Financial Position of the STC

Saudi Telecom Company

(A Saudi Joint Stock Company) CONSOLIDATED FINANCIAL STATEMENTS FOR THE

YEAR ENDED 31 DECEMBER 2021

Information about the company:

ESTABLISHMENT OF THE COMPANY Saudi Telecom Company (the “Company”) was

established as a Saudi Joint Stock Company pursuant to Royal Decree No. M/35 dated 24

Dhul Hijja 1418H (corresponding to 21 April 1998) that authorized the transfer of the

telegraph and telephone division of the Ministry of Post, Telegraph and Telephone

(“MoPTT”) with its various components and technical and administrative facilities to the

Company, and in accordance with the Council of Ministers’ Resolution No. 213 dated 23

Dhul Hijja 1418H (corresponding to 20 April 1998) that approved the Company’s by-laws

(“By-laws”). The Company was wholly owned by the Government of the Kingdom of Saudi

Arabia (the “Government”). The Government sold 30% of its shares pursuant to the Council

of Ministers Resolution No. 171 dated 2 Rajab 1423H (corresponding to 9 September 2002),.

The Public Investment Fund (“PIF”) is the ultimate controlling party of the Company through

its ownership of 64% as at 31 December 2021 (2020: 70%).

12 | 1 P a g è s
During the year 2021, the PIF through a secondary offering sold 6% of the Company’s shares.

The Company commenced its operation as the provider of telecommunications services

throughout the Kingdom of Saudi Arabia (“the Kingdom”) on 6 Muharram 1419H

(corresponding to 2 May 1998) and received its Commercial Registration No. 1010150269 as

a Saudi Joint Stock Company on 4 Rabi Awal 1419H (corresponding to 29 June 1998). The

Company’s head office is located in King Abdulaziz Complex, Imam Mohammed Bin Saud

Street Al Mursalat Area, Riyadh, Kingdom of Saudi Arabia.

The number of outstanding shares as at 31 December (2021 = 1,997,149) (2020 = 1,997,017)

12 | 2 P a g è s
 Balance Sheet
Liabilities and
Assets 2021 2020 Stockholders' 2021 2020
Equity
Current Assets Current Liabilities
Cash 8,281,301 9,004,286 Accounts payable 17,114,298 19,711,207
Accounts Notes payable /
25,464,155 15,724,725 1,456,684 318,485
receivable short-term debt
Current maturities
Inventories 917,510 1,008,645 - -
of long-term debt
Other current Other current
16,805,108 20,121,260 14,989,570 12,861,491
assets Liabilities
Total current Total current
51,468,074 45,858,916 33,560,552 32,891,183
assets Liabilities
Long-term Assets Long-term Liabilities
Land - - Long-term debt 7,846,606 8,637,605
Capital lease
Buildings 70,523 36,980 2,353,593 2,237,853
obligations
Equipment 47,205,038 47,847,623 Total debt 10,200,199 10,875,458
Less
accumulated - - Deferred taxes - -
depreciation
Net property,
Other long-term
plant, and 47,275,561 47,884,603 12,632,687 12,938,444
Liabilities
equipmen
Goodwill and Total long-term
10,734,798 10,466,408 22,832,886 23,813,902
intangible assets Liabilities
Other long-term
18,300,984 17,762,173 Total Liabilities 56,393,438 56,705,085
assets
Total long-term Stockholders'
76,311,343 76,113,184 71,385,979 65,267,015
assets Equity
Total Liabilities
Total Assets 127,779,417 121,972,100 and Stockholders' 127,779,417 121,972,100
Equity

12 | 3 P a g è s
 Income Statement
2021 2020
Total Sales 63,416,977 58,953,318
Cost of sales (29,622,948) (24,998,923)
Gross Profit 33,794,029 33,954,395
Selling, general, and administrative expenses (10,953,429) (11,864,395)
Research and development - -
Depreciation and amortization (9,712,845) (9,358,875)
Operating Income 13,127,755 12,731,125
Other Income - -
Earnings Before Interest and Taxes (EBIT) 13,127,755 12,731,125
Interest income (expense) (492,692) (375,482)
Pretax Income 12,635,063 12,373,643
Taxes (1,040,366) (1,170,446)
Net income 11,594,697 11,185,197
Earnings per share 5.66 5.50
Diluted earnings per share 5.66 5.50

12 | 4 P a g è s
 Cash Flows
2021 2021
Operating activities
Net income 12,635,063 12,355,643
Depreciation and amortization 9,712,845 9,358,875
Other non-cash items 2421443 1999274
Cash effect of changes in
Accounts receivable (11,236,400) 4,540,765
Accounts payable (2,991,346) 280,331
Inventory 51,364 709,452
Other changes in 2,088,856 1,378,117
Cash from operating activities 12,681,825 29,753,089
Investment activities
Capital expenditures (2,179,186) (1,690,470)
Acquisitions and other investing activity (6,030,788) (9,150,117)
Cash from investing activities 6,495,391 (6,588,590)
Financing activities
Dividends paid (10,138,784) (8,076,199)
Sale (or purchase) of stock - (300,000)
Increase in borrowing (731,248) (402,386)
Cash from financing activities 1,123,981 21,363
Other Financing activities (489,126) (1,161,996)
Change in cash and cash equivalents (729,605) 20,301,107 976,310 - / 23,185,862

12 | 5 P a g è s
 The rules 2021 2020

Balance Sheet Rules

Assets = Liabilities + Stockholders' 56,393,438 + 71,385,979 = 56,705,085 + 65,267,015

Equity 127,779,417 = 121,972,100

Book Value Equity = Stockholders' 71,385,979 65,267,015

Equity

Net Working Capital = Current Assets 51,468,074 – 33,560,552 = 45,858,916 – 32,891,183

– Current Liabilities 17,907,522 = 12,967,733

Market Value of Equity (Market 5.66 X 1,997,149 = 5.50 X 1,997,017 =

Capitalization) = Market Price per 11,303,863.34 10,983,593.5

Share X Number of Shares

Market-to-Book Rati = Market Value 11,303,863.34 / 71,385,979 10,983,593.5 /

of Equity / Book Value of Equity = 0.16 65,267,015 = 0.17

Enterprise Value = Market Value of 11,303,863.34 + 10,200,199 10,983,593.5 +

Equity + Debt - Cash - 8,281,301 = 13,222,761.34 10,875,458 - 9,004,286 =

12,854,765.5

Cash Flows

Change in cash and cash equivalents = 12,681,825+ 6,495,391 + 29,753,089 +(6,588,590)

cash from operating activities + cash 1,123,981= 20,301,107 + 21,363 = 23,185,862

from invisting activities + cash from

financing activities

12 | 6 P a g è s
Income Statement

Gross profit = Total sales – Cost of 63,416,977– 29,622,948 = 58,953,318– 24,998,923

sales 33,794,029 = 33,954,395

Operating Income = Gross Profit - 33,794,029 – 20,666,274 = 33,954,395- 21,223,270=

Operating Expenses 13,127,755 12,731,125

Earnings Before Interest and Taxes 13,127,755 – 0 = 12,731,125 – 0 =

(EBIT) = Operating Income 13,127,755 12,731,125

plus/minus Other Income/Other

Expenses

Pre-Tax Income = Earnings Before 13,127,755 - 492,692 = 12,731,125 - 375,482=

Interest and Taxes (EBIT) plus/minus 12,635,063 12,373,643

Interest Income/Interest Expense

Net Income = Pre-Tax Income – 12,635,063 - 1,040,366 = 12,373,643 –

Taxes 11,594,697 11,203,197= 11,203,197

Profitability Ratios

Gross Margin = Gross Profit / Sales 33,794,029 / 63,416,977= 33,954,395 / 58,953,318

0.53 X 100 = 53% = 0.58 X 100 = 58%

Operating Margin = Operating Income 13,127,755 / 63,416,977= 12,731,125 / 58,953,318

/ Sales 0.21 X 100 = 21% = 0.13 X 100 = 12%

EBIT Margin = EBIT / Sales 13,127,755/ 63,416,977= 12,731,125 / 58,953,318

0.21 X 100 = 21% = 0.13 X 100 = 13%

12 | 7 P a g è s
Net Profit Margin = Net Income / 11,594,697/ 63,416,977= 11,203,197/ 58,953,318 =

Total Sales 0.32 X 100 = 32% 0.19 X 100 = 19%

Liquidity Ratios

Current Ratio = Current Assets / 51,468,074 / 33,560,552 = 45,858,916 / 32,891,183

Current Liabilities 1.5 = 1.4

Quick Ratio = (Cash + Short-Term (8,281,301 + 25,464,155) / (9,004,286 + 15,724,725)

Investments + A/R) /Current 33,560,552 = 1.01 / 32,891,183 = 0.75

Liabilities

Cash Ratio = Cash / Current 8,281,301 / 33,560,552 = 9,004,286 / 32,891,183 =

Liabilities 0.25 0.27

Interest Coverage Ratios

Interest Coverage Ratios = 13,127,755 / 492,692= 12,731,125/ 375,482=

EBIT/Interest 26.64 35.61

Interest Coverage Ratios = (13,127,755 + 9,712,845) / (12,731,125 + 9,358,875)

EBITDA/Interest 492,692= 46.36 / - 375,482 = 58.83

EBITDA = EBIT + Depreciation and

Amortization

Leverage Ratios

Debt-Equity Ratio = Total Debt / 10,200,199 / 71,385,979 = 10,875,458 / 65,267,015

Total Equity 0.14 = 0.17

Debt-to Capital Ratio = Total Debt / 10,200,199 / (71,385,979 + 10,875,458 / (65,267,015

(Total Equity + Total Debt) 10,200,199) = 0.125 + 10,875,458) = 0.1428

12 | 8 P a g è s
Net Debt = Total Dept – Cash 10200199 + 1456684 – 10875458 + 318485 –

8281301 = 3375582 9004286 = 2189657

Debt-to-Enterprise= Net Debt / 3375582 / (11,303,863.34 + 2189657 / (10,983,593.5

Market Value of Equity + Net Debt 3375582) = 0.23 + 2189657) = 0.17

Equity Multiplier = Total Assets / 127,779,417 / 71,385,979 = 121,972,100 / 65,267,015

Book Value of Equity 1.79 = 1.87

Valuation Ratios

P/E Ratio = Market Capitalization / 11,303,863.34 / 11,594,697 10,983,593.5 /

Net Income = 0.97 11,203,197 = 0.98

Enterprise Value to EBIT = (Market (11,303,863.34 + (10,983,593.5 +

Value of Equity + Debt - Cash) / 10,200,199 - 8,281,301) / 10,875,458 - 9,004,286) /

EBIT 13,127,755 = 1.01 12,731,125 = 1.01

Enterprise Value to Sales = (Market (11,303,863.34 + (10,983,593.5 +

Value of Equity + Debt - Cash) / Sales 10,200,199 - 8,281,301) / 10,875,458 - 9,004,286) /

63,416,977 = 0.21 58,953,318 = 0.22

Operating Returns

Return on Equity = Net Income / 11,594,697 / 71,385,979 = 11,203,197/ 65,267,015 =

Book Value of Equity 0.16 0.172

Return on Assets = Net Income + 11,594,697 + 492,692/ 11,203,197 + 375,482 /

Interest Expense / Total Assets 127,779,417 = 0.1 65,267,015 = 0.18

12 | 9 P a g è s
Return on Invested Capital = EBIT (1- 13,127,755 X (11,594,697 / 12,731,125 X

Tax Rate) / Book Value of Equity + 12,635,063) / 71,385,979 + (11,203,197 /

Net Debt (1,456,684 + 33,560,552 + 12,373,643) / 65,267,015

7,846,606 - 8,281,301) = + (318,485 + 32,891,183

0.15 + 8,637,605 - 9,004,286)

= 0.12

The DuPont Identity

ROE = (Net Income / Sales) X (Sales / (11,594,697 /63,416,977) * (11,203,197/ 58,953,318)

Total Assets) X (Total Assets / Book (63,416,977/127,779,417) * * (58,953,318/

Value of Equity) (127,779,417 / 71,385,979) 121,972,100) *

= 0.17 (121,972,100/

65,267,015 = 0.172

12 | 10 P a g è s
- Market Value Versus Book Value in (0.16) is worth than (0.17)

- Liquidity Ratios:

• Current Ratio in 2021 (1.5) is improved slightly than Current Ratio in 2020 (1.4)

• Quick Ratio in 2021 (1.01) is improved Compared to 2020 (0.75)

• Cash ration in 2021(0.25) backtracked a little compared to2020 (0.27)

- Interest Coverage Ratios:

• In this situation STC Interest Coverage Ratios a clear decline in 2021 compared to the

previous year and could be a source of concern.

- Operating Returns:

ROA Equal in two years, but ROIC improved significantly increased in 2021

Overall analysis for Saudi Telecom Company: Although the company was affected by the

changes during the year 2020 and 2021, the economic events that occurred in it, the company

still maintains its success and is trying to remedy its financial losses from the following year

12 | 11 P a g è s
The reviewer

https://www.saudiexchange.sa/wps/portal/tadawul/market-participants/issuers/issuers-directory/company-
details/!ut/p/z1/pZNfb4IwFMU_TR-1l-K_7Y2hAhPJGE4dL6RWpiRASalj-
ulXWbLEbcKW3bemv5Oee88tDvEahzl9TXZUJjynqTo_h4PIs13ThhGZWZOFDsZgPDcfPYcAAF7VACHmSLvpgQvuU
FOABY4_7-lgaTi8fm1Nv-ktxxuC4Rv2crpUT1n6__TQq_Wt_uFKGfA7_bX-ff2P-i_-
R6RNf982IJXgXsriFgGCqqq6ySbrMp4heMvSvERQCL5FsKWSymMRI2A8l3EuEYi45AfB4g7jaRqz80KUOGR7KmQka
ZlE7CCEIqNSXXKB14tF4Kh-wkZHntYM1CtzCfywE43AOfQaaEr1cq5gk7HyMJnNxmafwF2_xaTf5kEFp5LZpXzz8Yk-
I5B0S6tDipQFlUJB82NwzDZcQUPQAAdU4CJ7Otf65L4ETuIkD9mq8w693LQT/dz/d5/L0lHSkovd0RNQURrQUVnQS
EhLzROVkUvZW4!/#chart_tab3

12 | 12 P a g è s