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 Ratios

The 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 R 0.567966

R Square 0.322586

Adjusted R Square 0.320557

Standard Error 1.341974

Observations 336

ANOVA

df SS MS F Significance F

Regression 1 286.4344 286.4344 159.0513 4.31944E-30

Residual 334 601.4983 1.800893

Total 335 887.9327

CoefficientsStandard

Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -0.12631 0.073395 -1.72091 0.086193 -0.27068233 0.01806835 -0.270682334 0.01806835

X Variable 1 0.692213 0.054887 12.61155 4.32E-30 0.584245201 0.80018173 0.584245201 0.80018173

Telecom Industry's Regression vs. TASI

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.774565529

R Square 0.599951759

Adjusted R Square 0.59875401

Standard Error 0.731796062

Observations 336

ANOVA

df SS MS F Significance F

Regression 1 268.2443414 268.2443 500.8993 2.0072E-68

Residual 334 178.8655093 0.535525

Total 335 447.1098506

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -0.034387424 0.040023445 -0.85918 0.390856 -0.11311722 0.044342 -0.1131172 0.04434237

X Variable 1 0.66987345 0.029930746 22.38078 2.01E-68 0.61099692 0.72875 0.61099692 0.72874998

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