Financial Analysis for

Agenda Of The Presentation

• KPMG contract with STC

• Telecom Industry In SA

• STC Under Focus

• STC Financial Analysis

• Recommendations

–Report on Revenue Leakage–Completion of Billing cycle report.–Policies and procedure manual.–Job descriptions.–Roles and responsibilities.

• KPMG contract Included :

Telecom Industry In SA

Telecom Industry In SA

Expected Expansion..

Initial approval for 3 additional operators that is expected to go public via an IPO

Telecom Industry In SA

STC UNDER FOCUS

• “As leaders in a world of constant change, we strive to exceed our customers 'expectations so that, together, we reach new horizons”

STC UNDER FOCUS

Honesty Respect Commitment Initiative Cooperation Loyalty

Mission:

Values:

STC Profile

- Largest telecom operator in the MENA region- Over 19,500 employees- 98% coverage of populated areas and highways- 19 million mobile subscribers, 4.1 million fixed subscribers and over 1million Broadband subscribers as at 31stDec. 2008

Financial Analysis

Liquidity RatiosThe Current ratio = Current Assets/Current liabilities

A part of surplus cash is invested in Murabaha deals with maturity periods of 90 days or less with Several local banks

Quick ratio= (current assets-inventories)/current liabilities

Net working capital = current assets – current liabilities Cash ratio = (Cash + Marketable securities)/ Current liabilities

The profitability Ratios

Gross Profit Margin= Gross Profit / Sales Net Profit Margin= Net Income/Sales

The increased currency losses and tax provisions were mainly due to increased international operations of STC through its subsidiaries

Return on Total Assets= EBIT / Total Assets

1- Increasing competition in the domestic GSM market.

Return on Equity= Net Income/Total Equity

2- the increase in the operating expenses.

The Payout Ratio = Div./Net Income The Plowback Ratio = 1 – Payout Ratio

Growth in Equity = Plowback ratio * ROE

HAJJ EFFECT ON PROFITABILITY

Mobily vs. STC : 3 million pilgrimages come to SA, Roaming revenues increase

The leverage Ratios

Equity Multiplier = Total Assets/ Total Equity Debt Ratio = Total Liabilities/Total Assets

Debt to Equity = Total Liabilities/ Equity

Efficiency Ratios

Assets Turnover = Sales / Average Total Assets

Comparison between STC, Telecom Industry and Tadawul

Regression Analysis

STS Regression vs. TASI

SUMMARY OUTPUT

Regression Statistics

Multiple R0.567966

R Square0.322586

Adjusted R Square0.320557

Standard Error1.341974

Observations336

ANOVA

 dfSSMSFSignificance F

Regression1286.4344286.4344159.05134.31944E-30

Residual334601.49831.800893

Total335887.9327   

 CoefficientsStandard

Errort StatP-valueLower 95%Upper 95%Lower 95.0%Upper 95.0%

Intercept-0.126310.073395-1.720910.086193-0.270682330.01806835-0.2706823340.01806835

X Variable 10.6922130.05488712.611554.32E-300.5842452010.800181730.5842452010.80018173

Telecom Industry's Regression vs. TASI

SUMMARY OUTPUT

Regression Statistics

Multiple R0.774565529

R Square0.599951759

Adjusted R Square0.59875401

Standard Error0.731796062

Observations336

ANOVA

 dfSSMSFSignificance F

Regression1268.2443414268.2443500.89932.0072E-68

Residual334178.86550930.535525

Total335447.1098506   

 CoefficientsStandard Errort StatP-valueLower 95%Upper 95%Lower 95.0%Upper 95.0%

Intercept-0.0343874240.040023445-0.859180.390856-0.113117220.044342-0.11311720.04434237

X Variable 10.669873450.02993074622.380782.01E-680.610996920.728750.610996920.72874998

Recommendations & Conclusion

1- The mechanism of choosing managers, employees in STC must be developed

2- More Focus on the local market

3- I expect Mobily is going to beat STC more on the market share side, taking advantage of the internal systematic problems in STC

4- From 1998 until now, STC monopolizes the Saudi wired line voice operations. The introduction of 3 new fixed line licenses will negatively affect STC’s wired line revenues

Thank you for listening

Q & A