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Interview with Ali Agan

Interview with Ali Agan.

Geoff Cutmore

Net profit for the first nine months of the year for Kcell, Kazakhstan's largest mobile phone carrier fell two per cent from the same period a year earlier. The company says it's due to a special dividend payment but that revenue and subscriber data and traffic grew. We're pleased to have with us Ali Agan who is the CEO at Kcell. Good morning.

Ali Agan

Good morning.

Geoff Cutmore

Welcome. Obviously the numbers don't quite do justice to the broader story. So give us a reason here why investors should be looking to own your stock.

 

Ali Agan

Definitely. Before talking about Kcell I think first I should mention some facts about Kazakhstan, the market, the country that we are operating in. We are talking about 17m of our population with 13,000 USD per capita, and total GDP is a little over $200bn, whereas after the independence back in 1991 it was around $16bn. So when you look at the ten years' course from 2012 to 2002 the GDP performance was around eight times. So in that sense we are talking about a very high potential country, we are talking about visionary management as well as solid performance having set about $2bn of our GDP just on the oil reserves, we have around $80bn, so very resilient.

 

Geoff Cutmore

So we could carry on with the national geographic on Kazakhstan, but look, if somebody wants to go and invest there they'll dig up the numbers for themselves. What I want to know is what differentiates Kcell from your competitors in this market space? Because we know the potential is there, but why should people buy into you rather than go with somebody else?

 

Ali Agan

Sure, 55 per cent of our market revenue share, and again, a little over 55 per cent of ABT in performance and a minimum of 70 per cent dividend policy, and a post IPO performance, less than 11 months post IPO performance over 60 per cent on the stock price, I think these are good indicators for an investor to consider.

 

Geoff Cutmore

But the revenue, I mean we look at these growth markets and we say look, we should be multiples of double digit revenue growth here. But when I look at the nine month number; 3.7 per cent, 3.7 per cent is not a shoot the lights out number.

 

Ali Agan

Actually talking about the growth you've got to look at the competitive situation, competitive environment in the market as well. We have a relatively new player with less than three years of operation in Kazakhstan, and as well another fourth player who is working on the 4G, the 4LT technology. And the market is over 15 years of seniority with 180 per cent penetration on the voice side. So these are the hurdles for the growth. However, looking at the potential we are talking about over 40 per cent, a quarter on quarter basis of data growth. And talking about the data growth, 40 per cent of data growth, still the country is not powered by mobile broadband and the smart phone and 3G supported handset penetrations are pretty low. So it is giving us the future potential why it should be growing down the road.

 

Karen Tso

I'm curious about the smart phone growth through the market then if data services is one of the areas you're targeting, just how prevalent are the big names in the country? The likes of Apple and what sort of devices are people going for? Is it the expensive one, the iPhone 5S or is it exactly the one that Apple wanted to target to countries like yours, which is the cheaper cost iPhone 5C? What are you seeing in terms of the demand?

 

Ali Agan

I would say the combination of all and not only Apple, the other smart phone manufacturers are there. The Kazakhstan market is not very different than the other emerging markets when you do the comparison. But talking about the smart phones, we still have 15 per cent of the penetration of the smart phone in Kazakhstan.

 

Karen Tso

People are going for the cheaper low cost models than based on what other emerging markets are doing; they're not buying the premium label ones, they're looking for the substitutes that have a cheaper ticket price; is that what you're telling us?

 

Ali Agan

That's correct. But then when you look at the growth numbers, the global numbers, the smart phone penetration is 21 per cent. It's Europe having close to 40 per cent of penetration in the smart phone, Kazakhstan is pretty close to the global numbers. However, I think we should look at the increase trend of the smart phones. In Scandinavia last year almost 100 per cent of the new phones were smart phones, or in Russia, which is closer to a better benchmark for our market, 50 per cent of the new handsets that were sold are smart phones. So we are seeing a different rate of smart phones penetrating into the marketplace. This will as well help the mobile operators to boost their data revenue.

 

Geoff Cutmore

Jens, one of the challenges I think for Kazakhstan, the same as with Russia, is that it's become an economy that's perceived to be about oil and solely about oil, and as often as we hear great stories about telecoms and the breaking through of the middle class consumer in these economies at some point, it still seems that investors can't lift their head above the fact that it's a barrel of oil play.

 

Ali Agan

You're right, oil is one of the biggest chunk of the GDP, but still, it's around 40 per cent of the total GDP. We have a highly developed service market as opposed to the other emerging markets. At the same time it's not only the diversification of the GDP but I think it's about the resilience of the economy and as I said, almost over 40 per cent of the reserves that we have on the oil fund as well as the fiscal reserves. But then one important thing I think I should mention about the market is the average age, 50 per cent of the population is under the age of 25. So this is as well some sort of a boosting factor. And individually when you look at the consumer credit numbers, it's increasing on a year on year basis. So a dynamic demography with a good growth of GDP.

 

Geoff Cutmore

Ali, thanks so much for coming in, telling us the story.