the most effective projects of their
practice. Cases of participants were estimated
by a competent jury that determined winners
of the second stage of the competition Contact
Center World Awards in the EMEA region.
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Global Contact Center Awards
(GCCA)
In November 2014 in the global competition Global Contact Center Awards (GCCA),
which was held in Las Vegas, USA, from
November 10 till November 14, 2014, Kyivstar
took silver in the category «Best Contact
Center Mega». Kyivstar also was recognized
as one of the world’s best contact centers
in terms of quality service – the operator was
awarded the 4th place in the category Best
in Customer Service Mega (Inhouse).
№1
Kyivstar Contact Center
is the first Ukrainian winner
of Top Ranking Performers
in Contact Center World
Ernst&Young
According to internal corporate
research, which is held every year
in the company, 91% of employees
of Kyivstar Call Center are proud
of their workplace, and 75% of them
believe that their job gives them
the opportunity for a career growth.
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STABLE DEVELOPMENT AND SOCIAL INITIATIVES IN 2014
Stable development
and social initiatives
in 2014
Kyivstar today
Key achievements and challenges in 2014
Investments in the society’s development
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About the Company
Kyivstar is a leading
telecommunication operator
in Ukraine providing services
to over 26 million of mobile
customers and around
810 thousand households –
customers of broadband
Internet.
The company operates in the telecom
market of Ukraine since 1997 and provides
services of voice communication and data
transmission using mobile and fixed techno
logies. Kyivstar is one of the largest taxpayers
and investors in the communications field,
a conscientious employer and a socially
responsible company.
ПРО КОМПАНІЮ
№1
Telecommunication
operator
in Ukraine.
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Market
leader
International
reputation
National
dignity
Operator No. 1
in mobile communication
and the Internet
(as per E&C Consulting data).
Is among TOP-10 largest
telecom companies in Central
and Eastern Europe
(as per Deloitte data, 2014).
The most valuable brand
in the telecommunication
industry of Ukraine (as per
Brand Finance data, 2014).
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Kyivstar is part of the international
telecom-holding
Kyivstar is part of VimpelCom Ltd., an international communication group
(headquartered in Amsterdam, Kingdom of the Netherlands).
VimpelCom Ltd. has its shares listed on the NASDAQ Stock Market (USA).
9%
7-th
in the world
telecommunication
group
Is represented
in telecom markets in
14
countries of the world
43%
Telenor
minority
shareholders
of NASDAQ
(New-York)
(Norway)
48%
LetterOneTelecom
(Luxemburg)
Its shares are
owned by
international
investors
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Jean-Yves Charlier
is CEO
of VimpelCom Ltd.
In its activity, VimpelCom Ltd. is governed by the legislation
of Holland, the European Union, and the United States of America,
as well as local rules in target markets.
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Highlights of the
VimpelCom Ltd.
international
telecom-group
in
222
2014:
million of
subscribers
$ 19.6 billion
revenue
13 countries with
a population of
740 million
$ 41.042
billion total assets
Italy, Ukraine,
Russia, Algeria,
Bangladesh, Pakistan,
Laos, Kazakhstan,
Uzbekistan, Georgia,
Armenia, Tadzhikistan,
Kirgizia.
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Key achievements
and challenges in 2014
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KYIVSTAR
Ensuring communications
in emergencies
Adherence to confidentiality
of customers’ data
In 2014, Kyivstar specialists made
every effort to ensure the appropriate
level of network quality and efficiency
in an emergency situation that arose
in the Crimea and Eastern Ukraine.
Due to highly competent staff,
the network integrity and security
of personal customer data were saved.
Kyivstar has fulfilled all licensing
requirements for the protection of information systems and personal data
of customers in good faith. In 2014,
the NCRC conducted verification
of the company’s GSM network.
According to the results of the Commission, there were no cases of information retrieval, breach of confidentiality of customers’ data, and unlawful
processing of information.
ANNUAL REPORT 2014
Promotion of setting
European standards
in the telecom market
Kyivstar has consistently and strongly
advocated the civilized mechanism
of implementing Mobile Number
Portability service (MNP). For this,
the company has initiated a constructive dialogue with the telecom
regulator and other market players.
As a result, a new procedure of rendering MNP service considering
the subscribers’ interests was developed and registered.
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Caring for employees
The company always focuses on the safety
of life, work, and health of its employees.
In June 2014, the company arranged for relocation of the employees and their families
from turbulent regions of Donetsk and
Luhansk oblasts to safer ones in Ukraine.
Displaced employees were provided with
accommodation at the new place and job
placement in other offices
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Innovative solutions
for the development of society
Assistance in the development
of new mobile technologies
Kyivstar develops technology products
that can be actively applied in the social
sphere. In 2014, the company introduced
a new mobile application for the care
of children’s health and disease prevention (m‑Health project). A new development was the mobile application “Mobile First Aid” with medical advices and
video lessons on first aid to the injured
In 2014, the Ukrainian government approved the terms of a tender on allocation
of 3G licenses. This event was preceded
by extensive preparatory work and market
research, in which Kyivstar actively participated. In January 2015, the company submitted its bid, and in February 2015 received
the right to use radio frequency band
1965-1980 / 2155-2170 MHz having proposed 2.7 billion UAH for the lot. Since then,
a new phase of the company’s technological
development and increase of its investment
in Ukraine has begun.
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Kyivstar
brand renewal
Upgrading of values
SIMPLE
A smart choice, as you understand what you pay for and what you
get in return. It’s simple to be well aware of the tariffs, services,
simple to connect and use them. You feel comfortable and confident
with your choice.
INNOVATIVE
Unique services that inspire for the development and new solutions.
We use the latest technologies to enable people and companies solve
their daily tasks with more flexibility, convenience, and efficiency.
BETTER
We constantly improve ourselves and spare no effort to it.
We want you to enjoy the best quality connection, the most
convenient and most modern services all over Ukraine.
Every day, we prove that we are the leader.
The announcement of the tender for 3G-link at the
end of 2014 marks the beginning of positive changes
in the Ukrainian telecom market.
“Kyivstar” company aims its activity at introducing the world’s best
technology for the broader population.
The company renewed its brand and its operating doctrine. “Simple”,
“Innovative” and “Better” – namely through these values Kyivstar now
interacts with its customers, partners, employees, and society.
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Investment development and assisting
the community in 2014
3,855
billion UAH
of taxes and fees
paid to the state budget
1,657
billion UAH
of investments
into 3G network and
top-quality connection
30
million UAH
allocated to education
and advanced training
of employees
7
million UAH
invested in charity
and community
assistance programs
Complying with the principles of transparent
and ethical business
Community assistance programs
supported by Kyivstar
Kyivstar strictly adheres to the principles of transparency and ethics.
The company is concerned that its activities and services are implemented in harmony with society, environment, ecology, family values,
interests of the state and the individual, and bring pleasure and benefit to people. In 2014, the company decided to give up on corporate
gifts.Instead, funds saved through this initiative are allocated to charity
and community assistance programs.
• development of education in schools and universities in Ukraine;
• support for young entrepreneurs;
• protection of children from dangerous content in the World Wide Web;
• care for public health and disease prevention;
• preservation of historical and cultural heritage of Ukraine;
• targeted aid to children’s institutions and senior centers;
• preservation of nature and environment.
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Social initiatives concepts
“Over the recent year a lot has changed in Ukraine, in particular,
the needs of people and their expectations from business. Not only
services and best deals are important for the customer. They are not
less concerned about whether the company adheres to ethical business standards, how it cares for socially important issues: the ecology, education development, assistance to vulnerable segments
of population, etc. Analyzing the needs of society, Kyivstar focuses on the areas that are of crucial importance to the country and
the people. We want our social investments be most tangible and
effective both today and in the future.”
Tetiana Petsko,
Program Manager in Corporate Social Responsibility.
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Corporate charity
All-Ukrainian program,
«For People, For Country»
Social project
«Make Your Contribution»
Support of volunteerism and
social initiatives of employees
For almost 10 years Kyivstar systematically provides aid to those who are most of all in need –
disabled, parentless children, lonely elderly.
This project brought together Kyivstar social initiatives targeted to support talented
young people – schoolchildren, students,
programmers, young entrepreneurs
who are eager to contribute to the development of Ukraine. The program implies
assistance in the professional development
of Ukrainians who demonstrate the best results and achievements in the exact sciences, natural sciences, and technology.
At Kyivstar, volunteerism has long and strong
traditions. The employees of the company
are active participants of all socially important projects. In August 2014, at the initiative
of Kyivstar employees the Volunteer Council
was founded. It is a voluntary association,
which includes the most active volunteers
from different cities of Ukraine. Charitable
programs, targeted aid to low-income people, arranging good deeds – all these issues
are considered by the Volunteer Council.
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Support of education in Ukraine
Education shapes the future of Ukraine, that is why Kyivstar supports educational projects and talented
young people – those who in the next years will introduce innovations in the Ukrainian business.
BUSINESS
HUB
We support schools
We support universities
We support young professionals
•Internetization of schools, providing
broadband Internet at a charity basis
for training purposes.
•Support of student competitions
and art competitions.
•Establishment of Kyivstar Business Hub –
a platform for training young entrepreneurs
and their communication with progressive
scientists from around the world.
•Support of school Olympiads and
competitions in sciences.
•Organization of educational tours for kids
to the company technology centers.
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•Providing grants for university studies
to students from poor families.
•Encouraging students to participate
in socially beneficial initiatives of Kyivstar.
•Organization of internships
for the best graduates.
•Attracting talented young people
to develop mobile applications
of social orientation.
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Safety of children
using the
World Wide Web
280 schools
with over
200 000
children use Kyivstar
broadband Internet.
Since 2009, Kyivstar has been systematically
implementing the social program,
«Child Safety on the Internet».
For this purpose, at schools and libraries the company holds classes for kids, workshops for parents and teachers on “Child Safety
on the Internet”. Already 280 schools teaching over 200.000 children
use Kyivstar broadband Internet. Monthly, these schools receive highspeed access to the World Wide Web resources on charitable basis
from the company. In 2014, Kyivstar together with teachers and scientists of regional libraries held social poll on children’s communication
in social networks, in which pupils and their parents from Dnipropetrovsk and Chernihiv participated in. The study showed that today
children spend more time online than outdoors, and 25% of parents do
not know whom their children communicate with online. Therefore, in
2015 Kyivstar will continue the information and awareness campaign
on rules of kids’ safe behavior in the World Wide Web.
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Support for talented
pupils and students
“Kyivstar” company believes that the future
of the country is in its educational present.
Therefore, the company undertakes social
initiatives aimed at supporting talented youth
that subsequently will implement innovative
changes in the Ukrainian business environment.
Within these initiatives the company supports
school competitions in the field of science, radio
engineering, IT, economics, and finance.
In 2014, with the assistance and support of Kyivstar the All-Ukrainian
school and student competitions in exact sciences and information
technology were held in Dnipropetrovsk, Vinnytsia, Kyiv and Ternopil.
72 000
Ukrainian pupils
participated in the All-Ukrainian
School Olympiad
in IT-technologies
supported
by Kyivstar
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Internship Programs
for Students
Investment
in the country’s IT- future
In February 2014, a competition for one-year internship
program for students was announced.
Kyivstar is a partner of the All-Ukrainian Student
Olympiad in Programming.
Over 200 students of Ukrainian technical universities specializing
in information technologies participated in the competition. Six best
students who had their internship were employed by the technical and
marketing offices of Kyivstar.
This Olympiad is a platform for communication and team competition
of Ukraine’s young IT- future. In October 2014, the Olympiad was held
in Vinnytsia with the support of Kyivstar. Over 100 students of leading technical universities from all over the country were competing
for the title of the best team in programming and the right to participate in the world championship in programming.
Educational tours
for pupils
Free access to the knowledge
base on the Internet
For many years school tours to Kyivstar offices
are arranged.
Providing pupils and students the opportunity to gain
knowledge from a mobile phone is part of Kyivstar’s
care for the development of education in Ukraine.
In 2014 more than 4.300 high school pupils attended Kyivstar offices
in different cities of Ukraine for educational purposes. Pupils get familiarized with the work of information and reference center, technical areas,
learn the secrets of marketing and advertising. Kyivstar employees deliver lessons to tell about the history of communications development.
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In 2014, the company started a partnership with Wikimedia Foundation
to provide subscribers with free access from mobile phones to a huge
knowledge base on the Internet. Kyivstar subscribers can use Wikipedia
resources without paying for the traffic.
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Platform for the development
of entrepreneurship and
business education
In 2014 Kyivstar launched a new
project, KyivstarBusinessHub.
It is an educational platform for active
Ukrainian youth willing to build
a new country.
In the framework of the project seven public
educational meetings and business seminars were
held with the participation of:
• Peter De Keyzer, Chief Economist
of BNP ParibasFortis;
• Bronwyn Hall, Professor of the Faculty
of Economics of the University of Berkeley
(California);
• Anousheh Ansari, Co-founder of Prodea
Systems;
• Jonathan Holslag, Professor of Political Science
University of Brussels, and others.
Business seminars
were attended by
almost 5.000
Ukrainian businessmen, students,
young professionals
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Aid to parentless children
and children from poor
families
Kyivstar employees are chefs of 29 boarding schools,
where children deprived of parental care live and study.
Kyivstar volunteers are frequent guests in these institutions.
Each year on the day of St. Nicholas children get holiday gifts
collected by the employees. Theatrical performances in which
the kids and Kyivstar staff are actors are also held there.
To St. Nicholas day
Kyivstar
employees have
collected:
More than 100 employees
of the company, members
of the Kyivstar charity
volunteer theater, held:
4 000
8
presents
for more than
3500
kids
29
of
boarding
schools and charitable
funds for in-migrant
children and for
low-income families.
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New Year and Christmas
performances
for
1700
kids
in boarding schools,
hospitals of Cancer Institute
and Ohmatdyt, children
of in-migrants in Kyiv,
Dnipropetrovsk, Lviv
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New Year Performances for children
with the participation of Kyivstar volunteers
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Care for the lonely elderly
Every year, in early May Kyivstar attends senior centers
and hospitals for veterans.
In 2014, 3.000 residents of senior centers in 12 Ukrainian cities received humanitarian
aid from Kyivstar. Company employees on their own initiative helped senior centers
to renovate premises and adjoining areas and organized concerts for the elderly.
The assistance during 2014 was provided to:
•Borodyanskyi boarding house
for elderly and disabled
•Odeskyi regional hospital
of disabled veterans
•Khmelnytsky territorial center
of social service
•Chernihivskyi senior center
•Chernivetskyi senior center
•Lvivskyi senior care home
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•Petrikivskyi regional senior
residential care facility
•Rivnenskyi senior care home
•Dnepropetrovskyo senior care home
•Horbanevskyi senior care home
for war and labor veterans
•Luhanskyi senior care home for war
and labor veterans
•Kharkivskyi senior center
Financial aid
Events
•linen
•towels
•rehabilitation
equipment
•improvised concerts
•meetings in companionship format
•arrangement of gardens
•territory cleanup
•the possibility of free
calls to friends and family
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Mobile communication
helps in difficult life circumstances
In August 2014, Kyivstar offered free mobile
communications and Internet services to residents
of Donetsk and Luhansk oblasts.
The tariff plan “Kyivstar. Free Communication” for Donetsk and
Luhansk oblasts made it possible for subscribers in these regions
to call within the network and use Internet and traffic without
monthly fees. The possibility to call their loved ones was given even
to those subscribers who had no funds on their accounts.
450
thousand subscribers
During 2014, over
in Donetsk and Luhansk oblasts were
using free mobile communication.
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Humanitarian aid to medical institutions
Purchase of medical equipment.
In 2014 Kyivstar provided more than
2 million UAH of humanitarian aid
to medical institutions. Some of these
funds were voluntary contributions
of its employees.
Kyivstar employees refused from traditional corporate gifts for the New Year. This enabled save
1 million UAH which the company directed for purchasing medical equipment for hospitals.
City Multi-Field Hospital No.4 in Dnipropetrovsk,
City Clinical Hospital of Ambulance and Emergency
in Zaporizhzhia, Regional Clinical Hospital in Odesa,
Center of Emergency Medicine and Disaster Medicine in Kharkiv have received artificial lung ventilation apparatus, defibrillators and ECG devices.
During the first 30 days of operation
the equipment has saved
more than 50 lives.
Organization of training
for doctors
Charity fairs for raising funds
to support hospitals
In August 2014, with the support
of Kyivstar an educational program
of Yale University School of Medicine
was organized for Ukrainian doctors.
23 medical specialists have been trained
to work with post-traumatic stress
disorders. Currently, they help people
who are victims of stressful situations.
In March 2014, Kyivstar employees in Dnipropetrovsk organized
a charity fair in support of village
hospitals. As a gift, they brought their
own products: embroidery, baking,
and crafts. During the fair 21 thousand UAH was collected. These
funds are transferred to the needs
of the hospital in the Cherkaske village of Dnipropetrovsk oblasts.
Reanimobiles equipment for hospitals in Eastern Ukraine
In October 2014, Kyivstar employees on their own initiative collected more than
230 thousand UAH for reanimobiles equipment. Another 230 thousand UAH
were allocated from the company’s budget. The total contribution amounted
to 430 thousand UAH. Medical handbarrows, artificial respirating units and cardiac
defibrillator were bought thanks to these funds.
Three reanimation vehicles equipped due to Kyivstar funds
already operate in hospitals in Eastern Ukraine.
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Charity sports
events involving
Kyivstar
«Chestnut Run» saves hearts
For the fourth year in a row, Kyivstar employees
get to the run track to save kids’ lives. This year
they participated in the traditional race, “Chestnut
Run”, held in Kyiv. Company employees transferred 14 thousand UAH to the organizing fund
of this charity event. These funds were donated
to the Center of Pediatric Cardiology and Cardiac
Surgery of the Ministry of Health of Ukraine to purchase medical equipment.
Charity football tournaments
Every year Kyivstar arranges corporate football
tournaments among employees. Funds collected
during these events are given to charity. In 2014,
the 10-th Corporate Football Tournament was held.
During the sports occasion employees organized
a Charity Fair and collected 32 thousand UAH
in contributions. Another 30 thousand UAH were
donated by the winning team out of its bonus.
All funds were allocated to charity.
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Football competitions
between Kyivstar employees
are not only a sports
occasion, they are an
opportunity to do good.
During the 10-th Corporate
Football Tournament
donations amounting to
62 thousand UAH were
raised, which the company
donated to humanitarian
needs of medical institutions.
62.000 UAH
for the humanitarian
needs of medical
institutions
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Unique Kyivstar products to help the society
mHealth – care for
health of the loved ones
We develop mobile
applications to help Ukrainians
take care of their health and
prevent diseases
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Vkraina – the history
of Ukraine in a mobile
phone
Kobzar KS – reproduction
of Taras Shevchenko’s
handwriting
We disseminate knowledge
on Ukrainian nationhood, help
save our country’s cultural and
historical heritage
We honor the memory
of famous Ukrainians by
retaining samples of their works
for future generations
Support of national
traditions
We support traditions of folk
festivals and the culture of national costume through special
interactive projects
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Mobile technologies
for Ukrainians’ health
The development of mobile applications within mHealth is one of the
Kyivstar social responsibility programs. Such popular applications as
“Seeing Well”, “My Little Star”, and “My Little Star. Year One” encouraging
users to care about their and their family’s health are used by more than
200 thousand Ukrainians.
iOS
Android
All applications
are free
On operational
systems for
smartphones
Download in AppClub,
AppStore and
Google Play without
paying for traffic
For all mobile
operators in
Ukraine
In 2014, Kyivstar introduced a new mobile application, “Mobile First Aid”, offering its users:
• a set of useful tips and video tutorials to administer first aid;
• emergency distance course;
• the possibility to call an ambulance and find the nearest hospital.
“Mobile First Aid” contains knowledge base
required to administer first aid and,
if needed, to save one’s life.
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ANNUAL REPORT 2014
In 2014 the “Mobile First Aid”
application took a bronze award
at EffieAwards, and the “Seeing
Well” application was recognized
the best at the international Digital
Communication Awards 2014 contest.
This is the first Ukrainian project to win
this contest.
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Preserving cultural
and historical heritage
Kyivstar, being part of a European holding VimpelCom ltd.,
is committed to promote knowledge about Ukraine among
the international community as well. With this purpose,
the company has launched an interactive project, Vkraina, under
which 46 European maps of XVI-XVIII centuries were digitalized
illustrating the territory of Ukraine.
In 2014 the project was made in a mobile version. Vkraina allows see the borders
in which European cartographers of XVI-XVIII centuries depicted Ukraine.
In April 2014, Kyivstar developed a Vkraina mobile application for smartphones and tablets working on iOS and Android operating systems. It is free for downloading in Windows 8 and Windows Phone 8 stores.
Within a year, Vkraina.com site:
350
had
thousand unique users
in more than
100 countries
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KYIVSTAR
Vkraina mobile
application was
downloaded over
6 thousand
times
ANNUAL REPORT 2014
In 2014, Vkraina application was recognized
the best Ukrainian
application in the nomination “Mobile Education” (m-Learning and
Education) at The World
Summit Award Mobile.
In December 2014, Mila
Negru, a Ukrainian designer, created a collection of clothes with
maps elements. 25%
of funds received from
the sale of Vkraina
collection will be transferred to the Ukrainian
Charity Exchange for
“Help with the Most Urgently Needed” Project.
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Online: Handwriting of the
Ukrainian poet Taras Shevchenko
On the occasion of the 200th anniversary
of the Ukrainian genius, famous writer and
artist Taras Shevchenko, Kyivstar generated
a unique Kobzar KS font, which fully
reproduces his handwriting.
The project was implemented with support from the Ministry of Culture of Ukraine and Taras Shevchenko National
Museum. The authors of the font are prominent Ukrainian
font and graphic designers Dmytro Rastvortsev, Lukyan
Turetskyi, and Genadii Zarechniuk.
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Kobzar KS font
is available for downloading
and installing
on computers from
www.kobzar.kyivstar.ua
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Ukrainians created thousands of unique
Vyshyvankas within the Kyivstar special project
On the day before Ukrainian Independence Day celebrated on August 24, Kyivstar employees come to work
in traditional Ukrainian garments, thus demonstrating respect to Ukrainian traditions and culture.
In 2014 Kyivstar invited everyone to participate in
the Ukrainian interactive project “Create a Family Vyshyvanka.” An Internet platform
was developed, through
which anyone could create
one’s own personal design
of the Ukrainian garment.
Over 50 thousand Ukrainians participated in the interactive project. By Internet
voting the top ten winners
were determined. The prize
for the winners would be
handmade Vyshyvankas reproduced as per their own design
by craftsmen from Lviv.
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Caring for the environment
Green Office Project
Respectful use of energy and paper
at Kyivstar offices.
Ecovolunteerism
Protection and improvement of green
space in the Kyivstar business places.
Friendly technologies
Applying best technical solutions
for caring for the environment.
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Kyivstar
ecocommunication
Since 2009 the company has “Regulations
on Environment Protection” in place. Within
the environmental social initiatives Kyivstar
has been developing the Green Office Project
aimed at promoting economical use of resources,
introducing friendly services, applying energy saving
technologies in different business sectors, holding
“green” events engaging its employees.
The principle of respecting natural resources is implemented
in the company’s technical solutions. Thus, in 2014 Kyivstar started
employing the Single RAN technological platform, which supports
various communication technologies.
SingleRan
architecture
is the single
radio network for
GSM/UMTS/LTE
standards
increase
in radio coverage
area of each base
station
by 15%
reduction
of electric energy
consumption
by network
equipment
by 20%
Upon upgrading sites Kyivstar shifts to fulloutdoor architecture.
Reducing the distance between the base station radio modules
and the antenna reduces loss of signal and increases the range
action of each base station by 15%, which results in the reduction
of electric energy consumption by each base station and the space
to accommodate equipment by 20%.
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ANNUAL REPORT 2014
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Collecting waste batteries
and accumulators
at Kyivstar offices
In 2014 all company offices arranged for special
“ecocontainers” to collect waste batteries and
accumulators.
Quarterly, the company delivers the collected batteries to a specialized enterprise for further utilization. Besides Kyivstar staff, pupils
of 1.200 schools throughout Ukraine have joined this project. Kyivstar volunteers held environmental lessons at schools and suggested that kids get engaged in collecting waste batteries.
1200
schools
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KYIVSTAR
2000 kg
of waste batteries
delivered to be
utilized
ANNUAL REPORT 2014
160 ha
of land
saved from
pollution
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Ecovolunteerism on the occasion of the Earth Day
The Earth Day was traditionally
celebrated by Kyivstar employees
and their families as the April initiative
on improving environment.
In the period between April 5 and 22, on the company’s initiative the favorite promenade sites
in Kyiv, Rivne, Uzhgorod, Lutsk, Chernivtsi, Cherkasy, Ternopil, Poltava, Donetsu, Zhytomyr, and
Chernihiv were rearranged.
Lviv
150
IvanoFrankivsk
ecovolunteers
157
modernized
benches
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KYIVSTAR
improvement
of Taras Shevchenko
park to the
200th anniversary
of the Great Poet
ANNUAL REPORT 2014
550
ecovolunteers
23
cities
Chernivtsy
Chernihiv
Vinnytsia
cleaning
of a house
for seniors
arranging a garden
bed of coniferous
plantings
cleaning
an orphanage
and planting fruit
trees
500
planted trees
and bushes
15
parks, a botanical
garden, a zoo
Kharkiv,
Zaporizhzhia
Sumy, Dnipromodernization
of benches in the
petrovsk
arranging flower
beds in the form
of company’s
symbol –
the “Kyivstar” star
pedestrian alley
of Taras Shevchenko
Boulevard;
arranging
a free wi-fi zone
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For over 18 years, Kyivstar has been working
for the good of Ukraine and it remains one
of the most socially responsible local businesses
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ANNUAL REPORT 2014
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CONSOLIDATED FINANCIAL STATEMENTS
Joint Stock Company Kyivstar
Consolidated Financial Statements
As at 31 December 2014
with Independent Auditor’s Report
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ANNUAL REPORT 2014
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Independent auditor’s report
To Shareholders of Private Joint Stock Company «Kyivstar»
We have audited the following consolidated financial statements of the Private Joint Stock
Company «Kyivstar» and its subsidiaries (hereinafter — the «Group») which includes the
consolidated statement on financial status as of December 31, 2014 and the consolidated
statements on comprehensive income, on changes of capital and cash flow for the 2014
financial year and notes consisting of the description of main provisions of the accounting
policies and other explanatory information.
Responsibility of Management Staff for the Consolidated Financial
Statements
Management staff of the Group is responsible for the preparation and fair submission of the
consolidated financial statements in accordance with the International Financial Reporting
Standards and for such internal controls which the management staff determines necessary
to enable the preparation of consolidated financial statements that do not contain material
misstatements in consequence of fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements on the
basis of the results of our conducted audit. We conducted our audit in accordance with the
International Standards on Auditing. These standards require that we meet ethical requirements
as well as plan and perform the audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatements. An audit foresees the performance of
procedures to obtain audit evidences regarding the amounts and disclosures of information
in the consolidated financial statements. The procedures selection depends on the auditor’s
judgment, including assessment of the risks of material misstatements of the consolidated
financial statements due to fraud or error. When assessing these risks the auditor considers
internal controls relevant to the preparation and fair presentation of the consolidated financial
statements by the business entity in order to develop audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing the opinion on the effectiveness of
internal control of the business entity. An audit also includes conformity assessment of the used
of accounting policies used, acceptability of accounting estimates prepared by management
staff, and assessment of the general presentation of the consolidated financial statements. We
believe that what we have obtained are sufficient and appropriate audit evidences to express
our opinion.
Expression of Opinion
In our opinion, the presented below consolidated financial statements reflect fairly, in all
material respects, the financial position of the Group as of December 31, 2014, its financial
results and cash flows for the year that ended on the indicated date in accordance with the
International Financial Reporting Standards.
Explanatory Paragraph
We draw your attention to Note 2 to the consolidated financial statements which describes
the political and economic instability in Ukraine that may negatively affect the results of
activity and financial position of the Group in a manner and to the extent that cannot be
currently accurately determined. We do not make stipulations to our opinion regarding this
aspect.
LLC Auditing Company “Pricewaterhouse Coopers (Audit)”, Zhylyanska Str. 75, Kyiv, 01032, Ukraine
ТPhone: +380 44 354 04 04, fax: +380 44 354 07 90, www.pwc.com
April 01, 2015
Kyiv, Ukraine
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Consolidated statement of comprehensive income
For the year ended 31 December 2014 (in thousands of Ukrainian Hryvnia, except for earnings per share)
01
Notes
2014
2013
02
Revenues
9
12,986,795
13,091,150
03
Cost of materials, traffic charges and other direct costs
9
(3,706,888)
(2,735,931)
04
Salaries and personnel costs
9
(1,014,979)
(906,615)
05
Other operating expenses
9
(3,518,914)
(3,102,557)
06
Other income
21,477
12,266
07
Other expenses
9
(130,316)
(164,361)
08
Depreciation and amortisation
9
(1,765,668)
(1,637,194)
09
Impairment losses
9
(178,819)
(77,218)
2,692,688
4,479,540
11
Finance income
9
148,244
140,577
12
Finance costs
9
(22,743)
(5,095)
13
Foreign exchange gain/loss, net
(134,211)
6,530
14
Profit before tax
2,683,978
4,621,552
(515,603)
(778,513)
2,168,375
3,843,039
10
10
15
Income tax expense
16
Profit for the year
17
Other comprehensive income not to be reclassified to profit and lossin subsequent periods:
18
Re-measurementgains on defined benefit plans, net of tax
—
11,596
President
19
Other comprehensive income for the period, net of tax
—
11,596
Total comprehensive income for the year, net of tax
2,168,375
3,854,635
Chief Financial
Officer
Ibrahim Karam
20
21
Earnings per share, UAH
165.58
293.47
Chief
Accountant
Olena Ksenich
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ANNUAL REPORT 2014
30
Signed and authorised for release on
behalf of management of Joint Stock
Company Kyivstar on 1 April 2015:
Peter Chernyshov
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Consolidated statement of financial position
As at 31 December 2014 (in thousands of Ukrainian Hryvnia)
01
Assets
02
Non-current assets
03
Property, plant and equipment
11
6,885,017
04
Intangible assets
12
1,236,919
05
06
Notes
Other non-current assets
13
10
Pre-paid income tax
07
Deferred expenses non-current
08
Deferred tax asset
10
Notes
2014
2013
Share capital
18
1,009,249
1,009,249
04
Share premium
18
102,338
102,338
39,946
05
Additional capital
18
155,956
132,682
421,326
06
Retained earnings
7,160,446
7,824,466
36,484
24,236
07
Treasury shares
(370,398)
(370,398)
254,782
201,512
08
8,057,591
8,698,337
8,846,849
09
Non-current liabilities
10
Employee benefit liability
20,173
19,165
Provisions
21
24,872
50,035
394,269
—
11,173
1,314,086
9,738,461
09
10
2014
2013
01
Equity and liabilities
02
Equity
7,032,518
03
1,127,311
Current assets
11
Inventories
12
Trade and other receivables
13
Pre-paid income tax
14
Pre-paid taxes, other than income tax
37,257
35,356
11
14
995,943
389,149
12
Loans payables
19
10
314,832
855,813
13
Deferred revenue non-current
20
69,685
26,534
14
54,339
45,521
15
Current liabilities
119,927
80,904
559,241
150,104
3,596
4,028
15
Prepayments
16
Deferred expenses
16
78,644
74,682
16
17
Cash and cash equivalents
17
1,827,399
640,960
17
Deferred revenue
20
666,908
669,713
18
Other current financial assets
75,273
29,196
18
Provisions
21
29,823
40,543
3,453,372
2,097,211
19
Taxes payable, other than income tax
22
285,151
199,723
487
689
20
Trade and other payables
23
2,213,285
839,436
3,453,859
2,097,900
21
Dividends payable
18
549,966
—
13,192,320
10,944,749
22
Loans payables
19
288,722
—
23
Interest accrued
19
106,993
—
24
Advances received
24
201,126
172,601
25
Other current liabilities
25
229,918
170,264
4,575,488
2,096,308
13,192,320
10,944,749
19
20
Assets of disposal group classified
as held for sale
21
22
Total assets
26
27
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Total equity and liabilities
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Consolidated cash flow statement
For the year ended 31 December 2014 (in thousands of Ukrainian Hryvnia)
01
Operating activities
02
Investing activities
03
Purchase of property, plant and equipment
04
Purchase of intangible assets
05
Proceeds from sale of property, plant and equipment and assets of disposal group classified as held for sale
06
Cash received as a result of LLC “Golden Telecom” acquisition
(46,077)
(5,653)
(1,395,092)
(1,704,845)
(1,939,947)
(4,099,832)
(20)
(33)
(1,939,967)
(4,099,865)
1,180,051
(835,582)
6,388
(6,922)
07
Other outflows
08
Net cash flows used in investing activities
09
Financing activities
10
Dividends paid to equity holders of the parent
11
Other outflows
12
Net cash flows used in financing activities
13
Net (decrease)/increase in cash and cash equivalents
14
Net foreign exchange difference
Notes
2014
2013
(1,241,546)
(1,582,005)
(210,856)
(149,386)
19,135
32,199
84,252
—
15
Cash and cash equivalents as at 1 January
17
640,960
1,483,464
16
Cash and cash equivalents as at 31 December
17
1,827,399
640,960
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Consolidated cash flow statement
01
Operating activities
Notes
2014
2013
02
Profit before tax
03
2,683,978
4,621,552
Non-cash adjustments to reconcile profit before tax to net cash flows:
04
Depreciation of property, plant and equipment
9
05
Impairment of property, plant and equipment and intangible assets
1,530,327
1,440,087
9
178,819
77,218
06
Amortisation of intangible assets
9
235,342
197,107
07
Loss on disposal of property, plant and equipment, intangible assets and assets
of disposal group classified as held for sale
9
115,891
158,575
08
Interest income
9
(148,244)
(140,577)
09
Interest expense
9
11,882
—
10
Other finance costs
9
10,861
5,095
11
Movements in provisions and employee benefit liability
(5,061)
9,620
12
Unrealised foreign exchange loss
135,691
2,780
13
Working capital adjustments:
14
Decrease/(increase) in inventories
(1,839)
33,914
15
Decrease /(increase) in trade and other receivables, prepayments and other assets
(343,992)
67,127
16
Increasein deferred expenses
9,025
9,630
900,155
(45,883)
17
Increase/ (decrease) in trade and other payables, other current assets and taxes payable, other than income tax
18
Increase in deferred revenue
6,677
53,638
19
Increase in advances received
26,341
20,796
20
Decrease in other current liabilities
(37,076)
(19,137)
5,308,777
6,491,542
144,137
145,826
21
22
Interest received
23
Interest paid
(4,257)
(31,972)
24
Income tax paid
(933,547)
(1,636,268)
25
Net cash flows from operating activities
4,515,110
4,969,128
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Consolidated statement of changes in equity
Attributable to the equity holders of the parent
01
02
Share capital
(Note 18)
Share premium
(Note 18)
Additional capital
Retained earnings
Treasury shares
Total equity
03
Balance as at 01 January 2013
1,009,249
102,338
132,682
8,078,637
(370,398)
8,952,508
04
Profit for the year
—
—
—
3,843,039
—
3,843,039
05
Other comprehensive income
—
—
—
11,596
—
11,596
06
Total comprehensive income for the year,
net of tax
—
—
—
3,854,635
—
3,854,635
07
Dividends declared
—
—
—
(4,099,865)
—
(4,099,865)
08
Other changes
—
—
—
(8,941)
—
(8,941)
09
Balance as at 31 December 2013
1,009,249
102,338
132,682
7,824,466
(370,398)
8,698,337
10
Profit for the year
—
—
—
2,168,375
—
2,168,375
11
Other comprehensive income
—
—
—
—
—
—
12
Total comprehensive income for the year,
net of tax
—
—
—
2,168,375
—
2,168,375
13
Dividends declared (Note 18)
—
—
—
(2,489,933)
—
(2,489,933)
14
Contribution from shareholders
—
—
23,274
—
—
23,274
15
Other changes
—
—
—
(342,462)
—
(342,462)
16
Balance as at 31 December 2014
1,009,249
102,338
155,956
7,160,446
(370,398)
8,057,591
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Notes to the consolidated financial statements
At 31 December 2014 (in thousands of Ukrainian Hryvnia)
1. Corporate information
Joint Stock Company Kyivstar (hereinafter referred to as «Kyivstar» or «the Company») was
established and registered on 3 September 1997 under the laws of Ukraine. The Company is
involved in the design, construction and operating of a dedicated cellular telecommunication
network and provides a wide range of mobile communication and home internet services
in Ukraine.
The Company’s registered legal address is at 51, Chervonozoryanyy Av., Kyiv, 03110, Ukraine.
The Company’s head office and principal place of business is at 53, Degtyarivska St., Kyiv,
03113, Ukraine.
The Company has two wholly owned subsidiaries–subsidiary company Staravto and
company Golden Telecom. The Company and its subsidiaries are hereinafter together
referred to as «the Group».
On August21, 2014 the Company bought Limited Liability Company «Golden Telecom».
From November 2014 the legal accession of LLC «Golden Telecom» was started.
The Company’s ultimate parent is VimpelCom Ltd., a company headquartered in Amsterdam,
the Netherlands.
The Company currently has Main office in Kiev and Processing Centerin Lviv.
As at 31 December 2014 and 2013 the Company’s direct shareholders and their respective
declared interests were as follows:
Number of
01
Interest
shares
73.804%
13,094,562
VimpelCom Ltd. (Bermuda)
0.004%
700
Treasury shares
26.192%
4,647,127
100.000%
17,742,389
02
VimpelCom Holdings B.V. (Netherlands)
03
04
05
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2. Operating environment, risks, political and economic conditions in Ukraine
Starting in late 2013 the political situation in Ukraine has experienced instability with
numerous protests and continued political uncertainty that has led to a deterioration of the
State’s finances, volatility of financial markets and sharp depreciation of the national currency
against major foreign currencies. The ratings of Ukrainian sovereign debt were downgraded
by international rating agencies with negative outlooks for the future. The National Bank
of Ukraine, among other measures, imposed certain restrictions on processing of client
payments by banks and on the purchase of foreign currency on the inter-bank market.
The political situation in 2014 has also been volatile, with changes in the Ukrainian
Parliament and the Presidency. In March 2014, various events in Crimea led to the accession
of the Republic of Crimea to the Russian Federation. This event resulted in a significant
deterioration of the relationship between Ukraine and the Russian Federation. The Group
had UAH156,965 thousand of property, plant and equipment located in Crimeawhich were
impaired as of reporting date.
The political situation in Eastern Ukraine also deteriorated in 2014 resulting in armed conflict
and military activity in some parts of the Donetsk and Lugansk regions. The armed conflict in
the region has put further pressure on relations between Ukraine and the Russian Federation.
Escalating political tensions have had an adverse effect on the Ukrainian financial markets,
resulting in a hampering of ability of Ukrainian companies and banks to obtain funding
from the international and capital and loan markets. This has contributed to a significant
devaluation of the Hryvnia against major currencies.
As of reporting date the Group had UAH 77,649 thousand of property, plant and equipment
located in, or near to, the parts of the Donetsk and Lugansk regions where there has been
armed conflict. These assets represent 1% of the Group’s Property, plant and equipment. As
at 31 December 2014 UAH 4,065 thousand of assets located in these regions were impaired
mainly due to their physical damage. Approximately less than 1% of revenue was earned in
zone of anti-terrorist operation in 2014.
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The negative impact on the ability to provide services in Donetsk and Lugansk regions during
2014 has been caused primarily by disruptions in infrastructure (base stations, commutation
equipment and electricity supply). This has resulted in some temporary interruptions in
provision of services. Management have sought to actively manage and limit the impact of
these events on the Group’s operations.
During 2014 real GDP fell by 6.8%. The Group has both revenues and costs denominated
in foreign currencies («FC»). The devaluation of the Ukrainian Hryvnia («UAH») against hard
currencies had a balanced effect on the Group’s overall profitability, given that a part of
Group’s receivables and cash and cash equivalents as well as part of payables and all loans,
acquired in the middle of the year together with a new subsidiary Golden Telecom, are FC
denominated.
On 5 February 2015 National Bank of Ukraine (NBU) decided to stop supporting the UAH
exchange rate: NBU cancelled auctions on the inter-bank market and cancelled UAH
«indicative rate». As a result, the exchange rate of UAH against hard currencies depreciated
to 23.13 UAH for 1 USD immediately.
As of the date of the financial statements authorisation for issue the official NBU exchange rate
of Hryvnia against US dollar was UAH 23.45 per USD 1, compared to 15.77 per USD 1 as at 31
December 2014. There is uncertainty about the exchange rate of UAH and future actions of
the National Bank, as well as the influence of these factors on the economy of Ukraine. In 2015
prior to authorisation of these financial statements the Group recognised a foreign exchange
loss of UAH 495,605thousand in relation to its Foreign currencies payables and loans, partially
offset by gains from receivables and cash and cash equivalents foreign currency balances.
The final resolution of the political and economic situation in Ukraine and the final effects of
this are difficult to predict, but it may have further severe effects on the Ukrainian economy
and the Group’s business.
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3. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except
for certain financial instruments measured in accordance with the requirements of IAS 39
Financial instruments: recognition and measurement.
These consolidated financial statements are presented in UAH and all values are rounded off
to the nearest thousand, except when otherwise indicated.
Statement of compliance
Basis of consolidation
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).
The consolidated financial statements
comprise the financial statements of
the Company and its wholly-owned
subsidiaries, company Staravto and
Golden Telecom. The subsidiariesare fully
consolidated from the date they were
incorporated or acquired by the Company.
The subsidiaries’ financial statements are
preparedat the same reporting date as the
Company’s, using consistent accounting
policies.
All intra-group balances, income and
expenses and unrealised gains and losses
resulting from intra-group transactions are
eliminated in full.
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4. Adoption of new or revised standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year,
except for the following new and amended IFRS becoming effectiveas at 1 January 2014:
IAS 32 Financial Instruments: Presentation - Offsetting Financial
Assets and Financial Liabilities
• IFRIC 21 Levies
These amendments clarify the meaning of “currently has a legally enforceable right to
set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to
settlement systems (such as central clearing house systems) which apply gross settlement
mechanisms that are not simultaneous. These amendments hadn`t impacted the Group’s
financial position or performance.
• IAS 32 Financial Instruments: Presentation
• IAS 39 Financial Instruments: Recognition and Measurement
• IAS 36 Impairments of assets
The nature and impact of each applicable new standards and amendment is described
below:
IFRIC 21 Levies
This Interpretation addresses the accounting for a liability to pay a levy, if that liability is within
the scope of IAS 37. It also addresses the accounting for a liability to pay a levy whose timing
and amount is certain. This Interpretation does not address the accounting for the costs that
arise from recognising a liability to pay a levy. Entities should apply other standards to decide
whether the recognition of a liability to pay a levy gives rise to an asset or an expense. This
interpretation hadn`t impacted the Group’s financial position or performance.
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IAS 39 Financial Instruments: Recognition
and Measurement– Amendments
Under the amendments there would be no need to discontinue hedge accounting, if a
hedging derivative was novated, provided certain criteria are met. These amendments
hadn`t impacted the Group’s financial position or performance.
IAS 36 Impairment of Assets: Recoverable Amount Disclosures
for Non-Financial Assets – Amendments
These amendments remove the unintended consequences of IFRS 13 on the disclosures
required under IAS 36. In addition, these amendments require disclosure of the recoverable
amounts for the assets or CGUs for which impairment loss has been recognized or reversed
during the period. These amendments hadn`t impacted the Group’s financial position or
performance.
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5. Summary of significant accounting policies
Functional and presentation currencies
The functional and presentation currency of the Company and its subsidiary is Ukrainian
Hryvnia (“UAH”).
Foreign currency translation
Transactions denominated in currencies other than the relevant functional currency (foreign
currencies) are initially recorded in the functional currency at the rate in effect at the date
the transaction first qualifies for recognition. Monetary assets and liabilities denominated
in foreign currencies are translated at the functional currency spot exchange rate at the
reporting date. The resulting gains and losses are recognized in profit and loss. Nonmonetary items that were measured in terms of historical cost in a foreign currency are
retranslated using the exchange rate atthe date of the initial transaction.
Non-monetary items measured at fair value in a foreign currency are translatedusing the
exchange rates at the date when the fair valueswere determined. The resulting gains and
losses are recognized in line with the recognition of gain or loss on change in fair value of
the item (i.e., translation difference on items whose fair value gain or loss is recognized in
other comprehensive income or profit and loss is also recognized in other comprehensive
income or profit and loss, respectively).
Revenue recognition and measurement
Revenue is recognized to the extent that it is probable that the economic benefits will flow
to the Group and the revenue can be reliably measured. Revenues are measured at the fair
value of the consideration received or receivable, excluding discounts, rebates and sales
taxes. These taxes are regarded as collected on behalf of the authorities.
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Revenues primarily comprise provision (sales) of:
• services: revenue from air time charges, interconnection fees, periodic fees, connection
and one-time subscription fees, FTTB internet, fixed lines revenues, roaming and value
added services;
• customer equipment: telephone handsets, modems, etc.
Air time charges
The Company earns air time revenue by providing its pre-paid and post-paid subscribers
with access to the cellular network and routing their calls through its network and networks
of its roaming partners.
Interconnection
Revenue from interconnection represents the revenue earned for the termination of calls
from other telecommunication services providers’ networks on the Company’s network.
Air time and interconnection revenue is recognized in the period when the respective
service is rendered.
Periodic fees
Periodic fees include fees for subscription to new tariff plans and fees for supplementary
subscriptions used by subscribers in particular period, such as periodic fees for subscription
to voicemail, itemised invoice etc. Periodic fees also include fees for transfer of money
between subscribers’ balances, extra money services and write-offs of unused advancesof
disconnected subscribers etc.Periodic fees are recognized in the periodwhen the respective
service is rendered.
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Connection and one-time subscription fees
Connection fees are paid by subscribers for the first time activation of network service.
Revenues from connection are deferred and recognized over the period when the fees are
earned, which is the expected period of customer relationship and approximates 106months
for contract subscribers and 32months for pre-paidsubscribers (2013: 108 months and 36
months, respectively). The expected period of customer relationship is based on the past
history of churn and expected development of the Company.
One-time subscription fees mainly consist of one-time fees for various supplementary
subscriptions and also include fees for change of subscription type and transfer of
subscriptions from one location to another. One-time subscription fees are deferred
andrecognized over the period when the fees are earned, which is the subscription validity
period or, in case of unlimited validity period, the expected period of customer relationship,
which approximates 106 months for contract subscribers and 32 months for pre-paid
subscribers (2013: 108 months and 36 months, respectively).
for services provided by the Company in its network to subscribers of the Company’s
roaming partners and (iii) charges for access to the Company’s network by the foreign
operators without termination of calls. Such revenues are recognized in the period when
the respective services are rendered.
Value added services
Value added services include charges for outgoing SMS and MMS, circuit of switched data,
packet switched data (WAP, GPRS, EDGE etc.) and sale of content to subscribers. Revenues
from value added services are recognized in the period when the respective services are
rendered.
Customer equipment sales
Revenues from sales ofcustomer equipment are recognized when the related significant
risks and rewards are transferred to the buyer.
FTTB internet
Discounts to roaming partners
Revenue from FTTB services represents fixed monthly charges for the internet access provided
to the Company’s subscribers. Such revenue is recognized in the period when the respective
service is rendered to subscribers.
Discounts are often provided in the form of cash payments calculated based on the terms
of the agreement with roaming partner and billing data on the roaming traffic for the period.
Discounts are recognized in the period when the discount is earned as a reduction of
revenue of corresponding period.
Fixed lines
Revenue from fixed lines services represents monthly charges to the Company’s subscribers
for access to the fixed telephone lines network and for routing the subscribers’ calls through
this network. Such revenue is recognized in the period when the respective service is
rendered to subscribers.
Roaming and access to network
Roaming revenues and revenues from access to network include(i) charges for services
provided to the Company’s subscribers in the networks of its roaming partners,(ii) charges
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Presentation
Where the Company’s role in a transaction is a principal, revenue is recognized on a gross
basis. In this case revenue comprises the gross value of the transaction billed to the customer,
after trade discounts, with any related expenditure charged as an operating cost. Where the
Company’s role in a transaction is that of an agent, revenue is recognized on a net basis and
represents the margin earned. The evaluation of whether the Company is acting as principal
or an agent is based on the analysis of the substance of transaction, the responsibility for
providing the goods or services and setting prices,as well as the underlying financial risks
and rewards.
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Interest income
Interest income is recorded using the effective interest rate, which is the rate that exactly
discounts the estimated future cash flows through the expected life of financial instruments
or a shorter period, where appropriate, to the net carrying amount of the financial asset
or liability. Interest income is included in finance income in the consolidated statement of
comprehensive income.
Deferred revenue
Cellular service revenue is recognized on the basis of actual airtime usage by the end
customer. Unused time on sold pre-paid cards is recognized as deferred revenue until the
related services have been provided to the subscribers or the pre-paid card has expired.
Loyalty programs
Customer loyalty credits are accounted for as a separate component of the sales transaction,
in which they are granted. A portion of the fair value of the consideration received is allocated
to the award credits and deferred, based on estimated number of award credits that will
actually be redeemed by the customer. This is then recognized as revenue over the period
that the award credits are redeemed.
Deferred connection costs
Initial direct costs incurred in earning connection fees are deferred over the same period
as connection revenue, limited to the amount of the deferred connection fees. Costs
incurred consist primarily of the costs of the start packages and dealers’ bonuses. In some
cases connection costs exceed the respective connection fees. Such excess is expensed
as incurred.
Expenditureon advertising and promotional activities is recognized as an expense when the
Group has either the right to access the goods or has received the service.
Property, plant and equipment is stated at cost less accumulated depreciation and any
accumulated impairment losses. Cost includes professional fees and, for qualifying assets,
borrowing costs are capitalised. Depreciation is calculated to reduce the cost of assets,
other than land, to their estimated residual value, if any, over their estimated useful lives.
Depreciation commences when the assets are ready for their intended use.
Repair and maintenance is expensed as incurred. If new parts are capitalised, replaced parts
are derecognized and any remaining net book value is recorded as loss on disposal.
When the expected cost of decommissioning of an asset after its use is material to the
financial statements, the present value of the expected cost of decommissioning of an asset
after its use is included into the cost of the respective asset, if the recognition criteria for a
provision are met. Subsequent increases in decommissioning liability as a result of change
in assumptions (i.e. period till dismantling, cost of dismantling etc.) are recognized in the
additions to property, plant and equipment. Subsequent decreases in decommissioning
liability as a result of change in assumptions are recognized in transfers and reclassifications
in property, plant and equipment.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset
as follows:
01
Category
02
Local, regional & trunk networks
03
Advertising costs, marketing and sales commissions
Mobile telephone network and switches
04
Radio installations
Advertising costs, marketing and sales commissions are expensed as incurred, unless they
form a part of the costs that are deferred in relation to connection fees as described above.
05
Buildings
06
Corporate administrative assets
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Useful life (years)
20
5—15
7
10—30
5—7
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Depreciation method, estimated useful life and residual value are evaluated at least annually
and adjusted prospectively, if appropriate. Residual value is estimated to be zero for most of
the assets, except for vehicles, which are included in corporate administrative assets, as the
Group does not expect to use vehicles for their entire economic life.
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset or disposal. Any
gain or loss arising on derecognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the item) is included in profit and loss in
the year the item is derecognized.
Leasehold improvements are depreciated over their expected useful lives on the same basis
as owned assets or, where shorter, the term of the relevant lease.
Construction in progress
Assets under construction are capitalised as a separate component of property, plant and
equipment. On completion, the constructed asset at its cost is transferred to the appropriate
category of property, plant and equipment. Construction in progress is not depreciated.
Uninstalled equipment
Uninstalled equipment represents equipment purchased by the Group, but not yet put into
operation. Uninstalled equipment is not depreciated.
Land
Freehold land to which the Group has due legal title is included in the Group’s statement of
financial position at its historical cost. Freehold land is not depreciated.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially
all the risks and rewards of ownership to the lessee. All other leases are classified as operating
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leases. The evaluation is based on the substance of the transaction. However, there are
situations that individually would normally lead the Group to classify a lease as a finance
lease,such as if the lease term covers more than 75 percent of the estimated economic life
or the present value of the minimum lease payments exceeds 90 percent of the fair value of
the leased asset.
The Group may enter into an arrangement that does not take the legal form of a lease but
conveys a right to use an asset in return for a payment or series of payments. Determining
whether an arrangement contains a lease is based on the substance of the arrangement and
requires an assessment of whether: (a) fulfilment of the arrangement is dependent on the
use of a specific asset; and (b) the arrangement conveys a right to use the asset.
The Group as lessee
Property and equipment acquired by way of finance lease is capitalised and carried at the
lower of its fair value and the present value of the minimum lease payments at inception of
the lease, less accumulated depreciation and impairment losses, if any. Leased assets are
depreciated over the useful life of the asset. However, if there is no reasonable certainty that
the Group will obtain ownership by the end of the lease term, the asset is depreciated over
the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are charged to profit and loss on a straight-line basis over the
term of the relevant lease. Benefits received and incentives to enter into an operating lease
are also amortised on a straight-line basis over the lease term. Advance lease payments
made on entering into operating leases or acquiring leaseholds are amortised to profit and
loss over the lease term.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an
asset that necessarily takes a substantial period of time to get ready for its intended use
or sale are capitalised as part of the cost of the respective asset. All other borrowing costs
are expensed in the period theyoccur. Borrowing costs consist of interest and other costs
incurred in connection with the borrowing of funds.
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Intangible assets
Intangible assets acquired separately are initially measured at cost. Following initial
recognition, intangible assets are carried at cost less accumulated amortisation and any
accumulated impairment losses.
Internally generated intangible assets, excluding capitalised development costs, are not
capitalised and expenditure is charged to profit and loss as incurred.
Intangible assets, all of which are determined as having finite useful lives, are amortised over
their useful economic lives. The amortisation period and amortisation method for intangible
assets is reviewed at least annually, and adjusted prospectively, if appropriate. Amortisation
is provided using the straight-line basis over the estimated useful lives of the related assets
as follows:
Useful life
(years)
01
Asset category
02
Licenses
5—15
03
Network and billing software
5—10
Gains and losses arising from derecognition of an intangible asset are measured as the
difference between the net disposal proceeds and the carrying amount of the asset
and are recognized as other expenses in the consolidated statement of comprehensive
income.
Inventories
Inventories are valued at the lower of cost and net realisable value for items that will be
sold as separate products. Inventories that will be sold as part of a transaction with several
components, which the Group expects to earn net income from, are valued at cost even
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if the selling price of the inventories is below cost. Cost of inventories used in multiple
arrangements is determined using the weighted average method. Cost of inventories used
in other services and construction of property, plant and equipment is determined using the
first-in, first-out method (FIFO).
Fair value of assets and liabilities
Fair value is the price that would be received from saleof an asset or paid for transfer of a
liability in an orderly transaction between market participants at the measurement date. The
fair value measurement is based on the presumption that the sale of the asset or transfer of
the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or
liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits from highest and best use of the asset or by selling it
to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
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All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or
liabilities;
• Level 2 — Valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable;
• Level 3 — Valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis,
the Group determines whether transfers have occurred between Levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
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
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value of money and the risks specific to the asset. In determining fair value less costs to sell,
recent market transactions are taken into account, if available. If no such transactions can be
identified, an appropriate valuation model is used. These calculations are corroborated by
valuation multiples or other available fair value indicators. Impairment losses of continuing
operations are recognized in profit and loss.
A cash generating unit is the smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from other assets or groups of assets. Based
on the specifics of the Group’s operations, the management concluded that the Group has
one cash generating unit, which is the Company’s network as a whole.
An assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased.
If such indication exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If
that is the case the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined,
net of depreciation, had no impairment loss been recognized for the asset in prior years.
Such reversal is recognized in profit and loss. After such a reversal the depreciation charge
is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining useful life.
Financial assets
Initial recognition and measurement
Financial assets are classified as financial assets at fair value through profit and loss, loans
and receivables, held-to-maturity investments, available-for-sale financial assets, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate. The
Group determines the classification of its financial assets at initial recognition.
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Purchases or sales of financial assets that require delivery of assets within a time frame
established by regulation or convention in the marketplace (regular way purchases) are
recognized on the trade date, i.e., the date that the Group commits to purchase or sell the
asset.
The Group’s financial assets include cash and cash equivalents, trade and other receivables,
all of which are classified as loans and receivables in accordance with IAS 39.
The Group’s financial liabilities mainly include trade and other payables.
Subsequent measurement
After initial recognition, trade and other payables with fixed maturity are subsequently
measured at amortised cost using the effective interest rate method.
Loans and receivables are non derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are initially recognized at fair value plus directly
attributable transaction costs, if any. In the case of transactions with entities under common
control, any excess of nominal amount over the fair values at initial recognition is charged
to retained earnings.
Gains and losses are recognized in profit and loss when the liabilities are derecognized as
well as through the effective interest rate method amortisation process. Amortised cost
is computed using the effective interest method by taking into account any premium or
discount on acquisition and includes transaction costs and fees that are an integral part of
the effective interest rate. The effective interest rate amortisation is included in finance costs
in the consolidated statement of comprehensive income.
Subsequent measurement
Offsetting of financial instruments
After initial measurement, loans and receivables are subsequently measured at amortised
cost using the effective interest rate method, less impairment. Amortised cost is calculated
by taking into account any discount or premium on acquisition and fees or costs that are
integral part of the effective interest rate. The amortisation is included in finance income in
the statement of comprehensive income.
Financial assets and financial liabilities are offset and the net amount reported in the consolidated
statement of financial position if, and only if, there is a currently enforceable legal right to offset
the recognized amounts and there is an intention to settle on a net basis, or to realise the assets
and settle the liabilities simultaneously.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified as financial liabilities at fair value through profit and loss,
loans and borrowings, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification of its financial liabilities at
initial recognition.
Financial liabilities are recognized initially at fair value less, in the case of loans and borrowings,
directly attributable transaction costs.
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Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is objective evidence of impairment as
a result of one or more events that has occurred after the initial recognition of the asset (an
incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of
the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other financial reorganisation
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and where observable data indicates that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or economic conditions that correlate with
defaults.
Derecognition of financial instruments
For financial assets carried at amortised cost, the Group first assesses whether objective
evidence of impairment exists for each of the financial assets that are individually significant,
or collectively for financial assets that are not individually significant. If the Group determines
that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is, or continues to be,
recognized are not included in a collective assessment of impairment.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognized when:
If there is objective evidence that an impairment loss has been incurred, the amount of the
loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future expected credit losses that have not
yet been incurred).
The present value of the estimated future cash flows is discounted at the financial asset’s
original effective interest rate. If an instrument has a variable interest rate, the discount rate
for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and
the amount of the loss is recognized in profit and loss for all impaired financial assets.
Loans and receivables together with the associated allowance are written off when there
are no realistic prospects of future recovery and/or when the statute of limitation has
expired. If, in a subsequent year, the amount of the estimated impairment loss increases
or decreases because of an event occurring after the impairment was recognized, the
previously recognized impairment loss is increased or reduced by adjusting the allowance
account. If a future write-off is later recovered, the recovery is credited to finance costs in the
consolidated statement of comprehensive income.
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Financial assets
• 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
recognized to the extent of the Group’s continuing involvement in the asset. In that case,
the Group also recognises an associated liability. The transferred asset and the associated
liability are measured on the basis that reflects the rights and obligations that the Group has
retained.
Continuing involvement that takes the form of a guarantee over the transferred asset,
is measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires.
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When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in profit and loss.
Employee benefits
The Group makes defined contributions to the State Pension Fund at the relevant statutory
rates in force during the year, based on gross salary payments; such an expense is charged
in the period when the related salaries are earned.
In addition to the above, employees of the Group are entitled to jubilee and post-employment
benefits.
Jubilee benefits are paid out on occasion of anniversary, while post-employment benefits
are paid out as a one-off benefit upon retirement. The amount of those benefits depends
on the tenure with the Company and the average salary. The benefits payable under these
arrangements are unfunded.
The expected cost of providing employee benefits is determined annually using the
projected unit credit actuarial valuation method to calculate the net present value of benefit
obligations at the reporting date. The balance of employee benefit obligations equals
discounted payments to be made in the future and accounts for staff turnover and relates
to the period to the reporting date. Demographic information and assumptions on staff
turnover are based on historical data.
Re-measurements, comprising of actuarial gains and losses arerecognized immediately in
the statement of financial position with a corresponding debit or credit to retained earnings
through other comprehensive income in the period in which they occur. Re-measurements
are not reclassified to profit and loss in subsequent periods.
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Past service costs are recognized in profit and loss on the earlier of:
• the date of the plan amendment or curtailment; and
• the date that the Group recognises restructuring-related costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability.
Service costs comprise current service cost, pastservice cost, gains and losses on curtailments
and non-routine settlements and are recognized in profit and loss.
Any actuarial gains or losses relating to jubilee benefits are recognized in profit and loss in
the period in which they arise.The past service cost is recognized immediately.
Taxes
Current income tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted or substantively enacted by the
reporting date.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the
reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
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• where the deferred tax liability arises from the initial recognition of goodwill, or of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit and loss; and
Deferred tax relating to items recognized outside profit and loss is recognized outside profit
and loss. Deferred tax items are recognized in correlation to the underlying transaction
either in other comprehensive income or directly in equity.
• in respect of taxable temporary differences associated with investments in subsidiaries,
where the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
Deferred 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.
Deferred income tax assets are recognized for all deductible temporary differences and
unused tax losses carried forward, to the extent that it is probable that future taxable profit
will be available against which the deductible temporary differences and unused tax losses
carried forward can be utilised, except:
Value added tax
• when the deferred income tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit and loss;
Revenues, expenses and assets are recognized net of value added tax (VAT) except:
• where VAT incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case VAT is recognized as part of the cost of acquisition of the
asset or as part of expense item as applicable; and
• receivables and payables are stated with the amount of VAT included.
• in respect of deductible temporary differences associated with investments in subsidiaries,
deferred tax assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
The net amount of VAT recoverable from, or payable to, the taxation authority is disclosed in
the notes to the consolidated financial statements.
The carrying amount of deferred income tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred income tax asset to be utilised. Unrecognized
deferred income tax assets are reassessed at each reporting date and are recognized to the
extent that it has become probable that future taxable profit will allow the deferred tax asset
to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that
are expected to be applied in the year when the asset is realised or the liability is settled,
based on tax rates (and tax laws) that have been enacted or substantively enacted at the
reporting date.
An asset/liability is classified as current, when it is expected to be realised (settled) or is
intended for sale or consumption within twelve months after the reporting date. Other
assets/liabilities are classified as non-current. Financial instruments are classified based on
expected life. Deferred tax assets are classified as non-current.Cash and cash equivalents
106
KYIVSTAR
ANNUAL REPORT 2014
Current/non-current classification
Cash and cash equivalents include cash at banks and on hand and short-term deposits with
an original maturity of three months or less.
For the purpose of consolidated cash flow statement, cash and cash equivalents consist of
cash and cash equivalents as defined above, net of outstanding bank overdrafts, if any.
RETURN TO CONTENT
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive)
as a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. Where the Group expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as
a separate asset but only when the reimbursement is virtually certain. The expense relating
to any provision is presented in profit and loss net of any reimbursement. If the effect of the
time value of money is material, provisions are discounted using a current 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 recognized as a finance cost.
Contingent assets and liabilities
A contingent asset is not recognized in the consolidated financial statements, but disclosed
when an inflow of economic benefits is probable.
Contingent liabilities are not recognized in the consolidated financial statements unless it
is probable that an outflow of economic resources will be required to settle the obligation
and it can be reasonably estimated.They are disclosed unless the possibility of an outflow of
resources embodying economic benefits is remote.
Embedded derivatives
Kyivstar has contracts which are classified as hybrid instrument with embedded derivative,
more specifically «Foreign currency embedded derivative». These contracts for services are
settled in a functional currency (UAH), however, contract price is determined in EUR/USD
and payment, although made in UAH, is adjusted at UAH/EUR rate at payment date if UAH/
EUR x-rate fluctuation exceeds 3%.
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KYIVSTAR
ANNUAL REPORT 2014
Such foreign currency derivative are not separated because of thecurrenciesare commonly
used in contracts to purchase or sell non-financial items in the Ukraine. And the trade
payable for as a monetary balance denominated in EURO/USD according to IAS 21.
The monthly invoices recognized according to the general rules of recognition of monthly
invoices in foreign currency.
Treasury shares
Treasury shares are recognized at purchase price and are deducted from equity. No gain
or loss is recognized in the profit and loss on the purchase, sale, issue or cancellation of
the Group’s own equity instruments. Any difference between the carrying amount and the
consideration, if shares are reissued, is recognized in share premium. Voting rights related to
treasury shares are nullified for the Group and no dividends are allocated to them.
Events after the reporting period
Events after the reporting period that provide additional information on the Group’s position
at the reporting date (adjusting events) are reflected in the consolidated financial statements.
Events after the reporting period that are not adjusting events are disclosed in the notes
when material.
Transactions with the parent and entities
under common control
The transactions with ultimate parent and entities under common control are recognized
in the consolidated financial statements at fair value. The difference between fair value
and the amount of the transaction is recognized as contribution from or distribution to the
shareholders through the Group’s equity.
RETURN TO CONTENT
Reclassification of comparative information
In 2014 the Company made certain reclassifications of comparative information for 2013 in
order to conform with 2014 presentation
In 2014 the Group made reclassification between current and non-current assets and
liabilities.It was caused by allocation deferred revenue and cost for current and non-current
part. The reclassification was made retrospectively in 2013 financial statements for providing
of comparative information.
The impact on the consolidated financial statements is provided in the tables below:
01
02
Current assets
Deferred cost current
03
Non-Current assets
Deferred cost non-current
04
TOTAL ASSETS
05
Current Liabilities
Deferred revenue current
06
Non-Current Liabilities
Deferred revenue non-current
07
TOTAL LIABILITIES
108
KYIVSTAR
As at
31 December 2013
(before
reclassification)
Reclassification
As at
31 December 2013
(after
reclassification)
98,918
(24,236)
74,682
—
24,236
24,236
98,918
—
98,918
750,617
(80,904)
669,713
—
80,904
80,904
750,617
—
750,617
ANNUAL REPORT 2014
RETURN TO CONTENT
6. Critical accounting judgements and key sources of estimation uncertainty
Key sources of estimation uncertainty - critical accounting estimates
Certain amounts included in or affecting the consolidated financial statements and related
disclosures must be estimated, requiring management to make assumptions with respect
to values or conditions which cannot be known with certainty at the time the consolidated
financial statements are prepared.
A ‘critical accounting estimate’ is one, which is both important to the portrayal of the
Group’s financial condition and results and requires management’s most difficult, subjective
or complex judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Management evaluates such estimates on an ongoing basis, based upon historical results
and experience, consultation with experts, trends and other methods, which management
considers reasonable in the particular circumstances, as well as the forecasts as to how
these might change in the future. However, uncertainty about these estimates could result
in outcomes that require a material adjustment to the carrying amount of an asset or liability
affected in future periods.
Revenue recognition
The main part of the Group’s revenues is earned from mobile services, such as airtime,
one-time connection fees or periodic subscriptions. The Company has many pre-paid and
post-paidsubscribers and offers a number of different services with different tariff plans.
The Company also provides discounts of various types, often in connection with different
campaigns. Revenues from one-time subscriptions or connections to the Company’s
network are recognized as deferred revenue and released to the profit and loss in the periods
when these revenues are earned, based on the average customer relationship period. The
management regularly reviews its estimates in respect of customer relationship period,
based on the historicalexperience and its plans for future development of the Company.
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ANNUAL REPORT 2014
As at 31 December 2014the management estimated the customer relationship period to be
equal to 106 months for contract subscribers and 32 months for pre-paid subscribers (2013:
108 months and 36 months, respectively). As a result of change in the abovementioned
accounting estimates starting from 1 January 2014, the Group’s profit before tax for the year
2014 increased by UAH 7,321 thousand.
Deferred tax assets
Deferred tax assets are recognized for all deductible temporary differences to the extent
that it is probable that taxable profit will be available against which the losses can be utilised.
Significant management judgment is required to determine the amount of deferred tax
assets that can be recognized, based upon the likely timing and the level of future taxable
profits together with future tax planning strategies. Please refer to Note 10 for additional
information on the Group’s tax position.
Depreciation and amortisation methods are based on management estimates of the
expected useful lives of property, plant and equipment and intangible assets. Estimates may
change due to technological developments, competition, changes in market conditions and
other factors and may result in changes in the estimated useful lives and in the amortisation
or depreciation charges. Some technological developments are difficult to predict and the
Group’s views on the trends and pace of development may change over time. Some of the
assets and technologies, in which the Group invested several years ago, are still in use and
provide the basis for the new technologies.
The useful lives of property, plant and equipment and intangible assets are reviewed at least
annually taking into consideration the factors mentioned above and all other important
factors. In case of significant changes in estimated useful lives, depreciation and amortisation
charges are adjusted prospectively.
RETURN TO CONTENT
Impairment of non-financial assets
The Group has made significant investments in property, plant and equipment and
intangible assets. These assets are tested for impairment when circumstances indicate
there may be a potential impairment. Factors considered important which could trigger
an impairment evaluation include the following: significant fall in market values, significant
underperformance relative to historical or projected future operating results, significant
changes in the use of assets or the strategy for the Group’s overall business, including assets
that are decided to be phased out or replaced and assets that are damaged or taken out of
use, significant negative industry or economic trends and significant cost overruns in the
development of assets.
Estimating recoverable amounts of assets must in part be based on management’s evaluations,
including determining appropriate cash generating units, estimates of future performance,
revenue generating capacity of the assets, assumptions of the future market conditions
and the success inmarketing of new products and services. Changes in circumstances and
in management’s evaluations and assumptions may give rise to impairment losses in the
relevant periods.
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ANNUAL REPORT 2014
RETURN TO CONTENT
7. IFRSs and IFRIC Interpretations not yet effective
A number of new standards, amendments to standards and interpretations are not yet
effective for the year ended 31 December 2014, and have not been applied in preparing
these consolidated financial statements. Standards issued but not yet effective up to the date
of issuance of the Group’s consolidated financial statements are listed below. The Group
intends to adopt those standards when they become effective.
IFRS 9 Financial Instruments: Classification and Measurement
IFRS 9, as issued in July 2014, reflects the first phase of the IASBs work on the replacement
of IAS 39 and applies to classification and measurement of financial assets and financial
liabilities as defined in IAS 39. In December 2011 the IASB issued Mandatory Effective Date
and Transition Disclosures (amendments to IFRS 9 and IFRS 7) according to which entities
shall apply IFRS 9, as amended, for annual periods beginning on or after 1 January 2018. In
subsequent phases, the IASB will address hedge accounting and impairment of financial
assets. The adoption of the first phase of IFRS 9 will have an effect on the classification
and measurement of the Group’s financial assets, but will potentially have no impact on
classification and measurements of financial liabilities. The Group will quantify the effect in
conjunction with the other phases, when issued, to present a comprehensive picture.
IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single comprehensive model for
entities to use in accounting for revenue arising from contracts with customers. IFRS 15
will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11
Construction Contracts and the related Interpretations when it becomes effective (Version
issued by the IASB is effective for annual periods beginning on or after 1 January 2017). The
core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. Under
IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e.
when ‘control’ of the goods or services underlying the particular performance obligation is
111
KYIVSTAR
ANNUAL REPORT 2014
transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to
deal with specific scenarios.
IFRS 3 Business Combinations
The amendment clarifies that Joint arrangements, not just joint ventures, are outside the
scope of IFRS 3. Changes to the Standard are effective on or after 1 January 2015.
Amendments to the existing standards with changes being
effective on or after 1 February 2015:
IFRS 2 Share – based Payment
Amends the definitions of «vesting condition» and «market condition» and adds definitions
for «performance condition» and «service condition».
IFRS 3 Business Combinations
Clarifies that contingent consideration that is classified as an asset of a liability shall be
measured at fair value at each reporting date.
IFRS 8 Operating Segments
Requires an entity to disclose the judgments made by management in applying the
aggregation criteria to operating segments.
IFRS 13 Fair Value Measurement
Clarifies the ability to measure short – term receivables and payables with no stated interest
rate at their invoice amounts without discounting.
IAS 24 Related Party Disclosures
Clarifies that an entity providing key management personnel services to the reporting entity
or to the parent of the reporting entity is a related party of the reporting entity.
RETURN TO CONTENT
8. Acquisition of LLC «Golden Telecom» and its cessation
On 22August 2014 the Company entered into the agreements with the owners of LLC
“Golden Telecom” to acquire this entity. All counterparties of these agreements are entities
under common control of the ultimate parent. The right of ownership for Golden Telecom
was transferred to the Company on 22 August 2014.
At the date of acquisition Golden Telecom constituted a business in the meaning of the
definition set out in IFRS as it represented an integrated set of activities and assets that
is capable of being conducted and managed for the purpose of providing a return in the
form of dividends, lower costs or other economic benefits directly to investors. Thus, the
acquisition was recognized in these consolidated financial statements as the acquisition of
business.
For accounting the operations on acquisition of business under common control
management decided to use predecessor accounting. The main principles of predecessor
basis of accounting are:
• No assets or liabilities are restated to their fair values and
• No new goodwill arises in predecessor accounting.
The Statement of FinancialPosition at the date of acquisition of Golden Telecom was as
follows:
As at
22 August 2014
01
02
ASSETS
03
Non-current assets
04
05
Intangible assets
06
277,331
66,248
109
343,688
07
Current assets
Inventories
10
11
Pre-paid income tax
112
KYIVSTAR
12
Prepayments
13
Deferred expenses
14
Cash and cash equivalents
15
16
TOTAL ASSETS
17
EQUITY AND LIABILITIES
18
Equity
19
Share capital
20
Additional capital
21
Retained earnings
22
23
Non-current liabilities
24
25
Loans payables
26
27
Current liabilities
28
Deferred revenue
29
Provisions
30
Taxes payable, other than income tax
31
32
Income tax payable
33
Loans payables
34
Advances received
35
36
37
09
ANNUAL REPORT 2014
62
40,388
1,643
As at
22 August 2014
01
TOTAL EQUITY AND LIABILITIES
1,805
24,664
84,252
152,814
496,502
89,257
421,793
(768,857)
(257,807)
179
357,832
358,011
29,541
7,548
8,990
12,450
487
334,461
2,191
630
396,298
496,502
As at 01 November 2014 LLC «Golden Telecom» started the legally dissolved pursuant to
Ukrainian legal requirements.
RETURN TO CONTENT
9. Revenues and expenses
2014
2013
01
Salaries and personnel costs
Interconnection
3,506,680
2,586,783
02
Periodic fees
3,383,392
4,041,536
03
ПAir time charges
3,313,541
3,384,391
04
05
Value added services
1,363,931
1,438,073
05
Training
06
FTTB internet
442,961
407,184
06
07
Roaming (subscribers)
295,177
228,457
08
Roaming and access to network
252,947
411,512
09
Fixed lines
227,607
127,950
10
Connection and one-time subscription fees
89,890
165,337
11
Customer equipment sales
7,334
177,816
12
Other revenue
103,335
122,111
12,986,795
13,091,150
2014
2013
01
Revenues
02
03
04
13
01
Cost of materials, traffic charges
and other direct costs
02
Interconnection
3,084,600
1,836,236
03
Cost of materials and services
324,571
517,062
04
Access to network
144,081
245,014
05
Roaming
88,786
93,051
06
Leased line costs
64,850
44,568
3,706,888
2,735,931
07
113
KYIVSTAR
ANNUAL REPORT 2014
2014
2013
Salaries, holiday pay and other employee benefits
765,714
677,548
Social security taxes
214,576
198,650
Medical insurance
34,244
29,244
445
1,173
1,014,979
906,615
The average number of employees of the Group (incl. contactors) in 2014 was 3,968
(2013: 4,149).
RETURN TO CONTENT
01
2014
2013
01
Amortisation,
depreciation
and impairment losses
02
Repair and maintenance
931,958
814,299
03
Local taxes and non-refundable VAT
778,327
462,009
02
04
Marketing and sales commission
467,911
495,542
03
05
Operating leases of building, land and equipment
422,717
410,130
04
Impairment losses
06
Electricity
303,642
254,718
05
07
Advertising
283,388
228,694
08
Consultancy fees and external personnel
145,993
187,062
09
Bad debts (i)
44,002
32,378
10
Materials and supplies
29,281
35,778
11
Base station audit and licenses fee
24,958
25,638
12
Business trip expenses
21,457
18,246
13
Insurance
20,896
100,932
14
Postage, freight, distribution and telecommunication
7,178
6,929
15
Bank charges
2,010
2,965
16
35,196
27,237
3,518,914
3,102,557
17
01
Other expenses
02
Loss on disposal of property, plant and equipment, intangible assets
and assets of disposal group classified as held for sale
03
Litigation accrual
11,325
04
Contributions and donations
3,100
2,712
05
Інші витрати
—
3,074
130,316
164,361
06
2014
2013
115,891
158,575
KYIVSTAR
ANNUAL REPORT 2014
Property, plant
and equipment
2014
2013
2014
2013
1,530,327
1,440,087
235,341
197,107
178,819
77,218
—
—
1,709,146
1,517,305
235,341
197,107
In 2014 the Group recognized impairment losses on property, plant and equipment in
the amount of UAH185,370 thousand (2013: UAH 82,518thousand), based on internal
indications of impairment forvarious individual components of network equipment, as the
Group did not plan to use this equipment in future. Assets identified as no longer in use were
written down to their recoverable amounts, which were based on value in use determined
for individual assets, usually zero.
In addition, in 2014 the Group recognized reversal of impairment losses in respect of network
equipment in the amount ofUAH 6,551 thousand (2013: UAH 5,300thousand) as a result of
changes in plans for future usage of previously impaired network equipment in accordance
with adjusted capital expenditure budgets.
01
Finance income
02
Interest income
03
2014
2013
148,244
140,577
148,244
140,577
01
Finance costs
2014 р.
2013 р.
02
Interest expense
11,882
—
03
Other finance costs
10,861
5,095
22,743
5,095
04
114
Property,
plant and equipment
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10. Income tax
The Group’s income was subject to taxation in Ukraine only. On the 27thof March 2014
the Ukrainian Parliament approved amendments to the Tax Code of Ukraine according
to which the period of decrease in income tax rate to 16% has been cancelled and tax
rate 18% was established. The Company calculated deferred tax assets and liabilities as at
31 December 2014 according to the tax rates established by the Tax Code enacted at the
reporting date.
The major components of income tax expense for the years ended 31 December 2014 and
2013 are:
Reconciliations between tax expense and the product of accounting profit multiplied by the
tax rate for the years ended 31 December 2014 and 2013 are as follows:
01
483,116
878,095
04
Deferred tax related to differences with origination in GT
10,593
—
(1,555)
(5,395)
Current income tax:
Non - deductible expenses for tax purposes
03
Current income tax charge
07
Change in estimates of deferred tax asset on losses carried forward
04
Deferred tax:
08
Other changes (reassessment of temporary differences, effect of
changes in tax rules and tax rates)
05
Relating to origination and reversal of temporary differences
06
Deferred tax related to differences with origination in GT
07
115
KYIVSTAR
ANNUAL REPORT 2014
568,873
802,695
(63,863)
(24,182)
10,593
—
515,603
778,513
4,621,552
Income tax at actual rate (2014: 18%; 2013: 19%)
Non - taxable income for tax purposes
02
2,683,978
Accounting profit before tax
03
05
2013
2013
02
06
2014
01
2014
09
75,631
51,633
(58,916)
(175,338)
6,734
29,518
515,603
778,513
RETURN TO CONTENT
Deferred tax assets and liabilities relate to the following items in 2014:
31-Dec-14
01
Recognized
in profit
and loss
Recognized
in profit and loss
with origination in GT
02
Deferred tax liabilities:
03
Property plant and equipment (i)
—
(8,300)
—
04
Intangible assets (i)
—
(689)
05
Deferred expenses (iii)
14,193
06
Prepayments (iii)
17
07
Trade and other receivables (iv)
08
09
Deferred tax assets:
10
Property plant and equipment (i)
11
12
Other current liabilities (iv)
13
14
15
Advances received and
deferred revenue (iii)
16
Inventories (ii)
Deferred tax assets and liabilities relate to the following items in 2013:
31-Dec-13
01
689
04
689
689
—
(2,315)
4,381
12,127
05
Deferred expenses (iii)
12,127
(1,474)
13,601
17
—
—
06
Trade and other receivables (iv)
1,462
(1,637)
3,099
—
(1,462)
—
1,462
07
22,578
5,878
16,700
14,210
(12,749)
4,381
22,578
08
—
(31,198)
31,198
Deferred tax assets:
09
Property, plant and equipment (i)
(3,368)
—
(8,310)
—
11
Other current liabilities (iv)
27,716
(5,370)
—
33,086
12
Employee benefit liability (iii)
Employee benefit liability (iii)
—
(3,792)
—
3,792
13
Prepayments (iii)
Prepayments (iii)
—
(191)
—
191
14
Advances received
and deferred revenue (iii)
48,564
6,047
5,906
36,611
15
Inventories (ii)
216
(3,030)
—
3,246
16
Trade and other payables (iii)
76,028
37,168
(440)
39,300
17
Provisions (iii)
4,477
(3,529)
—
8,006
18
Taxes payable, other than income tax (iii)
—
19
Accumulated tax losses (v)
19
561
561
—
20
20
Interest-bearing loans and
borrowings – NC (iv)
528
528
—
—
21
Accumulated tax losses (v)
107,419
7,561
—
99,858
268,992
51,114
(6,212)
224,090
254,782
63,863
(10,593)
201,512
22
23
Net deferred tax asset
116
KYIVSTAR
—
—
8,735
Taxes payable other than
income tax (iii)
8,300
Property, plant and equipment (i)
6,426
Provisions (iii)
8,300
Deferred tax liabilities:
03
425
Trade and other payables (iii)
31-Dec-12
8,300
3,058
17
Recognized
in profit and loss
02
10
18
31-Dec-13
ANNUAL REPORT 2014
21
Unrecognized portion
of the deferred tax assets
22
Net deferred tax asset
—
(18,356)
18,356
33,086
(1,773)
34,859
3,792
(4,717)
8,509
191
(61)
252
36,611
(1,597)
38,208
3,246
2,414
832
39,300
(10,824)
50,124
8,006
(1,309)
9,315
—
(2,377)
2,377
99,858
91,766
8,092
224,090
21,968
202,122
—
8,092
(8,092)
201,512
24,182
177,330
RETURN TO CONTENT
The nature of the temporary differences is as follows:
(i) Property, plant and equipment and intangible assets – differences in depreciation and amortisation
patterns and estimates of the remaining useful lives, differences in capitalisation principles;
(ii) Inventories - differences in inventories measurement basis and the periods of recognition;
(iii) Advances received and deferred revenue, prepayments and deferred expenses, employee
benefit liability, trade and other payables, provisions, taxes payable, other than income tax –
differences in period of recognition;
(iv) Trade and other receivables, other current financial assets, other current liabilities and other
liabilities – differences in measurement and recognition principles;
(v) In 2013 the Company recognized deferred tax assets of UAH 175,338 thousand on
accumulated tax losses inherited from JSC «Ukrainian RadioSystems» («URS»), UAH 75,480
thousand of which were utilised within 2013, and UAH 51,356 thousand of which were utilised
within 2014. In 2014 the Company recognized deferred tax assets of UAH 56,063 thousand on
accumulated tax losses inherited from LLC «Golden Telecom» («GT»).
As at 31 December 2014 the Company did not recognise deferred tax asset in respect of
temporary differences of UAH 49,158 thousand (2013: UAH 30,612 thousand) related to the
investment in its subsidiary Staravto because it is not probable that the temporary difference
will be reversed in the foreseeable future.
As at 31 December 2014 the current and non-current pre-paid income tax in total amount
of UAH 1,628,918 thousand were related to dividends payments made by the Company in
2012-2014 which were subject to accordingly to 21%,19% and 18% rates for tax prepayment;
andmonthly prepayment of income tax in accordance with the requirements of Ukrainian
legislation. Pre-paid income tax in the amount of UAH 1,314,086 thousand is not expected
to be used within the next twelve months and was classified as a non-current asset as at
31 December 2014 (2013: UAH 421,326 thousand).
All taxable and deductible differences will be realised in the next accounting period, except for
those arising on property plant and equipment, intangible assets and non-current portion of
deferred revenue and expense.
11. Property, plant and equipment
The movement of property, plant and equipment is as follows:
01
02
Cost:
03
At 1 January 2013
04
Additions
05
Disposals
06
Transfers and reclassifications (i)
07
At 31 December 2013
08
Golden Telecom acquisition
09
Additions
10
Disposals
11
12
At 31 December 2014
117
KYIVSTAR
ANNUAL REPORT 2014
Local, regional
& trunk networks
Mobile
telephone
network and
switches
Radio
installations
Buildings
Land
Corporate
administrative
assets
Construction
in progress, uninstalled
and dismantled
equipment (ii)
Total
1,014,614
7,070,017
2,949,567
1,739,498
106,531
1,616
(4)
48,600
(597,572)
2,662
(109,444)
1,108
(41,980)
—
—
949,888
1,577,552
15,407,667
10,618
(22,866)
1,443,095
(40,486)
1,507,699
(812,352)
74,965
1,089,598
299,323
87,840
1
77,724
(1,644,646)
(15,195)
1,091,191
293,327
611
(2)
32,965
1,418,092
7,610,643
399,456
133,516
(259,078)
630,423
8,514,960
3,142,108
3,966
(14,440)
(72,980)
163,636
3,222,290
1,786,466
13,837
3,196
(160,339)
211,449
1,854,609
106,532
—
—
—
(2)
106,530
1,015,364
7,811
5,194
(93,375)
129,834
1,064,828
1,335,515
15,407
1,266,342
(15,946)
(1,168,478)
1,432,840
16,087,819
733,804
1,394,419
(601,720)
(173)
17,614,149
RETURN TO CONTENT
01
13
Accumulated depreciation and impairment losses:
14
At 1 January 2013
15
Depreciation charge for the year
16
Impairment
17
Disposals
18
19
At 31 December 2013
20
21
Depreciation charge for the year
22
Impairment
23
Disposals
24
25
At 31 December 2014
26
Net book value:
27
At 1 January 2013
28
At 31 December 2013
29
At 31 December 2014
(i) Transfers, reclassifications and other
changes include items transferred to
intangible assets and to/from assets of
disposal group classified as held for sale;
118
KYIVSTAR
ANNUAL REPORT 2014
Local,
regional&
trunk
networks
Mobile
telephone
network and
switches
Land
Corporate
administrative
assets
Construction in
progress, uninstalled
and dismantled
equipment (ii)
Radio
installations
Buildings
Total
253,652
4,328,715
1,991,893
368,923
—
617,780
632,909
8,193,872
52,710
—
828,474
—
371,146
—
77,566
—
—
—
76,347
—
33,844
77,218
1,440,087
77,218
—
(478,412)
(91,872)
(32,619)
—
(19,283)
(34,120)
(656,306)
(603)
305,759
109,172
63,242
191,602
4,870,379
325,097
924,059
25,410
2,296,577
3,540
249,477
26,030
439,900
10,231
79,948
—
—
—
(43,980)
630,864
6,505
141,349
(1)
(358)
477,814
(221,761)
6,372
5,904,146
(65,713)
(1,478)
2,482,403
(112,150)
(4,051)
413,878
—
—
—
(83,728)
(489)
694,501
(198,029)
511,822
1,928
72,252
178,819
(8,088)
(343)
756,390
430
9,055,301
456,473
1,530,327
178,819
(491,441)
(347)
10,729,132
760,962
785,432
940,278
2,741,302
2,740,264
2,610,814
957,674
845,531
739,887
1,370,575
1,346,566
1,440,731
106,531
106,532
106,530
332,108
384,500
370,327
944,643
823,693
676,450
7,213,795
7,032,518
6,885,017
(ii) Temporarily dismantled equipment
is continued to be depreciated over the
estimated remaining useful life.
As at 31 December 2014 historical cost
of fully depreciated items comprised
UAH 6,169,841 thousand (2013: UAH
4,455,982 thousand).
RETURN TO CONTENT
12. Intangible assets
The movement of intangible assets is as follows:
01
02
Cost:
03
At 1 January 2013
04
Additions
05
Disposals
06
Transfers and reclassifications
07
At 31 December 2013.
08
09
Additions
10
Disposals
11
12
At 31 December 2014
13
Accumulated amortisation and impairment losses:
14
At 1 January 2013
15
Amortisation charge for the year
16
Disposals
17
18
At 31 December 2013
19
20
Amortisation charge for the year
21
Disposals
22
23
At 31 December 2014
24
Net book value:
25
At 1 January 2013
26
At 31 December 2013
27
At 31 December 2014
119
KYIVSTAR
ANNUAL REPORT 2014
Licenses
Network
and billing software
Customer base
Total
486,405
3,356,490
—
3,842,895
—
(605)
155,866
(85,111)
—
—
155,866
(85,716)
16
18,712
—
18,728
485,816
8,478
27,008
(7,806)
(27)
513,469
3,445,957
20,072
269,027
(54,000)
48
3,681,104
—
180,425
—
—
—
180,425
3,931,773
208,975
296,035
(61,806)
21
4,374,998
200,019
48,457
(603)
(116)
247,757
2,595
50,631
(6,799)
(27)
294,157
2,476,618
148,650
(68,524)
(39)
2,556,705
10,103
178,204
(37,646)
21
2,707,387
—
—
—
—
—
130,029
6,506
—
—
136,535
2,676,637
197,107
(69,127)
(155)
2,804,462
142,727
235,341
(44,445)
(6)
3,138,079
286,386
238,059
219,312
879,872
889,252
973,717
—
—
43,890
1,166,258
1,127,311
1,236,919
RETURN TO CONTENT
As at 31 December 2014 historical cost of fully amortised intangible assets comprised UAH 1,540,153 thousand (2013: UAH 1,510,224 thousand).
The Group’s major licenses as at 31 December are as follows:
Net book
Net book
Acquisition
Expiration
value as at
value as at
01
License #
Coverage
License
date
date
31 December 2014
31 December 2013
02
АВ № 593093
National
1800 MHz (GSM)
cellular license
Oct-11
Oct-26
7,392
8,016
Oct-11
Oct-26
7,392
8,016
03
АВ № 593094
National
900 MHz (GSM)
cellular license
04
АГ № 506983
International
International
communication (i)
Aug-04
Aug-19
2,792
3,391
05
АГ № 506984
Inter city
Inter city communication (i)
Aug-04
Aug-19
2,850
3,461
06
АГ № 506986
City
Fixed city communication (i)
Aug-10
Aug-15
184
20,610
459
23,343
2014
2013
8,157
36,788
584
218
2,432
2, 940
11,173
39,946
07
(і) In April 2011 National Commission for
the State regulation of Communications
and Informatization has reissued licenses
previously granted to Kyivstardue to the
change of the Company’s legal form from
«Closed» to «Private» Joint Stock Company
pursuant to the amendments introduced
to the Ukrainian legislation on joint stock
companies.
13. Other non-current assets
Other non-current assets asat 31 December are as follows:
01
02
Prepayments for property, plant and equipment
03
Prepayments for intangible assets
04
05
120
KYIVSTAR
ANNUAL REPORT 2014
RETURN TO CONTENT
14. Trade and other receivables
15. Reconciliation of allowance accounts
Trade and other receivables consist of the following as at 31 December:
The reconciliation of changes in allowance accounts is as follows:
2014
2013
Trade receivables – interconnection and access to network
736,767
147,711
01
03
Trade receivables – roaming
155,283
120,401
02
04
Trade receivables – subscribers
147,164
79,380
01
02
Trade and other
receivables
Prepayments
Total
As at 1 January 2013
51,519
112
51,631
03
Charge for the year
35,572
1,377
36,949
Utilised
05
Trade receivables – dealers for pre-paid cards and packages
22,456
76,180
04
(25,366)
—
(25,366)
06
Other receivables
11,210
20,030
05
Unused amounts reversed
(4,522)
(49)
(4,571)
07
Interest receivable
7,161
2,650
06
57,203
1,440
58,643
270
—
07
Charge for the year
47,280
1,238
48,518
1,080,311
446,352
08
Transfer
13,298
62
13,360
(84,368)
(57,203)
09
Utilised
(29,074)
(1,136)
(30,210)
389,149
10
(4,339)
(177)
(4,516)
11
84,368
1,427
85,795
08
Accounts receivable from sale of long-lived assets
09
10
Allowance for impairment (Note 15)
995,943
11
Trade and other receivables, net of allowance for impairment as at 31 December are
denominated in the following currencies:
01
2014
2013
02
UAH
143,312
205,469
03
EUR
248,003
121,100
04
USD
604,628
62,580
995,943
389,149
05
In 2014 bad debt expense in the amount of UAH44,002 thousand (2013: 32,378 thousand) is
included in other operating expenses, please refer to Note 9.
As at 31 December 2014 and 2013 trade and other receivables are non-interest bearing and are
.settled in the normal course of business
121
KYIVSTAR
ANNUAL REPORT 2014
RETURN TO CONTENT
16. Deferred expenses
17. Cash and cash equivalents
As at 31 December deferred expenses consist of the following:
Cash and cash equivalents consist of the following as at 31 December:
01
2014
2013
01
Short-term deposits
2014
2013
1,490,337
543,529
274,804
97,403
7
28
62,251
—
02
Deferred connection costs (i)
59,845
68,459
02
03
Deferred costs of start packages and scratch-cards (ii)
30,670
30,459
03
Cash at banks
04
Deferred costs of fixed line connections (iii)
24,613
—
04
Cash on hand
115,128
98,918
05
Cash in transit
1,827,399
640,960
05
(i) As at 31 December 2014 and 2013 deferred connection costs mainly consisted of costs of
start packages, dealers bonuses related to connection of new subscribers and cost of Wi-Fi
routerslimited to the amount of respective deferred connection fees;
06
As at 31 December cash on hand and cash at banksare denominated in the following currencies:
2014
2013
02
UAH
252,085
89,153
03
USD
5,135
5,452
04
EUR
17,591
2,826
01
(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;
(iii) Deferred costs of fixed line connections consist of costs of last mile, which were transferred
due to acquisition of Golden Telecom LLC.
The movement in deferred connection costsmobile is as follows:
Deferred connection costs
01
05
274,811
97,431
In 2014 and 2013 cash at current bank accounts earned interest at fixed rates varying from
3,5%to 27% per annum.
As at 31 December short-term deposits split by contractual maturity, currency and interest rate
earned is as follows:
Maturity date
Interest rate p.a.
01 Currency
as of 31 December 2014
as of 31 December 2014
2014
2013
02
76,080
03
Deferred during the year
76,588
04
Released to profit and loss
05
68,459
02
06
56,187
03
(64,801)
04
59,845
05
07
08
Released to profit and loss
(84,209)
06
UAH
USD
0—30 days
10—22%
597,000
359,200
31—60 days
10—22%
424,000
116,000
1,021,000
475,200
0—30 days
7—8%
31—60 days
7—8%
142,800
60,488
203,288
208,293
57,756
266,049
1,490,337
3,197
28,695
31,892
—
36,437
36,437
543,529
07
08
09
10
11
122
KYIVSTAR
ANNUAL REPORT 2014
EUR
0—30 days
5—7%
31—60 days
6—7%
RETURN TO CONTENT
18. Equity
19. Interest-bearing loans and borrowings
Share capital and share premium
Interest-bearing loans and borrowings consist of the following as at:
As at 31 December 2014 the authorised and fully paid share capital comprised 17,742,389
ordinary shares (2013: 17,742,389 ordinary shares) at a par value of UAH 50 each. The carrying
value of share capital differs from par by UAH 122,130 thousand being the currency translation
difference, accumulated till 1 May 2004 when the Company changed its functional currency
from US dollar to Ukrainian Hryvnia.
Dividends declared
01
02
Non-Current
03
Interest-bearing borrowings from GTS Finance, Inc.
(USD-denominated, at 5% p. a., matures on 31 January 2016)
04
Interest accrued (current portion)
05
In 2014, the Company has declared dividends in total amount of UAH 2,489,933 thousand
(UAH 190.14 per share) (2013: UAH 4,099,865 thousand (UAH 313.08 per share)). As at 31
December 2013 dividends declared were fully paid by the Company to its shareholders in
cash, net of withholding tax. 2014: according to the decision №758 from 1 December 2014
the NBU extended restrictions on payment of dividends; as at 31 December 2014 the total
sum of unpaid dividends is UAH 549,966 thousand.
Contribution from shareholders - Radio frequency licenses reissued by the National Commission for the State Regulation of
Communication and Informatisation
In 2014 the Company and Golden Telecom jointly applied to the state regulator – the
National Commission for the State Regulation of Communication and Informatization
(‘NCSRCI’) to legally re-register rights for usage of radio frequencies resources owned by
Golden Telecom in favour of Kyivstar (with zero additional fees). Taking into consideration
that the Company and Golden Telecom were the entities under common control, at the date
of transactionKyivstar recognized these licenses at their fair value of UAH 23,274 thousand
as a contribution from the shareholders recorded in additional capital. The fair value of the
licenses was determined by reference to the fixed rates charged by the NCSRCI for the issue
of licenses with similar terms.
123
KYIVSTAR
ANNUAL REPORT 2014
06
Current
07
Interest-bearing borrowings from OJSC VimpelCommunications (USD-denominated, at 4.8% p. a.,
matures on 31 March 2015)
08
Interest accrued
09
31 December
2014
31 December
2013
394,269
—
5,184
—
399,453
—
288,722
—
101,809
—
390,531
—
20. Deferred revenue
As at 31 December deferred revenue consists of the following:
2014
2013
Deferred revenue - dealers and subscribers (i)
543,604
565,292
Deferred connection and one-time subscription fees mobile (ii)
165,656
135,483
42,124
43,738
35,451
6,104
786,835
750,617
01
02
03
04
Customer loyalty programs (iii)
05
Deferred connection fees fixed (iv)
06
RETURN TO CONTENT
(i) Deferred revenue – dealers – represents deferred revenue from unused time on pre-paid
cards, which were sold to dealers, but have not yet been activated by subscribers. Deferred
revenue – dealers is recognized in the statement of financial position until the pre-paid cards
have been activated by subscribers or the pre-paid card has expired. Deferred revenue –
subscribers - mainly consists of deferred revenue from unused time on pre-paid cards, which
were activated by subscribers. Deferred revenue – subscribers is recognized as revenue in
the statement of comprehensive income on the basis of actual mobile communication
services usage by subscribers;
(ii) Deferred connection and one-time subscription feesmobile – mainly consist of fees
for initial connection to the network and one-off payments for subscription to additional
services. Deferred connection and subscription fees are recognized in the consolidated
statement of comprehensive income over the periods that the fees are earned;
(iii) Customer loyalty programs – represent various loyalty programs, established by the
Company, whereby enrolled mobile and FTTB subscribers are eligible for bonuses, which
may then be used for discounts on future mobile calls, additional FTTB internet services or
purchase of mobile handsets.
Deferred connection
and one-time subscription
fees mobile
01
02
142,005
03
158,252
04
Released to profit and loss (Note 9)
(165,337)
563
05
Other changes
06
135,483
07
119,807
08
Released to profit and loss (Note 9)
(89,890)
09
Other changes
10
256
165,656
(iv) Deferred connection feesfixed – consist of fees for initial connection to the fixe
network,which were mainly transferred due to acquisition of Golden Telecom LLC.
Deferred connection fees are recognized in the consolidated statement of comprehensive
income over the periods that the fees are earned.
The movements in deferred connection and one-time subscription fees mobile are as
follows:
124
KYIVSTAR
ANNUAL REPORT 2014
RETURN TO CONTENT
21. Provisions
The movement in provisions is as follows:
01
Decommissioning
Legal cases
and penalties
Restructuring
Other
Total
58,216
287
—
—
58,503
02
03
Arising during the year
2,221
2,384
25,129
23,217
52,951
04
Utilised
(861)
(36)
(10,188)
—
(11,085)
05
06
Change in estimates
07
—
(250)
—
—
(250)
(13,549)
—
—
—
(13,549)
Discount rate adjustment
4,008
—
—
—
4,008
08
50,035
2,385
14,941
23,217
90,578
09
Arising during the year
2,531
11,325
18,140
358
32,354
10
Utilised
(977)
—
(14,941)
—
(15,918)
11
—
(2,385)
—
(23,217)
(25,602)
12
Change in estimates
(30,438)
—
—
—
(30,438)
13
Discount rate adjustment
3,721
—
—
—
3,721
14
Asat 31 December 2014
24,872
11,325
18,140
358
54,695
15
50,035
2,385
14,941
23,217
90,578
16
Current
—
2,385
14,941
23,217
40,543
17
Non-current
50,035
—
—
—
50,035
18
Asat 31 December 2014
24,872
11,325
18,140
358
54,695
19
Current
—
11,325
18,140
358
29,823
20
Non-current
24,872
—
—
—
24,872
125
KYIVSTAR
ANNUAL REPORT 2014
RETURN TO CONTENT
Provision for legal cases
22. Taxes payable, other than income tax
As at 31 December 2014 the Grouprecognizedprovision of UAH 11,325 thousand (2013:
UAH 2,385 thousand) regarding legal proceeding initiated by its counterparty in respect of
services provided by the counterparty, but not accepted by the Group. The management
believes that the risk of losing this case is probable.
Taxes payable, other than income tax consist of the following as at 31 December:
Provision for restructuring
As at 31 December 2014 the Grouprecognized provision of UAH 18,140 thousand (2013:
UAH 14,941 thousand) for redundancy payments related to future dismissal of employees as
the result of branches restructuring.
Decommissioning liabilities
As at 31 December 2014 the Group recognized UAH 24,872 thousand (2013: UAH 50,035
thousand) of provision for decomissioning in respect of future dismantling costs related to its
network equipment installed on leased sites. Provision for decommissioning has decreased
in 2014 due to the changes in input assumptions which are as follows:
01
Assumptions
used as at
31 December 2014
Assumptions
used as at
31 December 2013
02
Cost of dismantling per site, UAH
40,982
39,800
03
Discount rate
14.90%
11.39%
04
Inflation rate
4.30%
3.70%
126
KYIVSTAR
2014
2013
209,586
162,865
Frequency fee
46,400
4,533
04
Pension fund duty for mobile services
29,019
32,161
05
Miscellaneous other taxes
146
132
06
Personal income tax and Unified social security contribution
payable
—
32
285,151
199,723
01
ANNUAL REPORT 2014
02
VAT payable
03
07
RETURN TO CONTENT
23. Trade and other payables
As at 31 December trade and other payables consist of the following:
Payables for interconnection are mostly due to related parties (refer to Note 26). They are in
majority denominated in foreign currencies (see table below) and increased due to significant
devaluation of UAH against hard currencies and re-negotiations of payment terms with related
parties.
2014
2013
Interconnection
731,829
30,496
Roaming
549,393
206,115
04
Equipment and construction works
253,810
196,864
05
Technical support services
222,046
128,300
01
06
Professional fees
143,385
88,354
02
USD
1,270,107
139,654
07
Software
110,945
46,829
03
UAH
672,698
533,058
08
Advertising and promotion
64,694
26,520
04
EUR
263,919
163,054
09
Rent
33,616
20,423
05
RUR
3,741
3,670
10
Dealers
31,661
31,401
06
GBR
2,821
07
01
02
03
11
Other payables
26,037
8,876
12
Inventories
22,903
15,562
13
Content
21,722
38,751
14
Due to employees
1,244
945
2,213,285
839,436
15
127
KYIVSTAR
ANNUAL REPORT 2014
As at 31 December trade and other payables are denominated in the following currencies:
2014
2,213,285
2013
839,436
As at 31 December 2014 and 2013 trade and other payables are non-interest bearing and settled
.in the normal course of business
RETURN TO CONTENT
24. Advances received
26. Related party disclosure
As at 31 December advances received consist of the following:
The Group’s transactions with its related parties for the years ended 31 December are as follows:
01
02
Advances received from subscribers
2014
2013
157,962
141,185
01
2014
42,337
31,120
02
The ultimate parent
(VimpelCom Ltd.)
Advances received from dealers
703
252
03
Other advances received
124
44
Entities under common
control
04
Other related parties
201,126
172,601
03
Advances received from agents
for subscribers account replenishment
04
05
06
25. Other current liabilities
05
06
2013
07
The ultimate parent
(VimpelCom Ltd.)
08
control
09
As at 31 December other current liabilities consist of the following:
01
2014
2013
02
Bonuses accrued
101,792
125,517
03
Accrual for unused vacations
32,026
44,747
04
Deferred payment for investment in subsidiary
96,100
—
229,918
170,264
05
As at 31 December 2014 and 2013 other current liabilities are non-interest bearing and
denominated in UAH.
128
KYIVSTAR
ANNUAL REPORT 2014
10
Revenues
Cost of materials,
traffic charges and
other direct costs
Other
operating
expenses
—
—
25,096
1,997,733
1,807,528
58,463
7,086
3,317
—
2,004,819
1,810,845
83,559
—
—
116,794
1,079,583
486,387
2,940
22,358
3,233
1,871
1,101,941
489,620
121,605
In 2014 the Company accrued interest expense in amount of UAH 11,882 thousand which
relatesto loans to the entities under common control.The loans were transferred to the
Company due to aquisition of Golden Telecom LLC.
There were also UAH 3,769 thousand of sales of property, plant and equipment to entities under
common control and UAH 1,193 thousand of purchases of property, plant and equipment from
entities under common control in 2013.
RETURN TO CONTENT
The outstanding amounts due to related parties as at 31 December are as follows:
01
2014
02
Entities under common control
03
Trade
and other receivables
Total
628,638
04
2013
628,638
02
Entities under common control
20,178
20,178
03
648,816
648,816
Trade
and other receivables
Total
60,382
60,382
7,044
35,359
67,426
95,741
The outstanding amounts due to related parties as at 31 December are as follows:
Trade
and other payables
Loans payables NCL
Other current
liabilities
Interest accrued CL
Other
current liabilities
Total
19,908
—
—
—
—
19,908
control
808,510
288,722
394,269
106,993
96,100
1,694,594
26,339
854,757
—
288,722
—
394,269
—
106,993
—
96,100
26,339
1,740,841
01
2014
02
The ultimate parent
(VimpelCom Ltd.)
03
04
05
Trade
and other payables
Total
The ultimate parent
(VimpelCom Ltd.)
56,263
56,263
03
control
30,692
30,692
04
15,582
15,582
102,537
102,537
01
2013
02
05
129
KYIVSTAR
ANNUAL REPORT 2014
Terms and conditions of transactions with related parties
Outstanding balances on settlements with related parties at the year-end are unsecured and
settlement occurs in cash. Except for loans payables, outstanding balances on settlements with
related parties are interest free. There have been no financial guarantees issued in favour of the
Group or received to/from any related party. For the years ended 31 December 2014 and 2013,
the Group has not recorded any impairment of receivables as regards to the amounts owed by
related parties.
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Revenues and trade receivables
In 2014 the Group provided to domestic and foreign telecom operators, being the Group’s
related parties, roaming and access to network, interconnection, airtime charges and fixed
lines services in total amount of UAH 2,004,819 thousand (2013: UAH 1,101,941 thousand).
Other current liabilities to entities under common control included deferred payment for
investment in Golden Telecom LLC.
The related trade receivables as at 31 December 2014 and 2013 due from related parties are
non-interest bearing, unsecured and are settled in the normal course of business.
Cost of materials, traffic charges and other direct costs
and trade payables
Cost of materials, traffic charges and other direct costs included leased line, access to network,
roaming and interconnection services, provided by entities under common control and other
related parties.
Trade payables to entities under common control and other related parties comprise amounts
due for leased line, access to network, roaming and interconnection services. Trade payables
to related parties are non-interest bearing and are settled in the normal course of business.
Other operating expenses included consulting, operating leases, marketing and sales
commission, repair and maintenance services provided by the ultimate parent, entities under
common control and other related parties.
Commitments to purchases from related parties
As at 31 December 2014 the Group had outstanding commitments in respect of lease line
services to entity under common control in the amount of UAH 2,529 thousand (2013: UAH
5,151 thousand, incl. rent services).
Compensation to management personnel
Loans payables CL
As at 31 December 2014 key management personnel consisted of 22 top executives of the
Group (2013: 31).
Loans payables CL included loan to the entity under common control, which was transferred
due to cessation of Golden Telecom LLC.
For the years ended 31 December total compensation to key management personnel included
in salaries and personnel costs comprised:
Loans payables NCL
Loans payables NCL included present value of loan to the entity under common control, which
was transferred due to cessation of Golden Telecom LLC.
01
2014
2013
02
Short-term employee benefits
99,685
69,952
03
Total compensation to key management personnel
99,685
69,952
Total compensation to key management personnel
Interest accrued CL
Interest accrued CL included interest accrued on loans to the entities under common control,
which were transferred due to cessation of Golden Telecom LLC.
130
KYIVSTAR
ANNUAL REPORT 2014
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27. Commitments and contingencies
(i) Tax risks
As at 31 December 2014 the Group had outstanding commitments related to purchases of
intangible assets in the amount of UAH 117,126 thousand (2013: UAH 97,225 thousand).
(iv) Lease 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.
Management believes that the Company has complied with the laws governing its activities
and that the Company paid and accrued all taxes. When the probability of outflow of resources
existed the Company accrued provisions based on the best estimate. The Company identified
certain contingencies related to taxation charges for which in the financial statements are not
required. These potential tax liabilities may arise and the Company will have to pay additional
taxes. The tax authorities can perform inspectionsfor the financial period of three calendar
years preceding the year of the inspection. Under certain circumstances reviews may cover
longer periods.
(ii) Legal matters
In the ordinary course of business, the Group is subject to legal actions and complaints.Where
the risk of outflow of resources is probable, the Company has accrued provisions based on
management’s best estimate.
Management believes that the ultimate liability, arising from unasserted claims and complaints,
if any, will not have a material adverse effect on the Group’s financial position or the results
of its future operations and is less than probable, accordingly no corresponding accrual was
provided in these consolidated financial statements.
Operating lease – the Group as a lessee
The Group has entered into certain leases of land and buildings. These leases have an average
life from one to five years with a renewal option included in the contracts.
Future minimum rentals payable under non-cancellable operating lease agreements as at
31 December are as follows:
01
2014
2013
02
Within one year
196,574
332,407
03
After one year but not more than five years
145,316
203,989
04
More than five years
209,526
288,834
551,416
825,230
05
28. Fair value of financial instruments
The management assessed that as at 31 December 2014 and 2013fair value of cash and shortterm deposits, trade and other receivables, other current financial assets, other non-current
financial liabilities, trade and other payables approximates their carrying amounts largely due to
the short-term maturities of these instruments.
(iii) Other capital commitments
As at 31 December 2014 the Group had outstanding commitments in respect of purchase and
construction of property, plant and equipment in the amount of UAH 305,821 thousand (2013:
UAH 431,139 thousand).
131
KYIVSTAR
ANNUAL REPORT 2014
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29. Financial instruments and risk management
The Group’s principal financial instruments comprise cash and cash equivalents and other
current financial assets. The Group has various other financial instruments, such as trade
payables and trade receivables, which arise directly from its operations.
It is the Group’s policy not to trade with financial instruments.The Group is exposed to market
risk, credit risk and liquidity risk.
The Group’s overall risk management program focuses on the unpredictability and inefficiency
of the Ukrainian financial markets and seeks to minimise potential adverse effects on the financial
performance of the Group. The Group’s senior management oversees the management
of these risks and financial risk-taking activities are governed by appropriate policies and
procedures so that financial risks are identified, measured and managed in accordance with
the Group policies.
The policies for managing each of these risks are summarised below.
01
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of the changes in foreign exchange rates. The Group’s exposure to the risk
of changes in foreign exchange rates relates primarily to the Group’s operating activities (when
the Group’s trade receivables and trade payables are denominated in foreign currencies) and
financing activities (when interest-bearing borrowings are denominated in foreign currencies).
The exchange rates for foreign currencies, in which the Group’s financial assets and liabilities
were denominated, against Ukrainian hryvnia, as declared by the National Bank of Ukraine as at
the dates and periods stated, are as follows:
132
KYIVSTAR
ANNUAL REPORT 2014
Euro (‘EUR’)
02
1 January 2013
7.9930
10.5372
7.9930
10.6116
03
Average for 2013
04
31 December 2013
7.9930
11.0415
05
Average for 2014
11.9095
15.7410
06
31 December 2014
15.7686
19.2329
The following tables demonstrate the sensitivity to a reasonably possible change in the
corresponding exchange rates, with all other variables held constant, of the Group’s profit
before tax (due to the changes in the fair value of monetary assets and liabilities).
The sensitivity analyses have been prepared on the basis that the proportion of financial
instruments in foreign currencies is constant at 31 December 2014 and 2013.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market risk comprises three types of risk: interest rate risk,
currency risk and other price risk. The Group does not have significant exposure to interest rate
risk as it normally borrows at fixed rates. Neither it has exposure to other price risk.
USD
Increase/
(decrease) in basis
points
Increase/
(decrease) of profit
before tax
01
2014
02
Change in USD exchange rate
+63%
(771,486)
03
Change in EUR exchange rate
+63%
201,940
04
—1%
12,246
05
—1%
(3,205)
06
2013
07
+30%
(9,675)
08
+30%
4,358
09
—5%
1,613
10
—5%
(726)
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Liquidity risk
The Group analyses the ageing of its assets and the maturity of its liabilities and plans its liquidity depending on the expected repayment of various instruments. The Group’s short-term and long-term
liquidity needs are funded largely through cash flow from operating activities.
The tables below show the maturity profile of the Group’s financial liabilities as at 31 December based on contractual undiscounted payments.
01
2014
02
Loans payables
03
Interest on loans
04
Other financial liabilities
05
06
07
2013
08
09
Less than 3 months
3 to 6 months
288,722
—
115,642
96,100
2,031,617
5,184
—
179,911
2,532,081
6 to 12 months
1 to 5 years
Total
414,713
703,435
10,368
—
513
—
—
—
131,194
96,100
2,212,041
185,095
10,881
414,713
3,142,770
646,681
100,741
91,069
—
838,491
646,681
100,741
91,069
—
838,491
Credit risk
01
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument
or customer contract, leading to a financial loss. The Group is exposed to credit risk from its
operating activities (primarily for trade receivables) and from its financing activities, including
deposits with banks and financial institutions, foreign exchange transactions and other financial
instruments.
Financial instruments, which potentially expose the Group to significant concentrations of
credit risk, consist principally of cash in bank, short-term deposits, other current financial assets
and trade and other receivables.
The Group’s maximum credit risk exposure at 31 December comprises:
133
KYIVSTAR
ANNUAL REPORT 2014
02
Cash and cash equivalents (except for cash on hand)
03
04
Other current financial assets
05
2014
2013
1,827,392
640,932
995,943
389,149
75,273
29,196
2,898,608
1,059,277
The Group’s cash is primarily held in major reputable banks located in Ukraine.As at 31 December
69% of cash and cash equivalents were held in three banks.
Accounts receivable are presented net of allowances. The Company does not require collateral
for trade receivables. As at 31 December 2014 trade receivables are mainly due from entities
under common control (55%).
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Management has a credit policy in place
and the exposure to credit risk is monitored
on an ongoing basis. Credit evaluations
are performed for all customers requiring
credit over a certain amount. Credit risk
arising from financial transactions is reduced
through diversification, through accepting
counterparties with high credit ratings only
and through defining limits on aggregated
credit exposure towards each counterparty.
The Group’s credit risk exposure is monitored
and analysed on a case-by-case basis, and
the Group’s management believes that credit
risk is appropriately reflected in impairment
allowances recognized against assets.
As at 31 December 2014 and 2013, the
ageing of the Group’s trade and other
receivables and other current financial
assets, net of impairment, is as follows:
Past due, but not impaired
01
02
2014
03
2013
Total
1,071,216
418,345
Neither past due, nor impaired
1,004,692
373,429
Less than 30 days
43,128
28,136
30—60 days
9,064
4,768
Capital management
The Group considers shareholders’ equity as a primary capital source. Also the Group
can incur debt either through shareholder loans or through external funding. The Group’s
objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders as
well as to provide financing of its operating requirements, capital expenditures and sustain
the Group’s development strategy.
Management monitors on a regular basis the Group’s capital structure and may adjust its
capital management policies and targets following changes in its operating environment,
market sentiment or its development strategy.
Offsetting financial assets and financial liabilities
01
As at 31 December
2014
60—90 days
2,882
3,553
90—120 days
1,569
436
More than 120 days
9,881
8,023
Net amounts
presented
Gross
amounts
recognized
Gross amounts set off
in the consolidated
statement of financial
position
in the statement
of financial position
02
Trade and other
receivables
1,340,121
(344,178)
995,943
03
Trade and other
payables
(2,556,219)
344,178
(2,212,041)
04
As at 31 December
2013
05
Trade and other
receivables
06
659,964
(270,815)
389,149
(1,109,306)
270,815
(838,491)
The following table presents gross amounts recognized and financial assets and liabilities
which are subject to offsetting:
134
KYIVSTAR
ANNUAL REPORT 2014
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For the financial assets and liabilities subject to netting arrangements, each agreement
between the Group and the counterparty allows for net settlement of the relevant financial
assets and liabilities when both elect to settle on a net basis. In the absence of such an
election, financial assets and liabilities are settled on a gross basis. The major arrangements
are agreements with national and international interconnect operators and agreements with
roaming partners in respect of roaming rebates settlements.
No enforceable master netting arrangements or similar arrangements were signed for the
period as at 31 December 2014 and 2013 and for the years then ended.
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.
Net profit attributable to ordinary equity holders of the parent for
basic earnings, UAH thousand
03
Weighted average number of ordinary shares for basic earnings
per share
04
Basic earnings per share, UAH
135
KYIVSTAR
ANNUAL REPORT 2014
At the date of the financial statements, the Company based on the results of the auction
received a permission to use the radio frequency band 1965-1980 / 2155-2170 MHz for
services provision in the standard 3G («digital cellular radio Communication IMT-2000
(UMTS)»). The amount payable for the license is UAH 2,705,000 thousand. 1 April 2015 the
Company has paid the full amount for 3G licence.
VimpelCom Cyprus Finance Limited (a company under common control) has provided a
loan to finance the purchase of a license and purchase of telecommunications equipment
and services for the development of 3G cellular mobile network. The Company may use an
unsecured loan in the maximum principal amount of $200 million.
Deferred payment for investment in subsidiaries
Basic earnings per share for the years ended 31 December are as follows:
02
3G license
Loan agreement
30. Earnings per share
01
31. Events after the reporting period
2014
2013
2,168,375
3,843,039
13,095,262
13,095,262
165.58
293.47
10 February 2015 the Company signed an agreement with a related party to delay the date
of payment to February 2016 for the investment in LLC «Golden Telecom» in the amount of
UAH 96,100 thousand.
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CONTENTS
Thank you for your attention
Simply. Innovation. Better

2014 Year Report and consolidated financial statements

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