mobile telecommunication company - zain · 2020. 1. 7. · mr. al-nafisi represents mobile...

2014ANNUAL REPORT

Mobile Telecommunication Company

His Royal Highness Crown Prince

MOhaMMad bin nayefDeputy Prime Minister and the Minister of

Interior of Saudi Arabia

Custodian of the Two Holy Mosques

SalMan bin abdulazizPrime Minister of the Council of Ministers

His Royal Highness Deputy Crown Prince

MOhaMMad bin SalManSecond Deputy Prime Minister and the

Minister of Defence of Saudi Arabia

CONTENTS

Zain Overview 9

Vision & Mission 10

Our Brand Values 11

A Few Words from our Chairman 13

A Greeting from our CEO 14

Board of Directors 17

Executive Management 23

Ownership Structure 28

From the Industry’s Perspective 30

Measuring Success 32

Road to Success 33

Winning Through Caring 37

Our Business 43

Commercial Overview 44

Network Overview 46

IT Overview 48

Regulatory Overview 50

Accountability, Fairness, and Transparency 69

Executive Committee 70

Audit Committee 71

Nomination and Remuneration Committee 71

Financial Statements and Auditors’ Report 75

Our People 55 Bringing about Positive Change 61

01 02 03 06 0704 05

zain Overview01

Annual Report 2014Annual Report 2014

Our Brand Values

RELIABLEWe deliver superior customer experience.

CARINGWe are happy to serve our customers and

cherish the relationship.

SMARTWe want to become customers’

preferred choice.

SIMPLEWe are transparent, convenient, and

straightforward.

TRENDYWe are the trendsetters: modern, dynamic,

and enthusiastic.

SAUDIWe are proud to be Saudi,

contributing to the economic and social development of KSA.

OUR VISION

OUR MISSION

To be the customer-centric Saudi telecom operator, providing reliable services through a caring approach.

To provide a superior customer experience, and to be known as the video-streaming mobile operator-of-choice.

To create a fulfilling work environment

To build a long-lasting prosperous relationship with our business partners

To deliver our promises of value creation to our shareholders in a transparent way

To proudly contribute to the economic and social development of the Kingdom

10 11

Annual Report 2014

A FEW WORDS FROM OUR ChAIRMAN Dear Shareholders,

May the peace and blessings of Allah be upon you.

The Kingdom continues to witness significant progress in its economy, technology, education, and every other sector. With such world-recognized progress comes great responsibility, and as a corporation, it is our duty to actively contribute to this nationwide development. This is why 2014 marked a fundamental milestone in Zain KSA’s timeline, and highlighted our efforts to keep pace with the Kingdom’s transformation.

On behalf of the Board of Directors, I am delighted to provide you with an update of the Company’s performance and highlights during this transformational year, accompanied with the audited financial results.

We had several commercial and operational achievements in 2014. Capitalizing on our leadership in data transmission, we successfully secured LTE services for pilgrims during the Hajj season to provide them with a high-speed data experience, enabling them to contact their families at all times. As part of our efforts to provide better customer experience, we significantly enhanced our network’s quality and capacity. We also took customer experience to new unprecedented levels by revamping our brand, stores, and services. In November, Zain KSA’s customer-centric efforts were recognized and it won the “Best Customer Service Provider” award at the Telecom Review Summit.

We look forward to further transformation in 2015. As we reinforce our data leadership and overall position in the market, more successes are set to take place. Our strategic plan comprises capital reduction as well as further expansion in our network, effective innovation in products and services, and growth across all segments. Our brand continues to derive its strength from customers’ loyalty and from the support of Zain Group who won the “Best Brand” award at the prestigious Telecoms World Awards. With such recognized achievements on a local and Group level, our capabilities grow and upcoming challenges become easier to overcome.

On behalf of all members of the Board, I would also like to express Zain KSA’s gratitude to the Custodian of the Two Holy Mosques, King Salman Bin Abdulaziz, the Kingdom’s new guiding torch, for his previous and continued support, and to His Royal Highness Crown Prince Mohammad bin Nayef and his Royal Highness Deputy Crown Prince Mohammad bin Salman. I am also grateful to the Ministry of Communications and Information Technology (MCIT), and Communications and Information Technology Commission (CITC) for their constant support of the Saudi telecom sector.

It is of no doubt that we stand here today because of the exemplary loyalty of our shareholders and customers. It is because of our bankers and financiers, business partners and suppliers that we continue to give our best. In addition, it is due to the genuine collaboration of my colleagues on the Board of Directors, as well as the commitment of all Zain KSA employees, that we are able to confidently look forward to a future of growth.

Eng. Farhan Bin Naif Al-Faisal Al-Jarba Chairman

13


Our 2013 Promises Our 2014 Delivery

Further enhancement of network quality andcapacity

Project RELOAD, a SAR 4.5 billion investmentin network quality, capacity and speed to deliver an enhanced customer experience

A fresh new look for our brand, bringing us closerto our customers

Roll out of a new store design and our fresh new look for our brand

Further improvements in customer experienceWe have introduced new processes that deliver an enhanced customer experience

An enrichment of Zain KSA’s portfolio withinnovative products and services

Introduction of new products like Shabab, Kareeb and Zain Data offers

More efficiencyContinuing with operational savings, which reduce both our direct and indirect costs

To deliver upon our vision of Zain KSA being the customer-centric Saudi telecom operator, as a company, we have fully embraced our “Winning through Caring” strategy. Tangibly, this means delivering better customer experience, both in terms of using our network and when interacting with our customer touch points. Our new store design goes much further than a refreshingly relaxing look and feel, it extends to redesigned training and business processes that deliver an enhanced in-store customer experience. We have delivered new innovative successful products such as Shabab, which provides a fresh and simple-to-understand offer to our customers. We have opened 45 new stores and kiosks around the Kingdom, making our products and services more available. Our strategy of focusing on more smaller stores, instead of fewer larger stores, aims at demonstrating to customers that Zain KSA understands and cares for their needs. All these positive changes have served to bring us even closer to our customers in 2014.

Given the size and direction of the Saudi economy, there is every indication that the telecoms sector will continue to be a driving force in the diversification of the economy, at the forefront of the Government’s plan to create a knowledge based society. As the growth in connectivity continues throughout 2015 and beyond, so do our efforts. Our transformation plan is set to reveal more capabilities over the coming period. This includes leveraging our leading mobile video streaming and data network, expanding our distribution capacity, launching more competitive services, and experiencing substantial growth in the business segment.

At Zain KSA, we are relentless in the pursuit of our objectives. Through our unwavering dedication to become the ultimate caring operator, we will be able to create real value for our customers, partners, and shareholders. For our customers, creating real value will be translated into customer loyalty. For our partners, it is manifested in long-lasting relationships of trust and innovation. For our shareholders, it paves the path for increased returns and solid growth.

On a final note, I would like to emphasize that all achievements so far were realized due to the hard work of thousands of individuals within and outside the company. Of course none of this would be possible without the continued support of Zain Group, for which I am highly appreciative. It gives me a genuine sense of pride to be part of a fully devoted Zain KSA team, ready to give more every single day.

The best is yet to come.

Hassan Kabbani Chief Executive Officer

A GREETING FROM OUR CEO As soon as our transformational plan set foot in the Saudi market, and our words turned into actions, the outcome began to unfold. In simple terms, 2014 proved to be the year of delivering upon the promise I made last year that “you will see positive changes”.

Our 2014 performance indicates that Zain KSA is taking solid strides towards sustained growth and profitability. Our subscriber base has increased by 11% to reach 9.7 million customers, while our gross profit increased by 2.8%. Overall, this resulted in a decrease in net losses by 23.1%. As you will notice throughout this report, we secured numerous operational improvements and savings, gained new strategic partners, and augmented our business capabilities – fulfilling all the promises we made in 2013.

14 15

bOardOf directOrS


Fahd Bin Ibrahim Al-Dughaitherboard MemberMr. Al-Dughaither served as Chairman of the Zain KSA Board until March 10, 2014. Currently, in addition to being a Zain KSA Board Member, he is the General Director of The United Trading Co. Ltd. Mr. Al-Dughaither previously held several important positions such as the Vice President and Director of Retail Sales and Real Estate Development at Savola Group from 1996 - 2006.

Mr. Al Dughaither studied English at Linn Benton Community College (Oregon, USA) in 1974 - 1975 and Mathematics at Lane Community College (Oregon, USA) between 1975 - 1977.

BOARD OF DIRECTORS

Mark Scott Gegenheimerboard MemberMr. Gegenheimer represents Communication and Information Consultancy Group K.S.C. (Closed) which was established in Feb 1985. With a capital of KWD 250,000, the company specializes in Telecommunication and Information Technology consultancy and is 99% owned by Zain Group. Mr. Gegenheimer was appointed CEO of Zain Group effective December 2, 2012, where he is in charge of overseeing all Zain Group’s eight commercial operations across the region and setting the strategy for the company’s future direction.

A native of the US and a telecom veteran with over 25 years of experience, Mr. Gegenheimer has a track record of impressive results. Prior to joining Zain Group, he had spent the last decade in various senior management and leadership positions at regional operators. He has spent time working for technology heavyweights including Cisco Systems and Motorola, and has also enjoyed a stint in the financial services industry in the US. He holds a Bachelor of Science degree in Finance and Management from Northern Illinois University and an MBA from DePaul University in Chicago.

Abdulaziz Bin Yacoub Al-Nafisiboard MemberMr. Al-Nafisi represents Mobile Telecommunications Company K.S.C (Zain Group) which owns 37.05% of Zain KSA and is one of the leading companies in the field of mobile telecommunications in the Middle East and Africa. He has been a member of the Board of Zain Group since March 2005 and served as Deputy Chairman from March 2010 till February 2014. Having vast experience in the fields of finance and investment, he began his career with Burgan Bank in 1978, was a member of the Board and CEO of International Project Investment Group from 1992- 1996, and Chairman of Al-Madar Islamic Finance from 1998-2003.

He has been a member of the Board of the Arab Telecom Co. since 2000 and Chairman since 2003, in addition to being CEO of the Al-Nafisi National Group since 1986. In March 2014, Mr. Al Nafisi was appointed as Deputy Chairman of Kuwait Finance House. He earned his Bachelor’s degree in Business Administration from Whittier College, California, in 1977.

Eng. Farhan Bin Naif Al-Faisal Al-JarbachairmanPrior to being Zain KSA’s BOD Chairman, Eng. Farhan successfully relaunched Mobile Systems International group of companies (MSI) in 2006, where he serves as Chairman of the Board of the group and CEO. Eng. Farhan founded Modern Technology Co. ltd. (MOTECO) in 2001, which branched out into the medical field by acquiring Beauty Med in 2013, where he also serves as the Chairman and CEO. He played a key role in the Kingdom’s telecom industry revolution, transforming the family business (Farhan Commercial Establishment) into Farhan Commercial Company ltd. (1982) and High Capabilities Telecom Company ltd. - HICAP (1983), and currently serves as the Vice President of both companies.

With over 34 years of experience in the telecommunication industry, Eng. Farhan is one of Saudi Arabia’s leading figures in the telecom industry. He graduated with a Bachelor of Science degree in Civil Engineering from King Fahd University of Petroleum and Minerals (KFUPM) in the summer of 1979.

18 19


Abdulaziz Salem Al Ruwaisboard MemberProfessor Al Ruwais is a Saudi citizen and holds a Ph.D. from Ohio State University, M.Sc. from the University of Colorado and a B.Sc. from King Saud University (KSU); all in Electrical Engineering (Telecommunications). He has vast experience in fixed and mobile communication networks and services. Currently, he is a professor of telecommunications and the senior vice rector of KSU.

Ossama Michael Mattaboard MemberMr. Matta represents Itisalat Plus Company K.S.C (Closed). Founded in July 2001, the company is specialized in importing, exporting, and installing mobile phones, in addition to phone line businesses. 99% owned by Zain Group and with a capital of KWD 250,000, the company’s main objective is to utilize financial surplus by investing in financial and real estate portfolios managed by specialized companies. Notably, Mr. Matta is the Zain Group Chief Financial Officer – playing a key role in the Zain Group senior executive management team to determine the Group’s strategy, and is responsible for all financial, investment, and investor relations’ issues.

Mr. Matta is a results-oriented leader and an advocate of firm corporate governance and transparency with more than a 15-year track record of solid financial and managerial experience in the Middle East. Through his strong corporate finance background and expertise, he has established solid relationships with investment and commercial banking communities across the region. Mr. Matta attained an Executive MBA from the American University of Beirut and is a Certified Public Accountant.

Thamer Ahmad Obeidatboard MemberMr. Obeidat represents Al-Nahar Economic Consultancy Company Ltd. which was founded in 2006. Based in Kuwait, the company provides management and economic consulting services for private and public sector institutions to tackle some of the greatest challenges they face such as organizational restructuring and financial and operational re-organizing. The company also works in buying and selling stocks and real estate, in addition to providing integrated specialized services for companies in the region.

Mr. Obeidat is an attorney at law and managing partner at the law firm of Obeidat & Freihat in Amman, Jordan. He is considered one of the most prominent lawyers in the Arab world in the field of telecom given his 20-year experience in the sector. He studied law at the University of Jordan (LL.B., First Class Honors, 1987) and at Harvard Law School (LL.M., 1988) and is admitted to practice in Jordan and the State of New York.

Raied Bin Ali Al Saifboard MemberMr. Al Saif is the Director of the Investment and Business Development department at the private office of Prince Sultan bin Mohammed bin Saud Al-Kabeer Al Saud since 2008. His department is responsible for supervising investments, providing counseling services for listed and private companies, and overseeing all business activities and joint ventures with local and foreign companies, in addition to developing real estate projects.

Mr. Al Saif attained his Bachelor’s degree in Accounting from King Saud University in 1996.

Georges P. Schorderetboard MemberMr. Schorderet is the Chief Operating Officer at Almarai Company, the largest vertically integrated dairy foods company in the world. Established in 1976 and headquartered in Riyadh, Almarai’s network extends throughout the Arabian Peninsula, leading and influencing the agricultural, dairy processing, and food distribution industries. Mr. Schorderet was Almarai’s Chief Financial Officer from 2004 to 2011, after which he became the company’s Chief Operating Officer.

Mr. Schorderet is a Certified Accountant with an MBA from International Management Development (IMD), Lausanne, Switzerland.

20 21

executiveManageMent


ExECUTIVE MANAGEMENT

Hassan Kabbanichief executive OfficerMr. Kabbani has accumulated 25 years of senior executive telecommunications experience in the Middle East and Africa. He successfully led five telecommunications operations as CEO. From September 2008 till September 2011, he was the CEO and Board member of Mobinil in Egypt, a joint venture between France Telecom and Orascom Telecom. Despite the very challenging operating environment, under his leadership, Mobinil increased its customer base by 50% reaching 30 million subscribers in 2011 and revenue reached $2 billion with an EBITDA margin of 42% in a business employing 6,200 people. From October 2003 till September 2008, he was the CEO of Orascom Telecom Algeria –“Djezzy”. During that period, the subscriber base reached 14.5 million, securing the number one position in Algeria with a 63% market share and an EBITDA margin exceeding 60% on a revenue of $1.8 billion. Between 2002 and 2003, he was appointed CEO of Telecel International Holding. Among his achievements was the financial and operational restructuring of twelve GSM operations across the African continent.

Hassan Kabbani holds a Bachelor’s degree in Business Marketing from the Lebanese American University (LAU) followed by several postgraduate executive programs from INSEAD and ESA (Ecole Supérieur des Affaires).

Saud Al-Bawardichief Operation Officer Mr. Al-Bawardi rejoined Zain KSA in July 2011. He has over 15 years of experience in the telecommunications and banking sectors within Saudi Arabia.

Prior to joining Zain KSA, Saud was part of the Mobily launch team, where he managed the creation and implementation of the successful Mobily flagship store concept, including the paperless registration process. Originally, Saud worked for Zain KSA in 2008 where he was responsible for the public communication of the IPO. As manager for the central region, he led a 350% increase in the consumer loan book at Bank Al-Jazira. Key to this success was the reduction in loan approval time from 3 weeks to 48 hours.

Saud holds a Bachelor’s degree in Media and Public Relations from King Saud University. He has also attended several training courses in strategic management, investment and telecommunications at reputed institutes in USA, UK, and Switzerland.

Abdulmajid Alrashoudichief customer Service Officer Mr. Alrashoudi joined Zain KSA in February 2008 as part of the initial management team. He holds 17 years of experience in a variety of areas and industries, all centered on providing services. Abdulmajid started his career working for Alrashoudi Hajj and Omrah Company before establishing Alrashoudi International Omrah Company in 2000. A year later, he joined Al-Rajhi Bank, where he helped re-establish the phone banking services. In 2007, he joined Al-Oula Real Estate Development Company – one of the leading companies in its field. During that time, he was the General Director of Information and Customer Service. He also assisted the CEO in establishing Edar, a real-estate marketing company.

Abdulmajid holds a BA in Business Administration from KSU.

Wissam Farhatchief financial Officer Mr. Farhat joined Zain KSA in January 2013. He carries over 15 years of financial and risk management experience in diverse industries, including the last 6 years within the Telecom industry. Wissam has a proven record of designing and delivering successful financial strategies and forging business alliances to ensure sustainable business growth. He successfully managed many business turnarounds and restructuring operations to improve profitability through cost reduction and efficiency improvements. Before joining Zain, Wissam used to be the Global VP Finance and Administration for Mobile Systems International Consultancy Limited, an international telecom consultancy company. His experience also spans senior management roles at a number of international financial advisory houses including Deloitte & Touche, PwC, and Anderson & Co.

Wissam graduated with a Bachelor’s Degree in Business Studies, Banking and Finance, from the Lebanese American University in 1999 and has been certified in IFRS by ACCA London in 2004. Also, he has enrolled in many courses on leadership essentials at Harvard Business School.

24 25


Andrew Whitechief Strategy OfficerMr. White joined Zain KSA in January 2013 following over 20 years of experience in the telecommunications industry. Prior to joining Zain KSA, Andrew was Managing Partner of Piran Partners, a boutique strategy consultancy serving the mobile telecommunications industry. His career in telecommunications started at RACAL Electronics plc – the parent company of Vodafone – in 1989. Throughout his career path, he helped create businesses, partnerships, and product lines in various companies including Motorola, Vodafone, Yahoo!, France Telecom, T-Mobile, Lebara, Walmart, Sainsbury’s, Mizuho, China Telecom and Huawei.

Andrew holds a Master’s degree in Business Administration, awarded with distinction, from the London Business School in 1996 and a Master of Electronic Engineering from the University of Surrey in 1990. He was elected a Fellow of the Institution of Engineering and Technology (IET) London in 2012 and a Fellow of the Chartered Institute of Marketing (CIM) in 2014.

Matthieu Galvanichief commercial OfficerMr. Galvani joined Zain KSA in February 2014. With 15 years as an experienced executive, he holds a strong track record in international telecom groups such as Vivendi Telecom International, Orascom Telecom, and Emirates International Telecommunication Ltd. He has acquired vast experience in marketing, communication, and commercial strategies for mobile, fixed, DSL, and mobile broadband lines of business. Matthieu has built and developed different brands as well as sales, distribution, and customer-care activities for both consumer and enterprise markets. He has led business transformations and set up results-oriented commercial organizations.

Matthieu holds a Master’s degree in Econometrics and a Post Graduate Diploma in Energy Economics and Politics from the French Atomic Energy Agency (CEA) and University of Paris X.

Frederick Vermeulenchief technical OfficerMr. Vermeulen joined Zain KSA during July 2014. As Chief Technical Officer, he is responsible for running Zain KSA’s network and technical operations, asserting network and operational efficiency, and leading relevant planning, development and upgrades.

Frederick has 25 years of experience in the telecommunication industry and has held a wide variety of positions in telecommunications with major operators such as Vodacom South Africa (a Vodafone subsidiary), Vodacom International, Bharti Airtel Nigeria and Cell C. Prior to joining Zain KSA, he was the COO at Cell C.

Frederick holds a Bachelor’s degree in Electronic Engineering as well as a Master’s degree in Business Administration with a major in Finance.

Montgomery Hongchief transformation OfficerMr. Hong has over 28 years of experience in the telecommunications industry. Monte has deep expertise in the communications industry specializing in large-scale business and IT transformation programs for telecommunications companies across North America, Europe, and Asia Pacific. As Chief Transformation Officer, Monte is responsible for leading business capabilities and processes, customer experience, and Innovation with the key objective of improving business excellence across Zain KSA.

Monte attended Willamette University in Salem, Oregon, USA, and holds a Bachelor of Arts and Masters of Management degrees.

26 27


Zain Group37.05%

Other FoundingShareholders20.80%

Public42.16%

OWNERShIP STRUCTUREWe are proud to be a Saudi owned company. Approximately 60% of our equity is owned by Saudi shareholders, while 42% of our equity is owned by members of the public. Shareholders base is approximately 400,000. Close to 21% is held by the founding Saudi shareholders. Finally, Zain Group owns 37%.

Other Founding Shareholders Stake %

Faden Trading & Contracting Est 5.97%

Saudi Plastic Factory Est 5.85%

Abu Dhabi Investment house P.J.S.C 2.14%

Al Marai Co 2.13%

hh Prince Sultan Mohammed Saud Al Kabeer 2.13%

Al Jeraisy Development Co. Ltd 1.06%

Architectural Elite Est 0.56%

Al Sale Al Sharkiya Co. Ltd 0.53%

Rakisa holding Co 0.44%

Total 20.80%

28 29

DIGITAL IN SAUDI ARABIAA snapshot of the country’s key digital statistics indicators

Total population

Active internet users

Active social media accounts

Mobile connections

Active mobilesocial accounts

31.5M 18.3M 9.2M 54.5M 8.0M

ANNUAL GROWTHGrowth trends for the country’s key digital statistical indicators

+28%Since JAN 2014

Growth in the number of active

social media accounts

+21%Since JAN 2014

Growth in thenumber of mobile

subscriptions

+3Since JAN 2014

Growth in the numberof active mobilesocial accounts

+14%Since JUL 2014

INTERNET USEBased on reported active internet users data, and user-claimed mobile internet use

Total numberof active

internet users

18.3MInternet users as a percentage of the

population

58%Total number

of active mobile internet users

14.7MMobile internet users as

a percentage of the total population

47%

SOCIAL MEDIA USE Based on monthly active user numbers reported by the country’s most recent active platform



9.2MActive social accounts

as a percentage ofthe total population

Total number ofsocial accounts

accessing via mobile

8.0MActive mobile social

accounts as a percentageof the total population

25%

Growth in thenumber of active

internet users

29%

#

# #

#

Source: Wikipedia; Internet Live Stats, Internet World Stats; Facebook;, Tencent, VKontakte, Live Internet; GSMA Intelligence.

Source: Internet Live Stats, Internet World Stats; Facebook;, Tencent, VKontakte, Live Internet; We are social research & analysis.

Source: Internet Live Stats Q1 2015, Internet World Stats Q1 2015; Global Web Index, Q4 2014 (survey). Wikipedia for population data.

Source: Facebook Q1 2015; Tencent Q4 2014; VKontakte Q3 2014 & Q4 2014, Live Internet.ru Q1 2015. Wikipedia for population data.


Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#






Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#






Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#





45%

4%

43%

East Europe

Central Asia

East Asia

32%South West Asia

45%

Oceania

9%

South Asia

17%Middle East

47%West Europe58%

North America

37%Central America

48%SouthAmerica 9%

Africa

IND

IA

GLO

BA

LA

VE

RA

GE

CH

INA

75

%

95

%

USA

10

3%

AU

ST-

RA

LIA

10

3%

GE

R-

MA

NY

13

8%

SIN

G-

AP

OR

E1

52

%

UA

E

KSA

17

3%

17

3%

98

%

MOBILE CONNECTIONSMobile connections by country compared to national populations

2014

2015

33.4

%

2013

17.0

%

2012

10.9

%

2011

6.1

%

2010

2.9

%

2009

0.7

%

28.9

%

SOCIAL MEDIA USE Total active accounts on the top social network in each country, compared to population

MOBILE CONNECTIONS BY DEVICE Based on the total number of smartphone connections as a percentage of total connections

Total number of global mobile connections

7.1BTotal number of

global Smartphoneconnections

2.7BSmartphone

connections as a percentage of total

connections

38%Total number

of feature-phoneconnections

4.1BFeature-Phone

connections as a percentage of total

connections

58%

# #

MOBILE’S SHARE OF WEB TRAFFICPercentage of all web pages served to mobile phones

#

Source: Facebook Q1 2015; Tencent Q4 2014; VKontakte Q3 2014 & Q4 2014. Wikipedia for population data.

Source: GSMA Intelligence, Q4 2014

Source: Ericsson Mobility Report, Q4 2014. Note that other devices such as tablets account for 300 million connections (4% of total)

Source:StatCounter, Q1 2015.


Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#






Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#






Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#






Total population



Mobile connections


31.5M 18.3M 9.2M 54.5M 8.0M


+28%Since JAN 2014



+21%Since JAN 2014


subscriptions

+3Since JAN 2014


+14%Since JUL 2014



internet users


population

58%Total number




47%










25%


internet users

29%

#

# #

#






FROM ThE INDUSTRY’S PERSPECTIVEFROM ThE INDUSTRY’S PERSPECTIVE

30 31


2010Reached SAR 5.7 billion in revenueReached 8.3 million subscribers

MEASURING SUCCESS

Key Performance Indicators

Annual Revenues 2014 SAR 6.2 billion

EBITDA SAR 1.1 billion

Subscribers 9.7 million

Number of employees 1,451

Saudization ratio 80%

Number of Zain KSA shops 250

Number of points of sale 6,545

Coverage 98% of the population

Number of cell sites 6,252

2008Feb-08Successful IPO on the Saudi Stock Exchange

Aug-08Zain KSA’s commercial launch (GSM & 3G)

2009Nov-09EBITDA breakeven

Dec-09Reached SAR 3 billion in revenueReached 5.2 million subscribers

2012Completed a successful Rights Issue transaction of USD 1.6 billion

2007Jul-07 Zain KSA awarded a wtechnology neutral license

ROAD TO SUCCESS

Jan-14Revamp of Zain KSA brand, significantly reinforcing the brand’s presence and enhancing customer experience

Dec-14Zain KSA wins Best Customer Service Provider Award

2014

2013Jun-13Entered into an agreement with MoF to postpone the government dues estimated at SAR 800 million annually for the next 7 years

Jul-13Successfully refinanced the MFA loan of USD 2.3 billion for a 5-year tenor

2011Sept-11First operator to commercially launch 4G – LTE service in KSA

Dec-11Reached SAR 6.4 billion in revenueReached 8.1 million subscribers

KPIs 2010 – 2014

FY’10 FY’11 FY’12 FY’13 FY’14

Customers (mn) 8.3 8.1 7.9 8.7 9.7

Revenues (SAR mn) 5,934 6,699 6,171 6,523 6,244

EBITDA (SAR mn) 331 899 878 891 1,100

Net Loss (SAR mn) (2,358) (1,925) (1,749) (1,651) (1,269)

32 33

02winning thrOughcaring


Zain KSA is the third entrant in the Saudi mobile telecommunications market. Our market strategy is to be known as the operator that cares for its customers. Our objective is to increase our value market share to make us a profitable and sustainable operation.

This will be conducted through numerous strategic pillars, based around our “Winning through Caring Strategy”:

Competitive NetworkWe have the best data network in a market where data is the future. We are eager to remain in the lead so we are investing capital to maintain our data advantage and strengthen our voice network.

More and Better DistributionWe will be close to our customers with an expanded capillary distribution network. We are increasing our distribution footprint dramatically to get closer to our customers – we are opening a number of new shops every month.

Better Customer ExperienceOur customers say that we have the best customer service in KSA. We must use this foundation to establish Zain KSA as the leader in customer experience in the KSA mobile market – the “caring operator”. We do all this in a spirit of superior customer service, making every customer touch point with us easy.

Competitive Products & ServicesWe will care for our customers by delivering more innovative and value-for-money products built off our excellent data network. We are going to launch new products to make us truly competitive across all our key segments.

Growth in Business SegmentThe formula for success in the Business Segment market is fairly straightforward: the right solutions with the right support and distribution reach. Partnerships, such as Microsoft, help complement our portfolio of solutions.

Improved Regulatory EnvironmentWe applaud CITC’s statement – in its consultation paper – that MTRs should be reduced. We believe that a reduction in MTRs will reduce the overall cost of mobile telephony for consumers, a cause that we champion. As the third entrant in the Kingdom, Zain KSA aims to provide quality, value-for-money services to consumers.

In summary, success will be realized when customers perceive that Zain KSA is the Saudi mobile operator that really cares for its customers. The Company is working diligently towards this, and we invite you on this journey to write this success story together.

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03Our buSineSS


COMMERCIAL OVERVIEWCommercially, Zain KSA has taken big strides in the execution of its commercial strategy and has, as a result, gained increasing momentum in the market during 2014. Six major moves mark our direction to win over new customers and create higher value:

Brand RevampWe have revamped our brand to grant it a refreshed look in the eyes and minds of our customers, and strengthen its association with Saudi Arabia. The refreshed look was rolled out at our shops to complement the new, customer-centric shop concept.

Customer ProximityWe are getting closer to our customers on the ground and in the digital arena by:

• Revamping and improving Zain KSA’s retail footprint including direct sales and distribution channels (flagships, FBOs and kiosks), as well as indirect channels (points of sale, electronic voucher devices, etc.). During 2014, the number of Zain KSA shops reached 250, along with a total of 6,545 points of sale and 21,000 recharge points of sale.

• Ensuring our products have high visibility; they can now be found in more visible high-traffic locations such as malls through cost-effective kiosks.

• Enabling digital channels with mobile application and web-based services.• Focusing on B2B and extending its reach with new partners for indirect distribution.

Diversification and New Segments• In line with Zain KSA’s strategy of moving towards simple and reliable offerings, new worry-free postpaid

packages were introduced; mid and high-end customers find these packages particularly attractive. As a result, our value market share is growing.

• Shabab, a new and trendy package targeting the younger generation segment, was introduced. Customers who recharge regularly enjoy a range of benefits including free YouTube usage.

2014 was the year of positive changes in various aspects of our business. We have applied significant operational improvements that resulted in better performance and granted us a competitive edge as outlined in the following sections.

Sales Model and Team Capabilities• A new sales model, distribution strategy, and commissions scheme have been introduced to improve

sales volume and quality. • A new indirect distribution strategy has improved the quality of sales, resulting in direct improvement

of our financial performance.

Giving More Value to the CustomerAs part of the Zain KSA’s strategy of Winning through Caring, Zain KSA has introduced a market promotion whereby loyal customers are rewarded with free on-net calls.

Data-centric Plans and ProductsNew and trendy data products were introduced, such as mix SIMs (Voice and Data), hybrids, and new recharge options to cater for the growing data needs in the Saudi market

44 45


NETWORK OVERVIEWDuring 2014, Zain KSA continued to build its voice services and enhance the offered Mobile Broad Band (MBB) services to higher speeds in line with market needs.

TechnologyZain is participating in applying for digital dividend 800MHz spectrum from CITC which is currently occupied by analog television. In addition, we aim to increase our allocation of radio spectrum, particularly in the 2,100MHz band. The network also uses various frequency bands to provide backhaul and backbone transmission.

License 25 year, technology neutral, mobile services licenseSpectrum 900 MHz, 1800 MHz and 2100 MHzTechnology GSM (2G), UMTS & HSPA+ (3G), and LTE (4G)Backhaul Microwave and high capacity fiber links

Expansion and Customer ExperienceIn June 2014, Zain KSA announced a major enhancement in customer experience through Project RELOAD, which represents a significant expansion of its network. Several agreements were signed with key international telecom suppliers amounting to SAR 4.5 billion to procure telecommunications network infrastructure equipment. Suppliers include Huawei, Nokia, NEC, Cisco and Alcatel-Lucent.

2013 2014

Cell sites 5,727 6,158

Cities covered 600 618

Road coverage 120 130

2G with national roaming 98% of the population 98% of the population

2G 93.3% of the population 93.7% of the population

3G 83% of the population 86% of the population

4G/LTE 51% of the population 65% of the population

Through these agreements, Zain KSA intends to deploy the latest 4G/LTE and mobile broadband infrastructure including radio access, transmission, core network, IP backbone and Internet gateway equipment. The purchased assets will enhance and expand Zain KSA’s current network in terms of coverage and capacity for voice and data services.

During Hajj 2014, Zain KSA was the first operator to offer FDD LTE in the Makkah and Madinah Haram and Mashaer areas. Compared with 2013, data traffic during the 2014 Hajj season increased by 200%.

Coverage

46 47


IT OVERVIEWZain KSA led a major, business-oriented IT transformation in 2014 that aims to significantly augment business capabilities across a wide array of operations and introduce new capabilities empowering novel business scenarios. The following main areas are being addressed:

• End-to-end digitization of all channels and touch points.• Enhanced retention, cross-sell/up-sell capabilities.• State-of-the-art Customer Relation Management.

Launch of new CBiOIn 2014, Zain KSA launched phase one of the state-of-the-art Charging and Billing in One “CBiO” with the support of the world-renowned “Ericsson Intelligent Network Real Time” rating platform and its multitude of extra product capabilities. This comes in addition to other CBiO components, significantly enhancing customer lifecycle management, customer experience and customer insight, as well as enhancing the level of customer focus. All Zain KSA prepaid customers were migrated from the Legacy Prepaid system to the new CBiO in a seamless manner.

CRM EnrichmentZain KSA invested in enriching the current Customer Relationship Management “CRM” system capabilities to provide a better experience for both business partners and customers in our customer care environment as well as in our sales channels.

Accordingly, the impact on customer insight, value segmentation, experience, stock movement, and partner replenishment, as well as the B2B sales force, will be significant.

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19%

50%

25H

FreeZain - Zain

Calls

FreeMobily - Mobily

Calls

FreeSTC - STC

Calls25H

MTRMobile Termination Rate

of Subs. Market

of Subs. Market

of Subs. Market

MTRs have not changed in KSA since 2008

THE ‘CLUB EFFECT’

MTRs: KSA vs European average “Halala per minute”(source: BEREC)

2008 2009 2010 2011 2012 2013 2014

KSA MTRs

Europe (av)

42

36

30

2525

2319

114

25

28

25 25 25

31%

25H

REGULATORY OVERVIEW During 2014, Zain KSA conducted a thorough review of the economic environment in which it operates. Results clearly showed that the Mobile Termination Rate (MTR) – the amount Zain KSA is required, by regulation, to pay to other mobile operators for terminating calls to customers on their network – contributed to an anticompetitive environment. MTRs in Saudi Arabia are very high by international standards and have led to what is known internationally in telecommunications as the ‘Club Effect’. Competitors had selectively offered on-net prices well below the MTR, meaning that it is less expensive for consumers to join an operator with a large market share: a big ‘Club’.

The diagram opposite illustrates the ‘Club Effect’. Operators use high MTRs and low on-net rates to build a brick wall around their customer bases. The power of this ‘Club Effect’ is maintained through high MTRs and operators with disproportionate market shares. As MTRs decrease, so does the power of the ‘Club Effect’.

The MTR is one of the fundamental levers used by telecommunications regulators to effectively manage competition in the telecommunications industry. For instance, BEREC – the Body of European Regulators for Electronic Communications, as established by the European Commission – publishes the evolution of MTRs across Europe as shown in the chart opposite. In Saudi Arabia, unlike across Europe where they have gradually decreased over time, MTRs had not changed since 2008.

In November 2014, the Company responded to the Communications & Information Technology Commission’s (CITC) consultation to reduce Mobile Termination Rates (MTRs) and Fixed Termination Rates (FTRs) in Saudi Arabia. The Company applauds CITC’s statement in its original consultation paper, published in September 2014, that MTRs should be reduced to 8H. Zain KSA believes that a reduction in MTRs will reduce the overall cost of mobile telephony for consumers. The Company champions this cause and, as the third entrant in the Kingdom, aims to provide quality, value-for-money services to consumers.

Zain’s research, based on international experience, shows that the decline in the power of the ‘Club Effect’ is not linear with the decline in MTR. Effectively, there is an inflection point, perhaps a good analogy might be a build-up of water that leads to the breaking of a damn. Once the MTR decreases below this inflection point, water starts to flow and the market share of the operators will start to even out. Therefore, as stated in our Board of Directors report, the Company believes that MTRs should be immediately reduced to 8H or below.

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04Our PeOPle


Ice Cream for a Great Support Team!A Zain customer sends ice cream as a token of appreciation to our customer service team.

It is a simple story involving ice cream, but is quite heart-warming for us at Zain KSA. It all started when one of our customers requested a network issue follow-up, to which the customer care center responded promptly and efficiently. The team provided their usual high-quality service standards, ensuring the customer is satisfied. Their efforts did not go unnoticed.

The customer contacted one of our senior managers and thanked the whole team for their great service. He also sent boxes of ice cream from his own stores and made sure they were distributed to customer care and IT support.

Iced “Thank you”, from Zain client to the Customer Care team .. for their efficiency and success when serving him.

Ice CreamFor a Team, Sweeps the Heat Away

WHAT'S WITH THE

BUZZ AROUNDTHE ICE CREAM?

TO BE CONTINUED...

OUR PRIMARY ASSETSAt Zain KSA, human capital is our primary source of pride. It is because of our employees’ expertise, high level of commitment, relentless efforts, and world-class professionalism that our journey towards further success continues. Zain KSA ensures providing a positive, motivating, and caring work environment and career paths that endorse long-term individual growth. Consequently, every individual’s success contributes to the Company’s overall growth. The positive change Zain KSA witnessed in 2014 was not limited to technical or commercial improvements, but was equally experienced by Zain KSA’s human resources.

Enhanced CapabilitiesOur customer-centric approach involved revamping Zain KSA shop layouts and applying new processes and procedures that provide exceptional customer experience. In parallel, employee skills were upgraded to ensure providing the highest standards of customer service.

Stronger Sales TeamZain KSA’s sales team was granted a comprehensive empowerment tool kit to facilitate reaching set targets. This included a new steering process and a fully dedicated Program Management Office.

Unlimited LearningIn 2014, we continued to offer our employees training both locally and internationally, as well as on-the-job knowledge transfer. Also, Zain KSA fulfilled its social responsibility by offering student internships and summer training programs for students from various universities around the Kingdom.

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05bringing abOut POSitive change


Ramadan Support Programs and InitiativesIn Ramadan 2014, Zain KSA announced that for every new line subscription, bill payment, credit recharge, or purchase of Zain KSA’s products or services during the holy month, SAR 1 would be donated to charity. The donations were received by the Disabled Children Association, The Saudi Association for Hearing Impairment, Prince Fahad bin Salman Charity Association for Renal Failure Patients Care, and the Charity Committee for Orphans Care. In addition, over 50,000 Ramadan Iftar meals were provided in Makkah and Al-Madinah, taking Zain KSA’s total contribution to 1,250,000 meals for 6 years since it was founded.”

حافظ على نظافتك الشخصية، وداوم على

االستحمام وغسل اليدين.

Maintain personal hygiene, take a bath and wash hands regularly.

ارتِد قناًعا صحًيا، والسّيما في األماكن

المزدحمة.

Use a health-mask, especially

in crowded places.

تجّنب التعّرض للشمس فترات

طويلة، واستخدم مظّلة شمسية عند

الحاجة.

Avoid exposure to the sun for a

long time, use an umbrella when

necessary.

اشرب كميات كافية من السوائل )ماء، عصائر( بانتظام.

Drink enough liquids (water,

juices, etc.) regularly.

تجّنب اإلرهاق وخذ كفايتك من النوم بعد

أداء شعائر الحج.

Avoid making exhausting

effort and take sufficient sleep

after performing each of the Hajj

rituals.

Hajj Tips نصائح للحاج

At Zain KSA, corporate social responsibility is powered by the essence of Zain’s slogan: a wonderful world. As a Saudi company, we are keen on bringing about positive change throughout the Kingdom to the best of our abilities.

In 2014, Zain KSA continued with its incremental acts of goodness towards the community, internal communication campaigns, marketplace contributions, and environmental sustainability programs. The highlights were as follows:

Fallimha for the Saudi YouthLaunched in 2012, Fallimha is a unique YouTube show that aims at teaching the English language to the Saudi youth through using Western movies. The show quickly gained popularity and has become an effective educational tool, eventually winning the Ihsan Education Award in 2013 and receiving recognition from the Ministry of Education.

In 2014, Fallimha featured Zain-customized episodes that brought the show to a new level in terms of content and innovation, helping to gain a wider audience for more and better impact.

Hadafi for Supporting Saudi BusinesswomenZain KSA participated as an official sponsor for ‘Hadafi’ program that aims at empowering entrepreneurial initiatives of Saudi women, helping to improve their business skills and facilitating their projects’ development. In 2014, Zain KSA chose the program’s top ten entrepreneurs and recognized their achievements at the Hadafi Program Awards Ceremony.

CSR Initiatives During Hajj SeasonWith every new package subscription during Hajj, SAR 1 was deducted for donations to ‘Saut’ Down Syndrome Society and ‘Ensan’ for orphans. In addition, and for the 5th consecutive year, Zain KSA provided King Abdullah Program Guests with giveaways and VIP gifts, as well as free smartphones with an initial credit balance to access Zain services. The Company also created awareness through SMS content, social media, and a short video about Hajj.

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My Bicycle “Darajti”In February 2014, Zain KSA sponsored the ‘Darajti’ race and invited the Disabled Children’s Association to take part. This granted children with special needs the opportunity to participate in a unique sports event. ‘Darajti’ winners received valuable prizes from Zain KSA, including a specially designed racing wheelchair for the first place winner.

The Arab Smart Device Applications Challenge Zain KSA participated in hosting the 2nd annual Arab Mobile App Competition which aims to enhance developers’ skills, especially in the field of creating Arabic apps, in addition to enhancing their entrepreneurial skills. The competition provides Saudi youth with the chance to bring their ideas to life. One of the Saudi teams ‘Educate with Teacher May’ won the education award, while the other team ‘Tarteel’ qualified to attend the finals in Barcelona.

Employee HealthcareAs the caring operator, Zain KSA dedicates as much care internally as it does to customers and the community. On the World Health Day 2014, healthcare checkups were provided to employees in Riyadh, Jeddah, and Dammam headquarters. In parallel, a healthcare campaign was launched internally, as well as on social media channels and throughout flagships in the Kingdom.

فحصك المبّكر وقاية...

يهدف الفحص الدوري إلى االكتشاف المبّكر لألمراض، وبالتالي زيادة فرص العالج. شارك معنا باليوم العالمي للصّحة تحت شعار "الكشف المبّكر وقاية".

64 65

06accOuntability, fairneSS, andtranSParency


Zain KSA has established its Corporate Governance Framework with the view of providing its Board, management and stakeholders with a structure along with clear policies and guidelines to ensure that the Company’s objectives are realized, its stakeholder expectations are managed and the requirements of the Corporate Governance Regulations issued by the CMA are met. This framework, together with the Company’s Articles of Association, Company’s bylaws, and the Charters of the Board Committees listed in this document and Companies Act provide the authority and practices for governance of Zain KSA.

In 2014, Committees of the Board of Directors were as follows:

1.ExECUTIVE COMMITTEEMembers: Eng. Farhan bin Naif Al Faisal Al Jarbaa (Chairperson)1, Dr. Abdulaziz bin Yacoub Al Nafisi, and Scott Marc Gegenheimer.

Duties and responsibilities of the Executive Committee include recommending objectives and strategy for the Company in the development of its business, having regard to the interests of its shareholders, customers, employees, and other stakeholders; agreeing policy guidelines for business divisions based on the strategy approved by the Board; monitoring the successful execution of the Company’s business plan (as approved by the Board), and monitoring the business division objectives and budgets to ensure that they fall within the Company’s targets (as approved by the Board). In addition, the Executive Committee reviews the organizational structure of the Company and makes recommendations for change, ensures the control, co-ordination, and monitoring within the Company of risk and internal controls, ensures the Company’s compliance with relevant legislation and regulations, and safeguards the integrity of management information and financial reporting systems. The Committee is also responsible for identifying and executing new business opportunities outside the current core activities, including geographic diversification, examining all trade investments, divestments and major capital expenditure proposals, and recommending to the Board those which are material either by nature or cost, optimizing the allocation and adequacy of the Company’s resources and reviewing and ensuring the implementation of the Company’s policies. The Committee has met two times in 2014.

(1) Eng. Farhan bin Naif Al Jarbaa became the Chairperson of Executive Committee on the 10th of March, 2014. Mr. Fahd bin Ibrahim Al Dughaither was the Chairperson until the 10th of March, 2014

(2) Georges P. Schorderet was appointed as the Audit Committee Chairperson on the 5th of June, 2014 as Dr. Abdullah Ba Sudan resigned from the Board on that date.(3) Dr. Abdulaziz Salem Al Ruwais was appointed an Audit Committee member on the 20th of January, 2015.

2. AUDIT COMMITTEEMembers: Georges P. Schorderet (Chairperson)2, Ossama Michael Matta, and Dr. Abdulaziz Salem Al Ruwais3.

Duties and responsibilities of the Audit Committee include supervising the Company’s internal audit division in order to verify its efficiency in performing the functions assigned to it by the Board of Directors; reviewing the internal audit system and preparing a written report with its opinion and recommendations on the same; reviewing the internal audit reports and setting corrective actions to the same; submitting recommendations to the Board of Directors with regards to the appointment or renewal of the external auditors (who will be independent) and determining their fees; and following up on the performance of accountants and approving their fees. In addition, the Audit Committee reviews the audit plan with the external auditor and gives remarks on the same; reviews the remarks of the external auditor on the financial statements and follows up on the actions taken in respect of the same; reviews the interim and annual financial statements before submission of the same to the Board of Directors and gives their opinion and recommendations on the same; and reviews the accounting policies used by the Company and gives opinions and recommendations on the same. The Committee has met four times in 2014.

3. NOMINATION AND REMUNERATION COMMITTEEMembers: Scott Marc Gegenheimer (Chairperson), Thamer Ahmad Obeidat, and Raied bin Ali Al Saif.

Duties and responsibilities of the Nomination and Remuneration Committee include recommending individuals for membership of the Board of Directors; conducting an annual review of the skills required for membership of the Board of Directors; identifying the strengths and weaknesses of the Board of Directors; and establishing clear policies concerning the remuneration of members of the Board of Directors and senior executives of the Company. The Committee has met once during the year 2014.

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07Mobile Telecommunications Company Saudi Arabia(A Saudi Joint Stock Company)

financial StateMentS and auditOrS’ rePOrtfOr the year ended 31 deceMber 2014


76 77


78 79


80 81


1. ORGANIZATION AND ACTIVITIES

Mobile Telecommunications Company Saudi Arabia (the “Company” or “Zain KSA”), provides mobile telecommunication services in the Kingdom of Saudi Arabia in which it operates, purchases, delivers, installs, manages and maintains mobile telephone services.

The Company is a “Saudi Joint Stock Company” established pursuant to the Ministerial Resolutions No. 176 dated 25 Jumada I 1428H (corresponding to 11 June 2007) and No. 357 dated 28 Dhu AlHijjah 1428H (corresponding to 7 January 2008), Royal Decree No. 48/M dated 26 Jumada I 1428H (corresponding to 12 June 2007) and Commercial Registration No. 1010246192 issued in Riyadh, Kingdom of Saudi Arabia on 4 Rabi Awal 1429H (corresponding to 12 March 2008) to operate as the 3rd GSM public mobile cellular and technology neutral license in the Kingdom of Saudi Arabia for twenty five (25) years.

The registered address of the Company is P.O. Box 295814, Riyadh 11351, Kingdom of Saudi Arabia.

The Company incurred losses for the period from 1 January 2014 to 31 December 2014 amounting to SR 1.27 billion and has accumulated deficit amounting to SR 5.27 billion as of that date. As of the third quarter 2014, the Company’s results were below its approved business plan and also fell below one of the loan covenants which is not considered as an event of default per the terms of the Murabaha Financing Agreement. During the fourth quarter, the management of the Company met with the financing banks to discuss the variance from its business plan and have obtained the required waiver for the above-mentioned breach as of 30 September 2014 and also agreed with the financing banks to revise covenant calculations for 31 December 2014 and 31 March 2015. The Company’s Board of Directors have approved a revised business plan on January 20, 2015. Currently, the Company is working with the banks consultants and financing banks to comply with the requirements of the financing agreements.

The Company’s management believes that the Company will be successful in meeting its obligations in normal course of operations. The directors of the Company have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.

Reduction of share capital to absorb accumulated deficit The Company‘s Board of Directors in their meeting held on 27 November 2014 recommended to the shareholders’ of the Company to reduce the Company’s share capital from SR 10,801,000,000 (1,080,100,000 shares of SAR 10 each) to SR 5,837,291,750 (583,729,175 shares of SR 10 each), representing a decrease of 45.96% of the share capital.

The principal reason for the proposed capital reduction is to write-off all of the Company’s accumulated losses up to 30 September 2014 approximately 45.96% of the share capital, as part of instituting its turnaround plan and pursuant to a recommendation by the executive management of the Company and its external advisers. The value of the Company will not change solely as a result of the capital reduction, although the number of shares held by each shareholder will reduce (Reducing 1 share for every 2.18 shares owned).

Notes to the Financial Statementsfor the year ended 31 December 2014

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of preparationThe accompanying financial statements have been prepared under the historical cost convention on the accrual basis of accounting, as modified by revaluation of derivative financial instruments at fair value, and in compliance with accounting standards promulgated by the Saudi Organization for Certified Public Accountants (“SOCPA”).

Critical accounting estimates and judgmentsThe preparation of financial statements in conformity with generally accepted accounting standards in the Kingdom of Saudi Arabia requires the use of certain critical estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The estimates and assumptions that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) intangible assetsIntangible assets include license acquired from the Ministry of Telecommunication and licenses related to computer software.

The relative size of the Company’s intangible assets being 67.5 % (2013: 70%) of the Company’s total assets makes the judgments surrounding the estimated useful lives critical to the Company’s financial position and performance.

1. ORGANISATION AND ACTIVITIES (CONTINUED)

Reduction of Share Capital to absorb accumulated deficit (Continued)On 27 January 2015 the Company has received required the resolution from the Board of the Capital Market Authority (“CMA”), approving the Company’s request to reduce its share capital. The above recommendation of the Board of Directors and approval from CMA is subject to the Company’s shareholders approval in an extraordinary general assembly meeting.

On 28th January 2015 the Company has invited its shareholders owning 20 shares or more to attend the extraordinary general assembly meeting to be held on 25 February 2015 to approve the recommendation of the Board of Directors for reduction in share capital and relevant amendments in the bylaws of the Company.

Refinancing ArrangementsOn 31 July 2013 the Company has signed an amended and restated “Murhabaha financing Agreement” which also includes some of the Existing Murabaha Facility Investors. As per the terms of the new agreement the Company has settled a portion of the existing facility amounting to SR 369 million from its internal cash resources to reduce the outstanding principle from SR 9 billion to SR 8.63 billion. With the signing of the new agreement the Company has successfully extended the maturity date of its Existing Murabaha facility for 5 years ending 30 June 2018 which was due on 31 July 2013.

On 5 June 2013 the Company has also signed a new long-term borrowing facility amounting to SR 2.25 billion with three years maturity ending 5 June 2016 to refinance the existing facility obtained from local commercial banks due on 3 April 2013.(Also refer to Note 9).

Agreement with the Ministry of Finance, Saudi ArabiaDuring 2013, the Company has signed an agreement with the Ministry of Finance, Saudi Arabia to defer payments of its dues to the government for the next seven years, estimated at SAR 5.6 billion. These deferred payments under this agreement will be bearing commercial commission payable annually, while the amount due will be repayable in equal installments starting June 2021. The amount deferred by the Company as of 31 December 2014 amounted to SR 801 million (2013: SR 275 million) included in other non-current liabilities.

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Segment reporting

(a) business segmentA business segment is a group of assets, operations or entities:i. engaged in revenue producing activities;ii. results of its operations are continuously analysed by management in order to make decisions related

to resource allocation and performance assessment; and iii. financial information is separately available.

(b) geographical segmentA geographical segment is a group of assets, operations or entities engaged in revenue producing activities within a particular economic environment that are subject to risks and returns different from those operating in other economic environments.

Foreign currency translations

(a) reporting currency These financial statements are presented in Saudi Riyals (“SR”) which is the reporting currency of the Company.

(b) transactions and balancesForeign currency transactions are translated into Saudi Riyals using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations.

Cash and cash equivalentsCash and cash equivalents include cash in hand and with banks and other short-term highly liquid investments, if any, with maturities of three months or less from the purchase date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Estimate of useful lifeThe useful life used to amortize intangible assets relates to the future performance of the assets acquired and management’s judgment of the period over which economic benefit will be derived from the asset. The basis for determining the useful life for the most significant categories of intangible assets is as follows:

(i) Mobile telecommunication licenseThe estimated useful life is the term of the license using the license term reflects the period over which the Company will receive economic benefit.

(ii) computer software licensesThe useful life is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. The useful life represents management’s view of expected useful life over which the Company will receive benefits from the software, but not exceeding the license term.

(b) Property and equipmentProperty and equipment also represent a significant proportion of the asset base of the Company, being 16.6% (2013: 16.4%) of the Company’s total assets. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Company’s financial position and performance.

Estimate of useful lifeThe charge in respect of periodic depreciation is derived after determining estimate of an asset’s expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the statement of operations.

The useful lives of the Company’s assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life, such as changes in technology. Unless there is a reasonable expectation of renewal or an alternative future use for the asset, network infrastructure is depreciated over a period that does not exceed the expiry of the associated license under which the Company provides telecommunication services.(Also refer to Note 25).

(c) Provision for doubtful receivablesA provision for impairment of accounts receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 60 days overdue) are considered indicators that the accounts receivable are impaired. For significant individual amounts, assessment is made at individual basis. Amounts which are not individually significant, but are overdue, are assessed collectively and a provision is recognized considering the length of time and past recovery rates.

86 87


are capitalized and the assets so replaced are retired.(Also refer to Note 25).

Intangible assetsLicense fee is stated at cost less accumulated amortization. The amortization period is 25 years and is primarily determined by reference to the unexpired license period, the conditions for license renewal and whether the license is dependent on specific technologies. Amortization is charged to the statement of operations on a straight-line basis over the estimated useful life from the commencement of service of the network.

Rights of use of various telecommunication services are recorded upon acquisition at cost and are amortized starting from the date of service on a straight line basis over their useful lives or statutory duration, whichever is shorter.

Computer software licenses are capitalized on the basis of the costs incurred to acquire and bring the specific software into use. These costs are amortized over their estimated useful lives, being 2 to 5 years. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company and that are expected to generate economic benefits exceeding one year are recognized as intangible assets.

Costs associated with maintaining the software are recognized as an expense when they are incurred.

Impairment of non-current assetsNon-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s fair value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-current assets other than intangible assets that suffered impairment are reviewed for possible reversal of impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but the increased carrying amount should not exceed the carrying amount that would have been determined, had no impairment loss been recognized for the assets or cash-generating unit in prior years.

A reversal of an impairment loss is recognized as income immediately in the statement of operations. Impairment losses recognized on intangible assets are not reversible.

BorrowingsBorrowings are recognized at the proceeds received. Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of those assets. Other borrowing costs are charged to the statement of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts receivableAccounts receivable are shown at their net realizable values, which represent billed and unbilled usage revenues net of allowances for doubtful accounts. A provision against doubtful receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Such provisions are charged to the statement of operations and reported under “distribution and marketing expenses”. When an account receivable is uncollectible, it is written-off against the provision for doubtful receivables. Any subsequent recoveries of amounts previously written-off are credited against “distribution and marketing expenses” in the statement of operations.

InventoriesInventories are carried at the lower of cost or net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

Inventories sold to distributors on which significant risk and reward remains with the Company are recorded as inventory on consignments.

Property and equipmentProperty and equipment are carried at cost less accumulated depreciation except for capital work in progress which is carried at cost. Depreciation is charged to the statement of operations, using the straight-line method, to allocate the costs of the related assets to their residual values over the following estimated useful lives of the assets:

Years

Leasehold improvements Shorter of lease term or useful life

Telecommunication equipment 3 -

mobile telecommunication company - zain · 2020. 1. 7. · mr. al-nafisi represents mobile...

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