Saudi Telecom Company Prospectus - Amazon AWS

Saudi Telecom Company Prospectus

A Saudi joint stock company incorporated pursuant to Royal Decree No. M/35

dated 24/12/1418H (corresponding to 21/04/1998G), Commercial Register No.

1010150269 dated 04/03/1419H (corresponding to 29/06/1998G) issued in

Riyadh.

A fully marketed secondary public offering of 100,200,000 ordinary shares, representing 5.01% of Saudi Telecom Company’s share capital by the Public

Investment Fund at an offer price of per share.

The Subscription Period for Participating Parties shall commence at 6:00 pm (Riyadh time) on 01/05/1443H (corresponding to

05/12/2021G) and shall end at 5:00 pm (Riyadh time) on 05/05/1443H (corresponding to 09/12/2021G).

The Subscription Period for Individual Investors shall commence at 11:59 pm (Riyadh time) on 03/05/1443H (corresponding to

07/12/2021G) and shall end at 11:59 pm (Riyadh time) on 04/05/1443H (corresponding to 08/12/2021G).

Saudi Telecom Company (the “Company” or “stc”) is a Saudi joint stock company registered under Commercial Registration No.

1010150269 issued on 04/03/1419H (corresponding to 29/06/1998G) in Riyadh. The Company’s registered address is: P.O. Box

87912, Postal Code 11652, Riyadh, Kingdom of Saudi Arabia (the “Kingdom”).

The Company was established as a Saudi joint stock company incorporated pursuant to Royal Decree No. M/35 dated 24/12/1418H (corresponding to 21/04/1998G), which authorised the transfer of the telegraph and telephone division of the Ministry of Post,

Telegraph and Telephone (Telecommunications Sector) with its various components and technical and administrative facilities to the

Company. In addition, the Company's By-Laws were approved in accordance with Council of Ministers Resolution No. 213 dated

23/12/1418H (corresponding to 04/20/1998G). The Company at that time was wholly owned by the Government of the Kingdom (the

“Government”).

Pursuant to the Council of Ministers’ Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), the Government sold

30% of the Company's share capital in an initial public offering and listed the Company on the Saudi Stock Exchange ("Tadawul"

or the "Exchange"). At least 20% were allocated to natural Saudi nationals and no more than 10% were allocated equally to the Public

Pension Fund and the General Organization for Social Security. The initial public offering process was completed on 03/11/1423H

(corresponding to 01/06/2003G). In its capacity as the Company’s Extraordinary General Assembly, the Council of Ministers agreed, pursuant to Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), to increase the Company’s share capital from

twelve billion Saudi Riyals (SAR 12,000,000,000) to fifteen billion Saudi Riyals (SAR 15,000,000,000) by capitalizing retained

earnings. On 13/03/1427H (corresponding to 04/11/2006G), the Company’s Extraordinary General Assembly agreed to increase the

Company’s share capital from fifteen billion Saudi Riyals (SAR 15,000,000,000) to twenty billion Saudi Riyals (SAR

20,000,000,000) by capitalizing retained earnings and issuing one bonus share for every three (3) existing shares.

As at the date of this Prospectus (this “Prospectus”), the current share capital of the Company is twenty billion Saudi Riyals (SAR

20,000,000,000), divided into two billion (2,000,000,000) ordinary shares with a fully paid nominal value of ten Saudi Riyals (SAR

10) per share. As of the date of this Prospectus, 70% of the Company's shares are owned by the Public Investment Fund (“PIF” or

the “Selling Shareholder”), 6.16% of the Company's shares are owned by the GOSI (hereinafter collectively referred to as

"Substantial Shareholders"), and 23.84% of the Company's shares are owned by the public (i.e. all Shareholders except the

Substantial Shareholders of the Company).

The Company has a number of Subsidiaries inside and outside the Kingdom (the Company and its Subsidiaries are hereinafter referred

to as the “Group”) (for more details about the Company’s Subsidiaries, please refer to Section 4 “Overview of the Group and the

Nature of its Business” of this Prospectus). In the Kingdom, the Group provides a variety of telecommunications services including

mobile, fixed line and broadband access products (optical fibre), wholesale telecommunications services to other telecommunications service providers, data centre hosting, solutions for office and home environments, cybersecurity, and other ICT and related solutions.

In addition, the Group provides mobile telecommunications services in Bahrain and Kuwait (for more details about the Group's

business, please refer to Section to 4-7 “General Description of the Group’s Business, Infrastructure and Regulatory Environment in

Saudi Arabia” of this Prospectus).

The offering described in this Prospectus (the “Offering”) involves the sale by the Selling Shareholder of 100,200,000 shares, representing 5.01% of the Shares in the Company (hereinafter collectively referred to as the “Offer Shares” and individually as an

“Offer Share”), while retaining a controlling interest in the Company, through a Fully Marketed Secondary Public Offering Process

(as defined in Section 1 "Definitions and Terminology" of this Prospectus). The price range in respect of each Offer Share is from

SAR 100 to SAR 116 (the “Offer Price Range”). The Final Offer Price (the “Final Offer Price”) will be determined by the Selling

Shareholder and the Bookrunners (as defined below) at the end of the Book-building Period, based on the level of the investors’ demand for the Offer Shares. It should be noted that, if there are any updates or amendments to the terms and conditions applicable

to the Offering, including the Offering Size, an announcement will be made by the Bookrunners (on behalf of the Selling Shareholder

and the Company) before the commencement of the Subscription Period for Individual Investors (as defined below). Such adjustments

(if applicable) will not include any amendment made to the number of Offer Shares allocated to the Individual Investors which will

represent 10% of the total Offering Size, to the extent there is sufficient demand.

The Offering is only directed at the following two categories of investors (the “Investors”):

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Category (A) - Participating Parties: This category comprises the categories stated in Paragraph (5) of the Instructions for Book Building Process and Allocation Method in Initial Public Offerings issued by the Board of the Capital Market Authority (the

“Authority”) pursuant to Resolution No. 2-94-2016 dated 10/15/1437H (corresponding to 07/20/2016G) which was amended by the

Authority’s Board Resolution No. 3-102-2019 dated 01/18/1441H (corresponding to 17/09/2019G) (hereinafter referred to as the

“Book-building Instructions”) in accordance with the terms and conditions set out in this Prospectus (collectively, the

“Participating Parties”) (for more information on the Participating Parties, please refer to Section 1 “Definitions and Terminology” and Section 15 “Subscription Terms and Conditions” of this Prospectus) The number and percentage of Offer Shares which will be

allocated to the Participating Parties will be determined following the completion of the Book-building Period and the announcement

of the Final Offer Price based on consultations amongst the Selling Shareholder, the Lead Manager, the Financial Advisors and the

Bookrunners.

Category (B) - Individual Investors: This category comprises Saudi Arabian natural persons, including any Saudi female divorcees or widows with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or in the names for her

minor children, provided that she proves that she is a divorcee or widow and the mother of her minor children. It also includes any

non-Saudi natural person who is resident in the Kingdom and any national of a country of the Cooperation Council for the Arab States

of the Gulf (“GCC”), in each case who has a bank account at a Receiving Entity and an investment portfolio account with a brokerage

company affiliated with the same Receiving Entity that provides such services (collectively, the “Individual Investors” and, individually, an “Individual Investor”). Subscription of a person in the name of his divorcee shall be deemed invalid, and if a

transaction of this nature has been proved to have occurred, then the applicable regulations shall be enforced against such person. If

a duplicate subscription is made, the second subscription will be considered void and only the first subscription will be accepted.

Each Individual Investor must have a bank account at one of the Receiving Entities and an investment portfolio account with a

brokerage company affiliated with the same Receiving Entity that provides such services. If the Individual Investor does not have a bank account and an investment portfolio account as set out above, the subscription shall be deemed void. The number of Offer Shares

to be allocated to Individual Investors is 10,020,000 shares representing 10% of the total Offering Size, to the extent that there is

sufficient demand. Accordingly, the final number and percentage of Offer Shares to be allocated to Participating Parties and Individual

Investors will be announced post the Book-building process and after the announcement of the Final Offer Price based on

consultations amongst the Selling Shareholder, the Bookrunners, the Financial Advisors and the Lead Manager (as defined in Section

1 “Definitions and Terminology” of this Prospectus).

Participating Parties include Qualified Foreign Investors in accordance with the Rules for Qualified Foreign Financial Institutions

Investment in Listed Securities passed under the Authority’s Board Resolution No. 1-42-2015 dated 15/07/1436H (corresponding to

05/04/2015G), as amended by the Authority’s Board Resolution No. 3-65-2019 dated 14/10/1440G (corresponding to 06/17/2019G)

and GCC investors (including companies and funds). Accordingly, the Offer Shares will be offered to qualified institutional buyers within the United States of America pursuant to Rule 144A under the United States Securities Act of 1933, as amended (the “ U.S.

Securities Act”) and foreign institutional investors outside the United States in compliance with Regulation S under the U.S.

Securities Act.

It should also be noted that Rule 144A under the U.S. Securities Act permits the sale of securities in the United States to certain

investors (“Qualified Institutional Buyers”) and Regulation S permits the sale of securities outside the United States to certain institutional investors (including Qualified Foreign Investors) without the need to register these securities and without the need for

any regulatory authority in the United States to review this Prospectus (i.e. Rule 144A and Regulation S are exemptions to the

registration requirements for securities offerings under the U.S. Securities Act). In respect of Participating Parties, the subscription

period shall commence at 6:00 pm (Riyadh time) on Sunday 01/05/1443H (corresponding to 05/12/2021G), and ends at 5:00 pm

(Riyadh time) on Thursday 05/05/1443H (corresponding to 09/12/2021G) (the “Subscription Period for the Participating Parties”). In respect of the Individual Investors, the subscription period shall commence at 11:59 pm (Riyadh time) on Tuesday

03/05/1443H (corresponding to 07/12/2021G), and ends at 11:59 pm (Riyadh time) on Wednesday 04/05/1443H (corresponding to

08/12/2021G) (the “Subscription Period for Individual Investors”). Subscription applications for the Offer Shares can be submitted

by Individual Investors (“Individual Investors Subscription Applications”) to any of the receiving entities (“Receiving Entities”)

listed on page 13 of this Prospectus during the Subscription Period for Individual Investors (for more details, please refer to the Section “Key Dates and Subscription Procedures” on page 23 and Section 15 “Subscription Terms and Conditions” of this

Prospectus).Subscription applications for the Offer Shares can be submitted by the Participating Parties (“Participating Parties

Subscription Applications”) to the Bookrunners during the Subscription Period for the Participating Parties.

Each Participating Party who subscribes for the Offer Shares must submit a Subscription Form for a minimum of one hundred

thousand (100,000) Offer Shares within the Offer Price Range of SAR 100 to SAR 116 per Offer Share. There is no maximum subscription amount that can be subscribed by a Participating Party . Participating Parties have the right to change or cancel their

subscription form at any time during the Book-building Period provided that such change or cancelation takes place through

submitting a revised or an additional Subscription Form, as applicable, before the expiry of the Book-building Period. Individual

Investors subscribing to the Offer Shares must submit an application to subscribe to a minimum of ten (10) Offer Shares, based on

the higher end price within the Offer Price Range of SAR 116 (“Retail Subscription Price”), where they shall have the right to subscribe to this amount and multiples thereof. There is no maximum number of Offer Shares which may be subscribed by Individual

Investors. However, Individual Investors shall identify the number of Offer Shares that they wish to subscribe for in the Individual

Investors Subscription Application, based on the Retail Subscription Price. Individual Investors are not permitted to change or cancel

their subscription forms following their submissions. The excess subscription amount or the full amount shall be refunded to the

Individual Investor in cash in the following cases: (a) the Final Offer Price is less than the Retail Subscription Price, (b) not all of the Offer Shares requested by the relevant Individual Investor have been allocated thereto, or (c) if the Final Offer Price is higher than

the closing market price of the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If paragraph (c) is

applicable, no allocations of Offer Shares will be made to Individual Investors. The said amounts will be refunded to the Individual

Investor (if applicable) without any commissions or deductions by the Receiving Entities. The refunds will be deposited in the

Individual Investors’ accounts specified in his/her application, including any amounts related to the fractional Offer Shares (if any) (for more information about the subscription process and allocating the Offer Shares to Individual Investors, please refer to Section

15 “Subscription Terms and Conditions” of this Prospectus). The allocation process will be announced on Friday 06/05/1443H

(corresponding to 10/12/2021G) and the excess amount (if any) will be refunded no later than Tuesday, 10/05/1443H (corresponding

to 14/12/2021G) (for more details, please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus).

All shares of the Company are ordinary shares of one class with no preferential voting rights. Each share entitles the holder to one vote. The Company’s shareholders (hereinafter collectively referred to as “Shareholders” and each of them individually a

“Shareholder”) have the right to attend and vote at the Ordinary General Assemblies and Extraordinary General Assemblies

(hereinafter referred to as the “General Assembly”). The Offer Shares will be entitled to receive dividends declared and paid by the

Company as at the date of this Prospectus and the subsequent financial years (for more details, please refer to Section 7 “Dividend

Policy” of this Prospectus).

The Offering proceeds will be distributed to the Selling Shareholder, after deducting the Offering expenses that shall be paid to the

Bookrunners as well as any other expenses and costs related to the Secondary Offering, including the expenses incurred by the Selling

Shareholder and the Company in connection with the Offering (the “Net Proceeds”). The Company will not receive any of the

proceeds from the Offering, except for the reimbursement of expenses incurred by the Company in connection with the Offering. (for

more information, see Section 8 “Use of Offering Proceeds” of this Prospectus). According to the Bookrunners’ Agreement (mentioned in Section 13 “Book-Building” of this Prospectus), the Selling Shareholder may not dispose of its shares in the Company

within a period of twelve (12) months from the Closing Date (as defined in Section 1 “Definitions and Terminology ”) (the “Selling

Shareholder Lock-up Period”). According to the Bookrunners’ Agreement, the Company may not issue new shares within a period

of six (6) months from the Closing Date (the “Company Lock-up Period”) (for more information regarding the Bookrunners’

Agreement including contractual lock-up period, please refer to Section 13 “Book-Building” of this Prospectus).

The trading of the Offer Shares is expected to commence on the Exchange upon the completion of the allocation of the Offer Shares

(for more information, please see Section “Key Dates and Subscription Procedures” on page 23 of this Prospectus). Saudi Arabian

nationals, non-Saudi Arabian nationals resident in the Kingdom, and, companies, banks, and investment funds established in the

Kingdom or in the GCC member states and, GCC citizens, will be permitted to trade in the Offer Shares after their trading commences

on the Exchange. Moreover Qualified Foreign Investors) will be permitted to subscribe for the Offer Shares in accordance with the QFI Rules (all as defined herein). Furthermore, non-GCC nationals who are not resident in the Kingdom and institutions incorporated

outside the GCC, other than Qualified Foreign Investors (collectively the “Foreign Investors” and each a “Foreign Investor”) will

be permitted to acquire an economic interest in the Shares by entering into a swap agreement with a Capital Market Institution licensed

by the Authority. Under such swap agreements, the Capital Market Institution licensed by the Authority will be the registered legal

owner of such Shares.

Investment in the Offer Shares involves risks and uncertainties. For a discussion of certain factors to be carefully considered before

deciding to subscribe for the Offer Shares, the Section titled “Important Notice” on page 1 and Section 2 “Risk Factors” of this

Prospectus should be carefully reviewed prior to making a decision to invest in the Offer Shares.

Company’s Financial Advisors

Bookrunners

Lead Manager

This Prospectus is an unofficial English translation of the official Arabic Prospectus and is provided for information purposes only.

The Arabic Prospectus published on the Company’s website (https://www.stc.com.sa/wps/wcm/connect/arabic/investor/secondary -

public-offering) remains the only official, legally binding version and shall prevail in the event of any conflict between the two

languages.

This Prospectus includes information provided in relation to the Company and the Offer Shares. The members of the Board of

Directors whose names appear in Table 1 “Board Directors of the Company” shall, jointly and severally, bear full responsibility for

the accuracy of the information related to the Company contained in this Prospectus, and they confirm, having made all reasonable

enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any stat ement herein misleading. The Capital Market Authority and the Saudi Stock Exchange (Tadawul) assume no responsibility for the contents

of this Prospectus, do not make any representations as to its accuracy or completeness and expressly disclaim any liability whatsoever

for any loss arising from, or incurred in reliance upon, any part of this Prospectus.

This Prospectus was issued on 01/05/1443H (corresponding to 05/12/2021G)

1

Important Notice

This Prospectus includes information provided in relation to the Company and the Offer Shares. When submitting an application for the

Offer Shares, Participating Parties and Individual Investors will be treated as applying solely on the basis of the information contained

in this Prospectus, copies of which are available by visiting the websites of the Company (www.stc.com.sa), the Saudi Stock Exchange (Tadawul) (www.saudiexchange.com.sa) or the websites of the Financial Advisors: HSBC Saudi Arabia (www.hsbcsaudi.com), SNB

Capital Company (www.alahlicapital.com), Morgan Stanley Saudi Arabia (www.morganstanleysaudiarabia.com) and Goldman Sachs

Saudi Arabia (www.goldmansachs.com/worldwide/saudi-arabia) or the websites of the Bookrunners: HSBC Saudi Arabia

(www.hsbcsaudi.com), SNB Capital Company (www.alahlicapital.com), Morgan Stanley Saudi Arabia

(www.morganstanleysaudiarabia.com), Goldman Sachs Saudi Arabia (www.goldmansachs.com/worldwide/saudi-arabia), Credit Suisse

Saudi Arabia (www.credit-suisse.com) and Citigroup Saudi Arabia (www.citibank.com/icg/sa/emea/saudi-arabia).

The Company has appointed Goldman Sachs Saudi Arabia, HSBC Saudi Arabia, Morgan Stanley Saudi Arabia and SNB Capital

Company as the financial advisors (the “Financial Advisors”). The Selling Shareholder and the Company have appointed Goldman

Sachs Saudi Arabia, HSBC Saudi Arabia, Morgan Stanley Saudi Arabia, SNB Capital Company, Citigroup Saudi Arabia and Credit

Suisse Saudi Arabia as the Bookrunners (“Bookrunners”) in connection with the Offering, and the Selling Shareholder has appointed

SNB Capital Company as the lead manager (the “Lead Manager”).

This Prospectus includes information relating to the Company and the Offer Shares. The Directors whose names appear in Table 1 “The

Board of Directors”, collectively and individually accept full responsibility for the accuracy of the information related to the Company

in this Prospectus and confirm, having made all reasonable inquiries that, to the best of their knowledge and belief, there are no other

facts the omission of which would make any statement herein misleading. The Capital Market Authority and Saudi Stock Exchange (Tadawul) assume no responsibility for the contents of this Prospectus, makes no representations as to its accuracy or completeness and

expressly disclaims any liability whatsoever for any loss arising from or incurred as a result of reliance on any part of this Prospectus.

While the Company has made all reasonable enquiries as to the accuracy of the information contained in this Prospectus as at the date

of its publication, a substantial portion of the information herein relevant to the market and industry in which the Company operates is

derived from external sources. While neither the Company nor any of the Company’s advisors, have any reason to believe that any of the market and industry information is materially inaccurate, neither the Company nor any of the Advisors have independently verified

such information. Accordingly, no representation or assurance is made with respect to the accuracy or completeness of any of this

information. Therefore, no guarantee or confirmation in respect of the validity, accuracy, or completion of such information can be

provided.

The information included herein, as at the date hereof, is subject to change. In particular, the financial position of the Company and the value of the Offer Shares may be adversely affected by future developments related to inflation, interest rates, taxation or other economic,

political or other factors over which the Company has no control (for more information, please refer to Section 2 “Risk Factors” of this

Prospectus). Neither the delivery of this Prospectus nor any oral, written or printed information in relation to the Offer Shares is intended

to be, nor should be, construed as, or relied upon in any way as, a promise or representation of future earnings, results or events.

This Prospectus is not to be regarded as a recommendation on the part of the Selling Shareholder, Company, board members, receiving authorities, or any adviser to be involved in the subscription process for the Offer Shares. The information provided in this Prospectus

is of general nature and has been prepared without taking into account individual investment objectives or the financial situation or

particular investment needs of the prospective investors. Prior to making an investment decision, each recipient of this Prospectus, or

person accessing it from a reliable source, is responsible for obtaining independent professional advice from a CMA-licensed financial

advisor in relation to the Offering. An investment in the Shares may be appropriate for some investors but not others, and prospective investors should not rely on another party’s decision whether to invest as a basis for their own examination of the investment

opportunities and such investor’s individual circumstances.

The Offering is directed at, and may be accepted only by investors in the following two categories (hereinafter referred to as the

"Investors"):

Category (A): Participating Parties: This category includes the Participating Parties mentioned in Paragraph (5) of the Book-building Instructions in accordance with the terms stipulated in this Prospectus (for more information, please refer to Section 15 “Subscription

Terms and Conditions” of this Prospectus). The Selling Shareholder in consultation with the Lead Manager, Financial Advisors and the

Bookrunners, will determine together the number and percentage of Offer Shares which will be allocated to the Participating P arties

after the end of the Book-building Period and following the announcement of the Final Offer Price.

Category (B): Individual Investors: This category shall comprise Saudi Arabian natural persons, including Saudi female divorcees or widows with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or in the names of her minor

children, on the condition that she proves that she is a divorcee or widow and the mother of her minor children, any non-Saudi natural

person who is resident in the Kingdom and any GCC national who has a bank account at a receiving entity and an investment portfolio

account with a brokerage company affiliated with the same receiving entity that provides such services. Subscription of a person in the

name of his divorcee shall be invalid if a transaction of this nature has been proved to have occurred, then the law shall be enforced against such person. If a duplicate subscription is made, the second subscription will be considered void and only the first subscription

will be accepted. An Individual Investor must have a bank account at a receiving entity, together with an investment portfolio account

with a brokerage company affiliated with the same receiving entity that provides such services. A subscription shall be deemed null and

void if an Individual Investor does not hold a bank account and an investment portfolio as mentioned above. It should be noted that the

http://www.stc.com.sa/

http://www.saudiexchange.com.sa/

http://www.hsbcsaudi.com/

http://www.alahlicapital.com/

http://www.morganstanleysaudiarabia.com/

http://www.goldmansachs.com/worldwide/saudi-arabia





http://www.credit-suisse.com/

http://www.citibank.com/icg/sa/emea/saudi-arabia

2

number of Offer Shares to be allocated for by Individual Investors is 10,020,000 Offer Shares representing 10% of the total Offering

Size, to the extent there is sufficient demand. It should be noted that the number of Offer Shares allocated to Individual Investors is 10,020,000 to the extent there is sufficient demand. Accordingly, the final number and percentage of Offer Shares to be allocated to

Participating Parties and Individual Investors will be announced post the Book-building process and after the announcement of the Final

Offer Price based on consultations amongst the Selling Shareholder, the Bookrunners, the Financial Advisors and the Lead Manager.

This Prospectus may be distributed outside the Kingdom of Saudi Arabia only to: (i) foreign investors who are based in the United States

of America that are "qualified institutional buyers" as defined in Rule 144A under the U.S. Securities Act; and (ii) foreign investors who are based outside the United States of America that are foreign institutional investors and GCC corporates and funds, together with other

foreign investors in accordance with Regulation S by concluding swap agreements. All recipients of this Prospectus must inform

themselves of all legal and regulatory restrictions relevant to this Offering and the sale of the Share and observe all such restrictions.

Since the Offering is not a public offering nor is it registered in the United States, no offering application will be submitted and none of

the Offer Shares will be registered with the U.S Securities and Exchange Commission (“SEC”) or any other United States securities commission or regulatory authority. Therefore, the foregoing authorities have not passed on, endorsed nor made any recommendation

concerning the Offer Shares or this Prospectus. Any representation to the contrary is a criminal offence in the United States and may be

a criminal offence in other jurisdictions. The Shares offered hereby have not been registered under the U.S. Securities Act or any U.S.

state securities laws and, unless so registered, may not be offered, sold or delivered within the United States except pursuant to an

exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act , Including exemptions under Rule 144A and Regulation S, and applicable U.S. state securities laws. In making its purchase, each purchaser of Offer Shares will be

required to make or will be deemed to have made certain acknowledgements, representations and agreements. (For more information,

please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus).

All recipients of this Prospectus shall review and abide by all the legal restrictions relating to Offering and sale of the Offer Shares.

Every qualified individual investor and participating party shall read this Prospectus in full and seek advice from their attorneys, financial advisors and their own professional advisors regarding statutory, tax, regulatory and economic considerations related to their investments

in the Offer Shares. Investors will bear all the fees and charges associated with advice sought from their attorneys, accountants and their

personal advisors regarding all matters related to investment in the Offer Shares. No assurance can be made that profits will be realised.

Industry and Market Information

All the information and details included in Section 3 “Market Overview” have been obtained from the Group’s internal questionnaires, studies and reports together with the market researches and information publicly available, including, for example but not limited to, the

press reports and statements developed and published by the General Authority for Statistics, Oxford Economics, the BP Statistical

Review of World Energy, Omdia, the Global System for Mobile Communications (GSMC), the World Bank, Edgar, Dunn & Company,

Statista Co., TowerXchange, Mordor Intelligence, and S&P Global Market Intelligence. Any information that has been obtained from a

third party has been mentioned in the parts where such information is stated. Whenever the estimates of the Group's share of revenues in any of the major markets where the Group operates, the Group has calculated such share using its own information together with its

competitors' data based on the information issued by the Group competitors that is publicly available. the estimates of the Group's share

of revenues in any of the major markets where the Group operates shall not be taken as a basis due to the different dates when such data

is provided to the Group, and since it is impossible for the Group to verify information published by its competitors.

Investors should carefully read page 3 “Forecasts and Forward-Looking Statements”. The Board members believe that the information and data of the Market Study provided in this Prospectus and that obtained from other sources, is reliable information and data. However,

such information and data has not been independently verified by the Company, the Directors, the Financial Advisors or the Selling

Shareholders, and thus none of these parties bear any liability for the accuracy or completeness of said information.

3

Financial and Statistical Information

This Prospectus contains the audited consolidated financial statements of the Company as at and for the fiscal year ended on 31 December 2020 (including the comparative information as at and for the fiscal year ended on 31 December 2019) (hereinafter referred to as the

“2020 Audited Financial Statements”), and (2) the audited consolidated financial statements of the Company as at and for the fiscal

year ended on 31 December 2019 (including the comparative information as at and for the fiscal year ended on 31 December 2018)

(hereinafter referred to as the “2019 Audited Financial Statements”, and hereinafter referred to along with the 2020 Audited Financial

Statements as the “Audited Financial Statements”). The Audited Financial Statements have been prepared in accordance with the International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia (“ KSA”) and other standards and

pronouncements that are endorsed by the Saudi Organization for Chartered and Professional Accountants (formerly known as the Saudi

Organization for Certified Public Accountants) (“IFRS-KSA”) and have been audited by Ernst & Young & Co Public Accountants

(Professional Limited Liability Company) (formerly known as Ernst & Young & Co. (Certified Public Accountants)) (hereinafter

referred to as “Ernst & Young”) in accordance with International Standards on Auditing that are endorsed in KSA as stated in their

audit reports included herein.

This Prospectus also contains the unaudited interim condensed consolidated financial statements as at and for the three and six months

periods ended on 30 June 2021 (including the comparative information as at and for the three and six months periods ended on 30 June

2020) (hereinafter referred to as the “H1 2021 Unaudited Interim Condensed Consolidated Financial Statements”) and the unaudited

interim condensed consolidated financial statements as at and for the three and nine months ended 30 September 2021 (including the comparative information as at and for the three and nine months ended 30 September 2020) (the “Q3 2021 Unaudited Interim

Condensed Consolidated Financial Statements” and, together with the H1 2021 Unaudited Interim Condensed Consolidated Financial

Statements, the “Unaudited Interim Condensed Consolidated Financial Statements” and, together with the Audited Financial

Statements, the “Financial Statements”). The Unaudited Interim Condensed Consolidated Financial Statements have been prepared in

accordance with International Accounting Standard 34, “Interim Financial Reporting” (“ IAS 34”) endorsed in KSA. The Unaudited Interim Condensed Consolidated Financial Statements have been reviewed by Ernst & Young in accordance with International Standard

on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” endorsed

in KSA as stated in their review reports included herein.

Some of the financial and statistical information contained herein have been rounded up to the nearest integer; accordingly, in case of

aggregating the figures shown in the tables, there might be slight deviations in the figures shown in the Financial Statements compared

to those shown in this Prospectus.

Forecasts and Forward-Looking Statements

The Forecasts stated herein have been developed according to the assumptions based on the Group information as per its experience in

the market together with the market information publicly available. The future operating conditions may vary from the assumpt ions used

herein. Therefore, there is neither guarantee nor confirmation relating to the accuracy or completion of such forecasts. stc confirms that

the statements included herein have been made according to the professional due diligence care.

Certain statements in this Prospectus constitute “forward-looking statements”. Such statements can generally be identified by their use

of forward-looking words such as "intends", "plans", "estimates", "believes", "expects", "can be", "possible", "will be", "it is supposed',

"it is expected", or the negative or other variation of such terms or comparable terminology. These forward-looking statements reflect

the current views of stc and its current Management with respect to e future events, and are not a guarantee of future performance. Many factors could cause the actual results, performance, or achievements of the Company to be significantly different from any future results,

performance, or achievements that may be expressed or implied by such forward-looking statements. Other parts of this Prospectus

contain a more detailed description of some of the risks or factors that may lead to such difference (for more details, please refer to

Section 2 "Risk Factors" of this Prospectus). Should any one or more of these risks or uncertainties materialize or any underlying

assumptions prove to be incorrect or inaccurate, the Group ’s actual results may vary materially from those described in this Prospectus

as anticipated, believed, estimated, or planned.

Except for the two cases stipulated hereinabove, stc intends to modify or update any information relating to the sector, market, or future

statements included in this Prospectus whether as a result of new information, or future events, or ot herwise. As a consequence of the

aforementioned risks, assumptions, potential matters, and other assumptions, the future events and circumstances indicated herein may

not occur as expected by the Company, or may not occur at all. Therefore, the potential investors should consider all the future statements in the light of such interpretations, and not rely mainly on such statements. All subsequent oral or written statements made by the

Company or by persons on behalf of the Company are subject, in their entirety, to the warning phrases set out above or those contained

in other sections in this Prospectus.

Definitions and Terminology

For interpretation of some phrases and terms that are included herein, please refer to Part 1 "Definitions and Terminology" of this

Prospectus.

Type and format of the numbers contained herein.

This Prospectus has been made using Arabic numerals, i.e. (1.2.3.4.5.6.7.8.9.0). Some numbers have been formatted to be written in

decimal form, in which a decimal point is placed to the right of the decimal place with the base value. Each digit to the right of this

4

decimal point has a base value accounting for one-tenth the value of the preceding digit from the left. Thus, the number (123.4) represents

one hundred twenty-three and four tenths.

General Provisions

Some of the figures included herein have been rounded up to the nearest integer; accordingly, figures shown for the same item presented

in different tables may vary slightly and figures shown as totals in certain tables may not be arithmetic aggregation of the figures which

precede them, given this approximation. In this Prospectus, Hijri dates are presented along with corresponding Gregorian dates, where

relevant. The Hijri calendar is prepared on the basis of the anticipated lunar cycles. However, an actual sighting of the moon is used to determine the beginning of each Hijri month, as a result of which conversions from the Hijri to Gregorian calendars are often subject to

discrepancies of one or few days. Further, unless otherwise expressly stated in this Prospectus, any reference to “year” or “years” means

Gregorian years.

5

Corporate Directory

stc - Board of Directors

Table 1: stc - Board of Directors

Name Position Nationality

Membership

Status Independence

Direct ownership (%)*

Indirect ownership

(%)*

Date of

Appointment

**

Pre-

Offering

Post-

Offering

Pre-

Offerin

g

Post-

Offerin

g

1.

HRH Prince Mohammed K. A.

Al-Faisal

Chairman of the

Board Saudi Non-executive Independent 0.00005 0.00005 - - 4/28/2021

2.

Mr. Yazid Bin

Abdulrahman Al-

Hamid

Vice Chairman

of the

Board Saudi Non-executive

Non-

independent 0.0004674 0.0004674 - - 4/28/2021

3.

HE Dr. Khaled H.

Biyari

Board

Director Saudi Non-executive

Non-

independent 0.0001 0.0001 - - 4/28/2021

4.

HE Mr. Mohamed Bin Talal Al-

Nahas

Board


Non-

independent - - - - 4/28/2021

5. Mr. Sanji Kabour

Board

Director Indian Non-executive

Non-

independent - - - - 4/28/2021

6.

Mr.

Ahmed Bin

Mohammed

Alomran

Board


Non-

independent - - - - 4/28/2021

7.

Ms. Rania

Mahmoud Nashar

Board


Non-

independent - - - - 4/28/2021

8.

Mr. Ardent

Rawtnberq

Board

Director German Non-executive

Non-

independent - - - - 4/28/2021

9.

Ms. Sarah Jamaz

Alsihimi

Board

Director Saudi Non-executive Independent - - - - 4/28/2021

10

.

Mr. Jameel A.

AlMulhem

Board

Director Saudi Non-executive Independent - - - - 4/28/2021

11

.

Mr. Waleedd Bin

Ibrahim Shukri

Board

Director/ Member of

Audit

Committee

and Risk Manageme

nt

Committee Saudi Non-executive Independent - - - - 4/28/2021

* Ownership percentages are rounded.

** Dates listed in this Table are the dates of appointment to the current positions

Source: The Company

6

Company Address

Saudi Telecom Company King Abdulaziz Complex Imam Mohammed Bin Saud Street, Al Mursalat District P.O. Box 87912 Riyadh 11652 Saudi Arabia Tel: 8001161100 Fax: +966 11 4433530 Website: www.stc.com.sa E-mail: [email protected]

Company’s Representative

Mr. Waleed bin Ibrahim Shukri Director Saudi telecom company (stc) Riyadh Kingdom of Saudi Arabia Tel: +966114529992 Fax: +966114525228 Website: www.stc.com.sa E-mail: [email protected]

Company’s Representative

Mr. Olayan bin M. Bin Wetatd Chief Executive Officer Saudi Telecom Company Riyadh Kingdom of Saudi Arabia Tel: +966114529555 Fax: +966114525228 Website: www.stc.com.sa E-mail: [email protected]

Board Secretary

Mr. Omar Olayan Raji Alyada Secretary General of the Board of Directors P.O. Box 84659 Riyadh 11372 Kingdom of Saudi Arabia Tel: +966114529992 Fax: +966114529655 Website: www.stc.com.sa E-mail: [email protected]

The Exchange


mailto:[email protected]


http://www.solutions.com.sa/

7

Saudi Tadawul Group (Saudi Tadawul) King Fahd Road-Al Olaya 6897 Unit No. 15 Riyadh 12211-3388 Kingdom of Saudi Arabia Tel: +966111919 92000 Fax: +966119133 218 Website: www.saudiexchange.sa E-mail: [email protected]

Share Register

Securities Depository Center Company King Fahd Road-Al Olaya 6897 Unit No. 11 Riyadh 12211-3388 Kingdom of Saudi Arabia Tel: +966920026000 Website: www.edaa.com.sa E-mail: [email protected]

Advisors

Financial Advisors

Goldman Sachs Saudi Arabia Kingdom Tower, 25th floor P.O. Box 52969 Riyadh 11573 Kingdom of Saudi Arabia Tel: +966112794800 Fax: +966112794807 Website: www.goldmansachs.com/worldwide/saudi-arabia/ E-mail: [email protected]

HSBC Saudi Arabia 7267 Al-Olaya St, Almuruj District Riyadh 2255 – 12283 Kingdom of Saudi Arabia Tel: +966920005920 Fax: +966112992385 Website: www.hsbcsaudi.com E-mail: [email protected]

Morgan Stanley Saudi Arabia Al-Rashid Tower, 10th Floor King Saud Road P.O. Box 66633 Riyadh 11586 Kingdom of Saudi Arabia Tel: +966112187000 Fax: +966112187003 Website: www.morganstanleysaudiarabia.com E-mail: [email protected]

http://www.saudiexchange.sa/


http://www.edaa.com.sa/

file:///C:/Users/nalgadi/Local%20Data/NRPortbl/RY/NALGADI/[email protected]

https://www.goldmansachs.com/worldwide/saudi-arabia/







8

SNB Capital Company Regional Building of the Saudi National Bank King Saud Road P.O. Box 22216 Riyadh 11495 Kingdom of Saudi Arabia Tel: +966920000232 Fax: +966114060052 Website: www.alahlicapital.com E-mail: [email protected]

Bookrunners

Citigroup Saudi Arabia Kingdom Tower, 20th Floor P.O. Box 301700 Riyadh 12214 Kingdom of Saudi Arabia Tel: +966112246140 Fax: +966112110020 Website: www.citibank.com/icg/sa/emea/saudi-arabia E-mail: [email protected]

Credit Suisse Saudi Arabia Al Jumaiah Center, Off No.(1) King Fahad Road, Al Mohammadiyyah District P.O. 5000 Riyadh 12361-6858 Kingdom of Saudi Arabia Tel: +966112039701 Fax: +966112039798 Website: www.credit-suisse.com E-mail: [email protected]

Goldman Sachs Saudi Arabia Kingdom Tower, 25th floor P.O. Box 52969 Riyadh 11573 Kingdom of Saudi Arabia Tel: +966112794800 Fax: +966112794807 Website: www.goldmansachs.com/worldwide/saudi-arabia/ E-mail: [email protected]

HSBC Saudi Arabia 7267 Al-Olya St, Almuruj District Riyadh 2255 – 12283 Kingdom of Saudi Arabia Tel: +966920005920 Fax: +966112992385 Website: www.hsbcsaudi.com E-mail: [email protected]








9

Morgan Stanley Saudi Arabia Al-Rashid Tower, 10th Floor King Saud Road P.O. Box 66633 Riyadh 11586 Kingdom of Saudi Arabia Tel: +966112187000 Fax: +966112187003 Website: www.morganstanleysaudiarabia.com E-mail: [email protected]


Lead Manager


Legal Advisor to the Company

The Law Office of Megren M. Al-Shaalan The Business Gate Building No. 26, Zone C Airport Road P.O. Box 1080, Riyadh 11431 Kingdom of Saudi Arabia Tel.: +966114167300 Fax: +966114167399 Website: www.alshaalanlaw.com E-mail: [email protected] Practice of Law License No. in the Kingdom: 34203

Legal Advisor to the Company in relation to the International Offering

White & Case LLP 5 Old Broad Street London EC2N 1DW United Kingdom







10

Tel: +442075321000 Fax: +442075321001 Website: www.whitecase.com E-mail: [email protected]

Legal Advisor to the Financial Advisors, Bookrunners and Lead Manager

The Law Office of Salman M. Al-Sudairi

Al-Tatweer Towers, Tower 1, 7th floor P.O. Box 17411 Riyadh 11474 Tel: +966112072500 Fax: +966112072577 Website: www.alsudairilaw.com.sa E-mail: [email protected] Practice of Law License No. in the Kingdom: 32269

Legal Advisor to the Financial Advisors, Bookrunners and Lead Manager in relation to the International

Offering

Latham & Watkins, LLP

ICD Brookfield Place, Level 16 Dubai International Financial Centre P.O. Box 506698 Dubai United Arab Emirates Tel: +97147046300 Fax: +97147046499 Website: www.lw.com E-mail: [email protected]

Legal Advisor of the Selling Shareholder

Abuhimed Alsheikh Alhagbani Law Firm, Advocates &

and Legal Consultants

Building 15, Business Gate King Khaled International Airport Road P.O. Box 090239, Riyadh 11613 The Kingdom of Saudi Arabia. Tel +966114819700 Fax +966114819701 E-mail: [email protected] Website: www.ashlawksa.com

Auditor

Ernst and Young & Co Public Accountants

(Professional Limited Liability Company)

Al Faisaliah Tower P.O. Box 2732 Riyadh 11461 Saudi Arabia Tel: +966112734740

http://www.whitecase.com/


http://www.alsudairilaw.com.sa/


http://www.lw.com/



http://www.ashlawksa.com/

11

Fax: +966112734730 Website: www.ey.com E-mail: [email protected] Note

All the above-mentioned advisors and auditors have given and have not withdrawn their written consent, until the date hereof, to the reference to their names, addresses, and logos and the publication of their statements in the context in which they appear in this Prospectus, and do not themselves, their employees forming part of the team serving the Company, or their relatives have any shareholding or interest of any kind in the Company as at the date of this Prospectus which would impair their independence.

http://www.ey.com/


12

Receiving Entities

Receiving Entities

Saudi National Bank

King Fahd Road – Al Okeik District– King Abdullah Financial Center

P.O. Box 3208, Unit: 778

Riyadh 6676-13519

Kingdom of Saudi Arabia

Tel: +966920001000

Website: www.alahli.com

Email: [email protected]

Al Rajhi Bank

King Fahd Road – Al-Moroug District– Al-Rajhi Bank Tower

Riyadh 11411


Tel: +966118282515

Fax: +96611279 8190

Website: www.alrajhibank.com.sa


Riyadh Bank

Eastern Ring Road

P.O. Box 22622

Riyadh 11614


Tel: +966114013030

Fax: +966114030016

Website: www.riyadbank.com


13

Offering Summary

This Offering Summary sets forth a brief overview of the information relevant to the Offering as stated separately herein. However, this summary does not contain all of the information that may be important to prospective investors. Accordingly, this summary should be read as an introduction to this Prospectus, and prospective investors should read this entire Prospectus in full. Any decision by prospective investors to invest in the Offer Shares should be based on a consideration of this Prospectus as a whole. In particular, Section “Important Notice” on page 1 and Section 2 “Risk Factors” of this Prospectus should be carefully reviewed before making any decision to invest in the Offer Shares. Decision taking should not depend on this summary only.

Company,

Name,

Description

and

Establishmen

t Information

Saudi Telecom Company was incorporated as a Saudi joint stock company pursuant to Royal Decree No. M/35 dated 24/12/1418H (corresponding to 21/04/1998G), which authorised the transfer of the telegraph and telephone division of the Ministry of Post, Telegraph and Telephone with its various components and technical and administrative facilities to the Company. Pursuant to Council of Ministers Resolution No. 213 dated 23/12/1418H (corresponding to 20/04/1998G), the Company’s By-Laws were approved. The Company at that time was wholly owned by the Government of the Kingdom. The Company acquired its commercial registration No. 1010150269 as a Saudi joint stock company on 04/03/1419H (corresponding to 29/06/1998G). The Company’s registered address is: P.O Box 87912, Postal Code 11652, Riyadh.

Pursuant to the Council of Ministers’ Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), the Government sold 30% of the Company's shares through a public offering. As a result, Saudi natural citizens were allocated at least 20% of the Company’s shares, and the Retirement Pension Department and GOSI were allocated up to 10% distributed equally between them. The public offering process was completed on 03/11/1423H (corresponding to 01/06/2003G). In its capacity as the Company’s Extraordinary General Assembly, the Council of Ministers agreed, pursuant to Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), to increase the Company’s share capital from twelve billion Saudi Riyals (SAR 12,000,000,000) to fifteen billion Saudi Riyals (SAR 15,000,000,000) by capitalizing the retained earnings. On 13/03/1427H (corresponding to 04/11/2006G), the Company’s Extraordinary General Assembly agreed to increase the Company’s share capital from fifteen billion Saudi Riyals (SAR 15,000,000,000) to twenty billion Saudi Riyals (SAR 20,000,000,000) by capitalizing the retained earnings and issuing one bonus share for every three (3) existing shares.

The current share capital of the Company is twenty billion Saudi Arabian Riyals (SAR 20,000,000,000), divided into two billion (2,000,000,000) ordinary shares with a fully paid nominal value of ten Saudi Riyals (SAR 10) per Share. As at the date of this Prospectus, 70% of the Company’s share capital is owned by PIF (the Selling Shareholder), 6.16% of the Company’s share capital is owned by the General Organization for Social Insurance, and 23.84% of the Company’s share capital is tradable and owned by the Public (i.e. all Shareholders expect the Substantial Shareholders in the Company).

Company

Activity

Pursuant to its By-Laws, the Company's activities are as follows:

Establish, manage, operate and maintain fixed and mobile communications networks, systems and the required infrastructures which enhance the achievement of digital transformation.

Deliver, provide, maintain and manage different services of communications and information technology for subscribers.

Prepare, provide and carry out plans and studies that are required for the development of communications and information technology services with respect to all technical, financial and administrative aspects. Prepare and carry out training plans in the field of

14

communications and information technology and provide consultancy services that relate directly or indirectly to its works and activities.

Expand and develop networks, communication systems, information technology and infrastructures through using the most updated devices and equipment developed by telecommunications technology, specifically in the field of providing and managing services, applications and programmes.

Provide solutions of information technology and universal telecommunications, including without limitation (communications - information technology services - managed services - cloud services - content management - data centre services - big data - digital services - e-commerce - devices – software – applications – etc.).

Provide customer-based information, technologies and systems, including the preparation and distribution of phone guides, commercial manuals, publications, information and data, in addition to telecommunications required for the transmission of internet without prejudice to the Council of Ministers Resolution No. (163) dated 10/23/1418H and the general computer services in addition to other services relevant to activities of telecommunications or services provided by the Company, whether for information, trade, advertising or other purposes the Company considers appropriate.

Wholesale and retail trade, import, export, purchase, own, lease, manufacturing, marketing, selling, developing, design, setup and maintenance of devices, equipment, and components of different telecommunication networks including fixed, moving and special networks, computer programmes and the other intellectual properties, in addition to providing services and contracting works that are related to the different telecom networks.

Invest in real estate properties, with relevant arrangements, such as selling, purchasing, leasing, management, development and maintenance.

Obtain loans and possess movable and immovable assets with the intention to accomplish its purposes.

Provide financial and administrative support and other services for subsidiaries.

Provide services of development, training, assets management, development and other relevant services.

Provide solutions of decision support, enterprises intelligence and data investment.

Provide services of chain supplies and other services.

The Company carries on its activities according to the systems followed after the required licenses are obtained from the competent authorities, if any. See Financial Statements for additional information relating to the setup of subsidiaries and mergers and acquisitions.

15

Substantial

Shareholders

The following table sets out the names of Substantial Shareholders, owning 5% or more of the Company’s share capital and their ownership percentages in the Company Pre-Offering and Post-Offering.

Table 2: Substantial Shareholders and Their Ownership Percentages in

the Company Pre-Offering and Post-Offering.

Shareholder

s Pre-Offering* Post-Offering

Number of

shares

Nominal value

(SAR)

Ratio Number of

shares

Nominal value

(SAR)

Ratio

PIF 1,400,000,00

0

14,000,000,00

0 70%

1,299,800,00

0 12,998,000,00

0 64.99

%

GOSI 123,400,000 1,234,000,000 6.16% 123,400,000 1,234,000,000 6.16%

Total 1,523,400,00

0

15,234,000,00

0

76.16

%

1,423,200,00

0 14,232,000,00

0 71.15

%

Source: The Company

*Data relevant to pre-offering Shares as at the date of this Prospectus.

The Selling

Shareholder

The Public Investment Fund.

Share Capital

of the

Company

Twenty billion Saudi Riyals (SAR 20,000,000,000) fully paid.

Total Number

of Company’s

shares

Two billion Saudi Riyals (SAR 2,000,000,000) fully paid ordinary shares.

Nominal

value of each

Share

Ten Saudi Riyals (SAR 10) per Share.

Offering The Offering described in this Prospectus consists of the Selling Shareholder selling 100,200,000 ordinary shares, representing 5.01% of the Company’s share capital, while retaining a controlling interest in the Company, through a fully marketed secondary public offering process within a price range from SAR 100 to SAR 116 per Share (the “Offer

Price Range”). The Final Offer Price will be determined by the Selling Shareholder and the Bookrunners at the end of the Book-building Period, based on the level of the investors’ demand for the Offer Shares. It should be noted that, if there are any updates or amendments to the terms and conditions applicable to the Offering, including the Offering Size, an announcement will be made by the Bookrunners (on behalf of the Selling Shareholder and the Company) before the start of the retail offering period. The said adjustments (if applicable) will not include any amendment made to the number of shares allocated to the Individual Investors which represents 10% of the total Offering Size, to the extent there is sufficient demand. (For more details, please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus).

Offering Size 100,200,000 ordinary shares representing 5.01% of the share capital of the Company.

Offer Shares 100,200,000 ordinary shares.

16

Offer Price

Range

From SAR 100 to SAR 116 per Offer Share.

Final Offer

Price

The Final Offer Price will be determined by the Selling Shareholder and Bookrunners in consultation with the Company based on the level of demand from investors.

The Final Offer Price is the price at which the Offer Shares are allocated to all Investors, amounting to SAR per Offer Share.

Following the end of the Book-building Period, the Final number of Offer Shares to be sold by the Selling Shareholder will be announced by the Bookrunners (on behalf of the Selling Shareholder and the Company) (for more details, please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus).

Total Offering

Value

Saudi Riyals (SAR ).

Use of

Offering

Proceeds

Proceeds of the Offering will be distributed, which are estimated to be Saudi Riyals (SAR ) (after deducting all expenses and costs in connection with the Offering amounting to 100 million Saudi Riyals) to the Selling Shareholder. The Company shall not receive any part of the Offering proceeds, except for reimbursement by the Selling Shareholder of the costs incurred by the Company in connection with the Offering (For more information in relation to the Offering proceeds, please refer to Section 8 “Use of Offering Proceeds” of this Prospectus).

Categories of

Investors

The Offering is directed at, and may be accepted only by investors in the following two categories (hereinafter referred to as "Investors"):

Participating Parties: This category includes the Participating Parties mentioned in Paragraph (5) of the Book-building Instructions in accordance with the terms set forth in this Prospectus. The Selling Shareholder in consultation with the Lead Manager, Financial Advisors and the Bookrunners, will determine together the number and percentage of Offer Shares which will be allocated to the Participating Parties after the end of the Book-building Period and following the announcement of the Final Offer Price (for further details, please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus).

Individual Investors: This category comprises Saudi Arabian natural persons, including Saudi female divorcees or widows with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or in the names of her minor children, on the condition that she proves that she is a divorcee or widow and the mother of her minor children, any non-Saudi natural person who is resident in the Kingdom and any GCC national who has a bank account at a receiving entity and an investment portfolio account with a brokerage company affiliated with the same receiving entity that provides such services (collectively referred to as “Individual Investors” and individually as an “Individual Investor”). Subscription of a person in the name of his divorcee shall be invalid if a transaction of this nature has been proved to have occurred, then the law shall be enforced against such person. If a duplicate subscription is made, the second subscription will be considered void and only the first subscription will be accepted. An Individual Investor must have a bank account at a receiving entity, together with an investment portfolio account with a brokerage company affiliated with the same receiving entity that provides such services. A subscription shall be deemed null and void if an Individual Investor has no bank account and an investment portfolio as mentioned above. The number of Offer Shares to be allocated to Individual Investors is 10,020,000 shares, representing 10% of the total Offering Size, to the extent there is sufficient demand. Accordingly, the final number and percentage of Offer Shares to be allocated to Participating Parties and Individual Investors will be announced post the Book-building process and after the

17

announcement of the Final Offer Price based on consultations amongst the Selling Shareholder, the Bookrunners, the Financial Advisors and the Lead Manager.

Total number of Company’s shares for each category of Investors

Number of

Offer Shares

offered to

Participating

Parties

ordinary shares.

Number of

Offer Shares

offered to

Individual

Investors

It should be noted that the number of Offer Shares allocated to Individual Investors is 10,020,000 to the extent there is sufficient demand. Accordingly, the final number of Offer Shares will be announced post the Book-building process and the announcement of the Final Offer Price.

Subscription method for each category of Investors

Subscription

method for

Participating

Parties registered in

the Kingdom

Participating Parties registered in the Kingdom may submit Participating Parties Subscription Applications during the Book-building Period by way of the Bid Forms to be made available by the Bookrunners for Participating Parties registered in the Kingdom in accordance with the instructions set out in Section 15 “Subscription Terms and Conditions” of this Prospectus. The bid form shall be considered binding on Participating Parties following the acceptance of their allocation of Offer Shares. This shall include instructions for the broker to take necessary actions to execute the settlement process of such Offer Shares.

Subscription method for

Participating

Parties not

registered in

the Kingdom

Participating Parties that are not registered in the Kingdom may submit Subscription Applications during the Book-building process by applying to the Bookrunners by phone or e-mail without the need to complete and sign a Bid Form, in accordance with the instructions set out in Section 15 “Subscription Terms and Conditions” of this Prospectus. Participating Parties not registered in the Kingdom shall provide their confirmation of the final number of Offer Shares allocated to them. The Participating Parties not registered in the Kingdom may subscribe and submit their subscription bid/ orders and provide their confirmation of the final number of Offer Shares allocated to them to the Bookrunners via phone or by e-mail. Please refer to Paragraph D of the definition of Participating Parties in Section 1 “Definitions and Terminology” of this Prospectus).

Subscription

method for Individual

Investors.

Each Individual Investor shall submit their Individual Investor Subscription Application within the Subscription Period for Individual Investors in accordance with the instructions provided in Section 15 "Subscription Terms and Conditions" of this Prospectus. Individual Investors can subscribe online, via mobile banking or ATMs of the Receiving Entities that providing all or some of such services to their customers, provided that: (A) an Individual Investor shall have a bank account at a Receiving Entity; (B) am Individual Investor shall have an investment portfolio account at a brokerage company affiliate with the same Receiving Entity that provides such services; and (C) no change may have been made to the information and details of the Individual Investor previously held by the relevant Receiving Entity.

The minimum and maximum number /value of Shares to be subscribed to for each category of

Investors

The value of

the minimum

The minimum value of Offer Shares which may be subscribed by the Participating Parties is one hundred thousand Saudi Riyals (SAR 100,000) within the Offer Price Range of SAR

18

and maximum

number of

Offer Shares

to which the

Participating

Parties may

subscribe

100 to SAR 116 per Offer Share. There is no maximum subscription amount that can be subscribed by Participating Party.

The value of

the minimum

and

maximum

number of Offer Share

that may be

subscribed by

the Individual

Investors

The minimum number of Offer Shares which may be subscribed by Individual Investors is ten (10) Offer Shares based on the Retail Subscription price which is SAR 116. There is no maximum number of Offer Shares for which the Individual Investors may subscribe. Individual Investors Subscription Application Forms cannot be amended or withdrawn by the Individual Investors once submitted.

Method of allocation and excess amount refund to each category of Investors

Allocation of

Offer Shares

to

Participating

Parties

The number and percentage of Offer Shares to be allocated to Participating Parties shall be determined post the Book-building process and after the announcement of the Final Offer Price based on consultations amongst the Selling Shareholder, the Bookrunners, the Financial Advisors and the Lead Manager (for more details, please refer to Section 15 "Subscription Terms and Conditions" of this Prospectus).

Allocation of

Offer Shares

to Individual

Investors

The number of Offer Shares to be allocated to Individual Investors is 10,020,000 Offer Shares, representing 10% of the total Offering Size, to the extent there is sufficient demand. It should be noted that the number of Offer Shares allocated to Individual Investors is 10,020,000 to the extent there is sufficient demand. The final number and percentage of Offer Shares to be allocated to Individual Investors will be announced post the Book-building process and the announcement of the Final Offer Price based on consultations between the Selling Shareholder, the Bookunners, the Financial Advisors and the Lead Manager (for more details, please refer to Section 15 "Subscription Terms and Conditions" of this Prospectus).

Refund of

Excess

Subscription

Amounts

The excess subscription amount or the full amount shall be refunded to the Individual Investor in cash in the following cases: (a) the Final Offer Price is less than the Retail Subscription Price, (b) not all of the Offer Shares requested by the relevant Individual Investor have been allocated thereto, or (c) if the Final Offer Price is higher than the closing market price of the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If paragraph (c) is applicable, no allocations of Offer Shares will be made to Individual Investors. The refunds (if any) will be deposited in the relevant Individual Investor’s account specified in his or her Retail Subscription Application, including any amounts related to the fractional Offer Shares (if any) without any deduction therefore by the relevant Receiving Entity (for more information about the subscription process and allocating the Offer Shares to Individual Investors, please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus). The final allocation process will be announced on Friday 06/05/1443H (corresponding to 10/12/2021G) and the excess amount (if any) will be refunded no later than Tuesday, 10/05/1443H (corresponding to 14/12/2021G) (for more details, please refer to Section 15 “Subscription Terms and Conditions” of this Prospectus).

19

Subscription Period for the

Participating

Parties

The Subscription Period for the Participating Parties shall commence at 6:00 pm (Riyadh time) on 01/05/1443H (corresponding to 05/12/2021G) and shall end at 5:00 pm (Riyadh time) on 05/05/1443H (corresponding to 09/12/2021G) (for more details, please refer to Section “Key Dates and Subscription Procedures” on page 23 of this Prospectus).

Subscription

Period for Individual

Investors

The Subscription Period for Individual Investors shall commence at 11:59 pm (Riyadh time) on 03/05/1443H (corresponding to 07/12/2021G) and shall end at 11:59 pm (Riyadh time) on 04/05/1443H (corresponding to 08/12/2021G) (for more details, please refer to Section “Key Dates and Subscription Procedures” on page 23 of this Prospectus).

Book-

building

Period

The Book-building Period shall commence at 6:00 pm (Riyadh time) on Sunday, 01/05/1443H (corresponding to 05/12/2021G) and shall end at 5:00 pm (Riyadh time) on Thursday, 05/05/1443H (corresponding to 09/12/2021G) (for more details, please refer to Section “Key Dates and Subscription Procedures” on page 23 of this Prospectus).

Rights to

Dividend

Distribution

The Offer Shares will be entitled to receive any dividends declared and paid by the Company from the date of this Prospectus and for subsequent financial years (for more details, please refer to Section 7 “Dividend Distribution Policy” of this Prospectus).

Voting Rights All shares of stc are ordinary shares of a single category. No share shall assign its holder to practice any preferential rights. Each share entitles its share to one vote. Each shareholder has the right to attend and vote at General Assembly meetings. A shareholder may authorise another non-member of the Board of Directors shareholder to act on behalf of it to attend the General Assembly meetings.

Restriction on

the Shares

(Lock-up

period)

According to the Bookrunners’ Agreement (set out in Section 13 “Book-Building” of this Prospectus), the Selling Shareholder may not dispose of the Company’s shares for a period of twelve (12) months from the Closing Date (as defined in Section 1 “Definitions and Terminology” of this Prospectus). According to the Bookrunners’ Agreement, the Company may not issue or dispose of new shares for a period of six (6) months from the Closing Date (for more information regarding the Bookrunners’ Agreement and the Contractual Lock-up Period, please refer to Section 13 “Book-Building” of this Prospectus).

The shares

that the Company has

previously

registered

Pursuant to the Council of Ministers Resolution No. 171 dated 07/02/1423H (corresponding to 09/09/2002G), the Government sold 30% of the Company’s share capital in an initial public offering and listed the Company on Tadawul. At least 20% were allocated to natural Saudi nationals and no more than 10% were allocated equally to the Public Pension Fund and the General Organization for Social Insurance. The initial public offering process was completed on 03/11/1423H (corresponding to 01/06/2003G).

Risk Factors There are a number of potential risks relating to the investment in the Offer Shares. Such risks can be classified as follows:

1. Risks relating to stc’s activities and operations 2. Risks relating to the market, industry and regulatory environment 3. Risks Relating to the Offer Shares

These risks are described in Section 2 “Risk Factors” of this Prospectus. Such risk factors should be considered carefully prior to making a decision to invest in the Offer Share.

Offering

Expenses

The Selling Shareholder shall bear all the offer-related charges and costs, including any expenses or costs incurred by the Company in connection therewith, which shall be deducted from the Offering proceeds. The Offering expenses are 100 million Saudi Riyals (SAR 100,000,000), which include the fees that the Selling Shareholder has agreed to pay to the Bookrunners, the Financial Advisors, the Legal Advisor, the Legal Advisors

-9 الملحق4-26

20

of the Bookrunners, in addition to the fees of the Receiving Entities and marketing, printing, distribution expenses, and other fees related to the Offering.

Lead

Manager

SNB Capital Company Regional Building of the Saudi National Bank King Saud Road P.O. Box 22216 Riyadh 11495 Saudi Arabia Tel: +966920000232 Fax: +966114060052 Website: www.alahlicapital.com E-mail: [email protected]

Financial

Advisors

Goldman Sachs Saudi Arabia Kingdom Tower, 25th Floor P.O. Box 52969 Riyadh 11573 Saudi Arabia Tel: +966112794800 Fax: +966112794807 Website: https://www.goldmansachs.com/worldwide/saudi-arabia/ E-mail: [email protected]

HSBC Saudi Arabia 7267 Al-Olya St, Almuruj District Riyadh 2255 – 12283 Saudi Arabia Tel: +966920005920 Fax: +966112992385 Website: www.hsbcsaudi.com E-mail: [email protected]

Morgan Stanley Saudi Arabia Al-Rashid Tower, 10th Floor King Saud Road P.O. Box 66633 Riyadh 11586 Saudi Arabia Tel: +966112187000 Fax: +966112187003 Website: www.morganstanleysaudiarabia.com E-mail: [email protected]

SNB Capital Company Regional Building of the Saudi National Bank King Fahad Road P.O. Box 22216 Riyadh 11495 Saudi Arabia Tel: +966920000232 Fax: +966114060052 Website: www.alahlicapital.com E-mail: [email protected]

Citigroup Saudi Arabia Kingdom Tower, 20th Floor











21

Bookrunners

P.O. Box 301700 Riyadh 12214 Saudi Arabia Tel: +966112246140 Fax: +966112110020 Website: www.citigroup.com E-mail: [email protected] Credit Suisse Saudi Arabia Al Jumaiah Center, Off No.(1) King Fahad Road, Al Mohammadiyyah District P.O. 5000 Riyadh 12361-6858 Saudi Arabia Tel: +966112039701 Fax: +966112039798 Website: www.credit-suisse.com E-mail: [email protected]

Goldman Sachs Saudi Arabia Kingdom Tower, 25th Floor P.O. Box 52969 Riyadh 11573 Saudi Arabia Tel: +966112794800 Fax: +966112794807 Website: https://www.goldmansachs.com/worldwide/saudi-arabia/ E-mail: [email protected]

HSBC Saudi Arabia 7267 Al-Olya St, Almuruj District Riyadh 2255 – 12283 Saudi Arabia Tel: +966920005920 Fax: +966112992385 Website: www.hsbcsaudi.com E-mail: [email protected] Morgan Stanley Saudi Arabia Al-Rashid Tower, 10th Floor King Saud Road P.O. Box 66633 Riyadh 11586 Saudi Arabia Tel: +966112187000 Fax: +966112187003 Website: www.morganstanleysaudiarabia.com E-mail: [email protected]

SNB Capital Company Regional Building of the Saudi National Bank King Fahad Road P.O. Box 22216 Riyadh 11495 Saudi Arabia

http://www.citigroup.com/








22

Note: Investors should refer to Section “Important Notice” on page 1 and Section 2 “Risk Factors” of this Prospectus prior to making a decision to invest in the Offer Shares.

Tel: +966920000232 Fax: +966114060052 Website: www.alahlicapital.com E-mail: [email protected]



23

Key Dates, Subscription Procedures and important announcement dates

Key Dates

Table 3: The Expected Offering Timetable

Event Date

Announcement of the Offering and the Offer Price Range

After the market close, on Sunday at 6:00 pm (Riyadh time) dated 01/05/1443H (corresponding to 05/12/2021G).

Offering and Book-building Period for Participating Parties

A period starting at 6:00 pm (Riyadh time) on Sunday 01/05/1443H (corresponding to 05/12/2021G) and ending at 5:00 pm (Riyadh time) on Thursday 05/05/1443H (corresponding to 09/12/2021G).

Subscription Period for Individual Investors A period starting at 11:59 pm (Riyadh time) on 03/05/1443H (corresponding to 07/12/2021G) and ending at 11:59 pm (Riyadh Time) on 04/05/1443H (corresponding to 08/12/2021G).

Announcing the Final Offer Price Friday, 06/05/1443H (corresponding to 10/12/2021G).

Announcement on the Final Allocation of the Offer Shares for Participating Parties and Individual Investors

Friday, 06/05/1443H (corresponding to 10/12/2021G).

Deadline completion of negotiated trades transaction Sunday, 08/05/1443H (corresponding to 12/12/2021G) prior to the commencement of trading.

Deadline for the deposit of the Shares into Individual Investors’ investment portfolio

Sunday, 08/05/1443H (corresponding to 12/12/2021G) prior to the commencement of trading.

Settlement and refund of excess amounts Sunday, 08/05/1443H (corresponding to 12/12/2021G) until Tuesday 10/05/1443H (corresponding to 14/12/2021G).

Deadline for the refund of excess subscription amounts (if any) for Individual Investors

Tuesday, 10/05/1443H (corresponding to 14/12/2021G).

Expected commencement of trading in the Shares Investors are expected to commence trading in the Offer Shares in Tadawul after executing the negotiated trades (“Negotiated Trades”) of the Participating Parties, and depositing the Individual Investors' shares in their respective investment portfolios on Sunday 08/05/1443H (corresponding to 12/12/2021G).

Note: The above timetable and dates therein are approximate. Actual dates will be announced by announcements displayed on Tadawul website (www.saudiexchange.sa), the websites of financial advisors HSBC Saudi Arabia (www.hsbcsaudi.com), SNB Capital (www.alahlicapital.com), Morgan Stanley Saudi Arabia (www.morganstanleysaudiarabia.com), and Goldman Sachs Saudi Arabia (www.goldmansachs.com/worldwide/saudi-arabia) and the websites of the Bookrunners: HSBC Saudi Arabia






24

(www.hsbcsaudi.com), SNB Capital (www.alahlicapital.com), Morgan Stanley Saudi Arabia (www.morganstanleysaudiarabia.com), Goldman Sachs Saudi Arabia (www.goldmansachs.com/worldwide/saudi-arabia), Credit Suisse Saudi Arabia (www.credit-suisse.com), Citigroup Saudi Arabia (www.citibank.com/icg/sa/emea/saudi-arabia) and the website of the Company (www.stc.com.sa).

Key Announcement Dates

Table 4: Key Announcement Dates

Announcement Announcing Party Date

The announcement of the Ordinary General Assembly*

The Company Tuesday, 04/04/1443H (corresponding to 11/9/2021G).

The announcement of the results of the Ordinary General Assembly

The Company Tuesday, 25/04/1443H (corresponding to 11/30/2021G).

The announcement of the launch of the Offering and the Offer Price Range and commencement of the Book-building Period for Participating Parties

The Company and the Selling Shareholder

Sunday, 01/05/1443H (corresponding to 05/12/2021G).

The announcement of the start of the Subscription Period for Individual Investors

The Bookrunners on behalf of the Selling Shareholder and the Company


The announcement of the Final Offer Price for the Offer Shares



The announcement of the final allocation of the Offer Shares to Participating Parties and Individual Investors



The announcement of the completion of negotiated trades transaction

Bookrunners Sunday, 08/05/1443H (corresponding to 12/12/2021G).

The announcement of the deposit of the Individual Investors’ shares in their investment portfolios

Edaa Center Sunday, 08/05/1443H (corresponding to 12/12/2021G).

The announcement of the settlement and refund of the excess amounts

Bookrunners on behalf of the Selling Shareholder and the Company


The announcement of the completion of the Offer and the total final Offering value



* The invitation to hold the Company’s Ordinary General Assembly was announced to authorise the interest of the Directors (who represent the Selling Shareholder) in the Bookrunners’ Agreement in accordance with Article






http://www.citibank.com/icg/sa/emea/saudi-arabia


25

71 of the Companies Law and authorise the Company’s Board of Directors, or any person authorised by the Board, to sign such agreement and any other applications and documents related to the Offering.

How to Apply for Subscription

Subscription for the Offer Shares shall be limited to the following two groups of investors (hereinafter referred to as “Investors”):

a. Participating Parties:

This category includes the Participating Parties mentioned in Paragraph (5) of the Book-building Instructions in accordance with the terms set forth in this Prospectus (for more information regarding the Participating Parties, please refer to Section 1 “Definitions and Terminology” and Section 15 “Subscription Terms and Conditions” of this Prospectus). The Selling Shareholder, in consultation with the Lead Manager, the Financial Advisors and the Bookrunners, will determine the number and percentage of Offer Shares which will be allocated to the Participating Parties after the end of the Book-building Period and following the announcement of the Final Offer Price.

b. Individual Investors

This category comprises Saudi Arabian natural persons, including Saudi female divorcees or widows with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or in the names of her minor children, on the condition that she proves that she is a divorcee or widow and the mother of her minor children, any non-Saudi natural person who is resident in the Kingdom and any GCC national who has a bank account at a receiving entity and an investment portfolio account with a brokerage company affiliated with the same receiving entity that provides such services (collectively referred to as “Individual Investors” and individually as an “Individual Investor”). Subscription of a person in the name of his divorcee shall be invalid if a transaction of this nature has been proved to have occurred, then the law shall be enforced against such person. If a duplicate subscription is made, the second subscription will be considered void and only the first subscription will be accepted. An Individual Investor must have a bank account at a Receiving Entity, together with an investment portfolio account with a brokerage company affiliated with the same Receiving Entity that provides such services. A subscription shall be deemed null and void if an Individual Investor has no bank account and an investment portfolio as mentioned above. It is worth noting that the number of Offer Shares to be allocated to Individual Investors is 10,020,000 Offer Shares representing 10% of the total Offering Size, to the extent there is sufficient demand. It should be noted that the number of Offer Shares allocated to Individual Investors is 10,020,000 to the extent there is sufficient demand. Accordingly, the final number and percentage of Offer Shares to be allocated to Individual Investors will be announced post the Book-building process and the announcement of the Final Offer Price based on consultations amongst the Selling Shareholder, the Bookrunners, the Financial Advisors and the Lead Manager.

A brief summary on the subscription method applicable to Participating Parties and Individual Investors is set out below:

a. Participating Parties:

Bookrunners shall offer the Offer Shares to Participating Parties during the Book-building Period and based on the Offer Price Range that is from 100 SAR to 116 SAR. The Final Offer Price will be announced at the end of the Book-building Period, and will be determined by the Selling Shareholder and the Bookrunners in consultation with the Company.

Subscription to Offer Shares during the Book-building Period will be done in accordance with the terms and conditions made available by the Bookrunners. Participating Parties shall comply with the following requirements with respect to the book-building process:

(a) Each Participating Party must submit a subscription form during the Book-building Period to purchase Offer Shares within the Offer Price Range, according to the terms and conditions detailed in the bid forms, which can be obtained from the Bookrunners. The minimum subscription amount that can be subscribed by a Participating Party is one hundred thousand (100,000) Offer Shares.

26

(b) The Participating Parties shall fund the Offer Shares allocated to them on the basis of the Final Offer Price by way of negotiated trades through their brokers.

(c) Participating Parties may change or cancel their bid forms at any time during the Book-building process, provided that such change shall be made by the submission of an amended or an additional bid form, where applicable, before the end of the Book-building Period.

The number of requested shares shall be subject to the allocation procedures described herein. The Bookrunners will inform the Participating Parties of the Offer Price and the number of Offer Shares initially allocated thereto. Following the end of the Book-building Period, the submission of the Subscription Application by a Participating Party shall be deemed binding on a Participating Party and the Participating Parties will be bound to accept the Offer Shares allocated to them. Such Subscription Application contains instructions to the broker to take the necessary actions for executing the settlement of the Offer Shares for which they have agreed to subscribe.

It should be noted that the Final Offer Price will be determined by the Selling Shareholder and the Bookrunners at the end of the Book-building Period, based on the level of demand from Investors for the Offer Shares.

b. Individual Investors:

Each Individual Investor must submit a Retail Subscription Application, and must subscribe to multiples of ten (10) Offer Shares based on the higher end of the Offer Price Range. Each Individual Investor has the right to subscribe for such number of Offer Shares and their multiples. There is no maximum number of shares to which the Individual Investors may subscribe. Each Individual Investor will be required to specify the number of Offer Shares to which it is willing to subscribe based on the Retail Subscription Price. Individual Investors are not permitted to change or cancel their subscription forms following their submissions.

Individual Investors can subscribe through the electronic channels of any of the Receiving Entities (i.e., online banking, mobile applications, telephone banking and ATMs), provided that the following requirements are satisfied:

(a) An Individual Investor must have a bank account at the Receiving Entity offering such services;

(b) the Individual Investor must have an investment portfolio with an affiliated brokerage house of one of the Receiving Entities; and

(c) There have been no changes in the personal information or data of the Individual Investor since such person last participated in an initial public offering.

The Lead Manager has the right to cancel the application if the above requirements are not met. Once submitted, each Individual Investor will be deemed to have accepted the terms and conditions of the Individual Investors Subscription Application, which represents a legally binding agreement between the Selling Shareholder, the Company and the relevant Individual Investor submitting it.

The excess subscription amount or the full amount shall be refunded to the Individual Investor in cash in the following cases: (a) the Final Offer Price is less than the Retail Subscription Price, (b) not all of the Offer Shares requested by the relevant Individual Investor have been allocated thereto, or (c) if the Final Offer Price is higher than the closing market price of the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If paragraph (c) is applicable, no allocations of Offer Shares will be made to Individual Investors. Such amounts will be refunded to the Individual Investor (if applicable) without any commissions or deductions by the Receiving Entities. The refunds will be deposited in the Individual Investor’s account specified in his or her Individual Investor Subscription Application, including any amounts related to the fractional Offer Shares (if any).

For more information in relation to the terms applicable to the Offering, please refer to Section 15 "Subscription Terms and Conditions" of this Prospectus.

27

Offer Questions and Answers

1. What is the expected time to complete the Offering?

See the "Key Dates and Subscription Procedures" section on page 23 of this Prospectus, which indicates the

key dates and procedures in connection with the Offering.

2. How will the Final Offer Price be determined?

The Offer Price Range is from SAR 100 to 116.The Final Offer Price will be determined by the Company and

the Bookrunners in consultation with the Company after the end of the Book-building Period based on the level

of investor demand. It will be announced by the Bookrunners (on behalf of the Selling Shareholder and the

Company).

The Final Offer Price is the price at which the Offer Shares are allocated to all categories of Investors, amounting

to Saudi Riyals (SAR ) per Offer Share. In the event that there is insufficient demand for

the Offer Shares, the Selling Shareholder shall, at his absolute discretion, reserve the right to cancel the Offering.

3. How will the marketing process occur?

After the launch of the Offering, the Company will carry out a marketing exercise which will include an investor

presentation to the Participating Parties by the Company's management in connection with the Offering during

the Book-building Period.

In accordance with the marketing strategy for Individual Investors within the Kingdom, the Company and the

Receiving Agents will market the Offering through banners, websites, social media and various notices through

the Company’s investor relations channels to ensure that Individual Investors are aware of the information and

developments of the Offering.

In addition, all necessary information relating to the Company and the Offering, including details of key dates,

subscription procedures, terms and conditions applicable to Individual Investors in the Kingdom, and the

Receiving Agents, are included in this Prospectus so that investors can make informed investment decisions

regarding the Offer Shares.

4. How will the subscription process for the Participating Parties and Individual Investors occur?

Participating Parties:

Subscription for the Offer Shares during the Book-building Period will be in accordance with the terms and

conditions as made available by the Bookrunners to Participating Parties. Participating Parties will be required

to observe the following requirements with respect to the Book-building process:

Each Participating Party must submit a non-binding order during the Book-building Period to purchase Offer Shares within the Offer Price through the Bookrunners, according to the terms and conditions detailed in the bid forms. The minimum number of Offer Shares which may be subscribed by a Participating Party is one hundred thousand (100,000) Offer Shares.

The Participating Parties shall fund the Offer Shares allocated to them based on the Final Offer Price

basis by way of negotiated trades through their brokers; and

Participating Parties may change or cancel their bid forms at any time during the Book-building process,

provided that such change shall be made by submitting an amended or additional bid form, where

applicable, before the end of the Book-building Period.

Individual Investors:

Individual Investors will be required to subscribe to the Offer Shares through the electronic channels of a

Receiving Agent appointed by the Selling Shareholder. The Individual Investor shall have (i) a bank account

28

with one of the Receiving Agents, and (ii) an investment portfolio account with a brokerage company affiliated

with the same Receiving Agent that provides such services. The subscription will be considered null and void

if an Individual Investor does not have a bank account and an investment portfolio account as set out above.

Individual Investors cannot amend or withdraw their Subscription Form once submitted.

5. How will the Book-building process be completed?

It was agreed by the Company, the Selling Shareholder and the Bookrunners on a Book-building process that is

in line with the nature of the Offering and will be implemented in accordance with the selected international

practices subject to the Book-building Instructions, when applicable.

The Book-building Period shall commence at 6:00 pm (Riyadh time) on Sunday, 01/05/1443H (corresponding

to 05/12/2021G) and shall end at 5:00 pm (Riyadh time) on Thursday, 05/05/1443H (corresponding to

09/12/2021G) (for more details, please refer to Section "Key Dates and Subscription Procedures" on page 23 of

this Prospectus).

6. How will the Individual Investors subscribe for the Offer Shares?

Each Individual Investor will be required to submit an Individual Investor Subscription Application which shall

include the number of Offer Shares for which he or she wishes to subscribe based on the Retail Subscription

Price. Individual Investors cannot amend or withdraw their Subscription Form once submitted. The excess

subscription amount or the full amount shall be refunded to the Individual Investor in cash in the following

cases: (a) the Final Offer Price is less than the Retail Subscription Price, (b) not all of the Offer Shares requested

by the relevant Individual Investor have been allocated thereto, or (c) if the Final Offer Price is higher than the

closing market price of the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If

paragraph (c) is applicable, no allocations of Offer Shares will be made to Individual Investors. Such amounts

(if applicable) will be refunded to the Individual Investor without any commissions or deductions by the

Receiving Entities. The refunds will be deposited in the Individual Investor’s account specified in his or her

application, including any amounts related to fractional Offer Shares (if any).

7. How will the Offer Shares be allocated to the investors?

The allocation of Offer Shares to the Investors will be determined based on demand at the end of the

Book-building Period as follows:

o Participating Parties: The Selling Shareholder in consultation with the Lead Manager, the Financial

Advisors and the Bookrunners, will determine the number and percentage of Offer Shares which

will be allocated to the Participating Parties after the end of the Book-building Period and following

the announcement of the Final Offer Price.

o Individual Investors: The number of Offer Shares to be allocated to Individual Investors is

10,020,000 Offer Shares, representing 10% of the total Offering Size, to the extent there is sufficient

demand. It should be noted that the number of Offer Shares allocated to Individual Investors is

10,020,000 to the extent there is sufficient demand. Accordingly, the final number and percentage

of Offer Shares to be allocated to Individual Investors will be announced post the Book-building

process and the announcement of the Final Offer Price based on consultations amongst the Selling

Shareholder, the Lead Manager, the Financial Advisors and the Bookrunners. Allocation to

Individual Investors will be done on a pro rata basis, following the determination of the Final Offer

Price. The excess subscription amount or the full amount shall be refunded to the Individual Investor

in cash in the following events: (a) the Final Offer Price is less than the Individual Investor

Subscription Price, (b) not all of the Offer Shares subscribed for by the relevant Individual Investor

have been allocated thereto, or (c) if the Final Offer Price is higher than the closing market price of

the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If paragraph (c)

is applicable, no allocations of Offer Shares will be made to Individual Investors. The said amounts

29

will be refunded to the Individual Investor (if applicable) without any commissions or deductions

by the Receiving Entities. The refunds will be deposited in the Individual Investors’ account

specified in his application, including any amounts related to the fractional Offer Shares (if any).

It should be noted that the minimum subscription amount that can be subscribed by each Participating Party is

one hundred thousand (100,000) Offer Shares within the Offer Price Range of SAR 100 to SAR 116. There is

no maximum number of Offer Shares which a Participating Party may request to subscribe. In addition, the

minimum subscription amount that can be subscribed by Individual Investors is ten (10) Offer Shares based on

the Offer Price. There is no maximum number of Offer Shares which an Individual Investor may request to

subscribe.

8. Is there any preferential allocation to the Company's current shareholders?

There won’t be any preferential allocation to any Participating Party or Individual Investor in the Offering,

including the Company's current shareholders, if any. The allocation will be made as set out in the

abovementioned question (6).

9. When will the allocation of the Offer Shares to the investors be determined?

The final allocation of the Offer Shares will be made after the Book-building Period. The final offer price will

be determined based on the volume of the investors’ demand. As a result, the allocation will not be guaranteed

for any category of investors. Therefore, investors may not obtain all or part of the Offer Shares they have

applied for.

10. How will the settlement process be made?

The settlement process regarding the sale of the Offer Shares to the investors will be made as follows:

The settlement process for Individual Investors will be made via the Lead Manager and the Depository

Center. The Offer Shares allocated to Individual Investors will be transferred directly to such Individual

Investors’ investment portfolio accounts with the Receiving Entities’ brokers on the same day as the

allocation to Participating Parties is settled.

The settlement process and delivery of the Offer Shares to the Participating Parties will be made by Negotiated Trades out-of-market negotiated trades that will be executed in accordance with Tadawul’s Negotiated Trades Mechanism.

It should be noted that the deposit of the Offer Shares allocated to Individual Investors and Participating Parties will be completed before market open, and accordingly both Individual Investors and Participating Parties will be able to trade their Offer Shares on the same day, which is Sunday 08/05/1443H (corresponding to 12/12/2021G). Any additional information regarding timing of settlement will be shared with Investors through announcements and the relevant communication channels.

30

Summary of Key Information

This “Summary of the Key Information” provides an overview of the information contained in this Prospectus. As it is a summary, it does not contain all information that may be important to investors, who wish to participate in the Offering. Recipients of this Prospectus should read and review this Prospectus in its entirety, as any decision to invest in the Offer Shares should be based on considered of this Prospectus as a whole. In particular, Section “Important Notice” on page 1 and Section 2 “Risk Factors” of this Prospectus should be carefully prior to making the decision to invest in the Offer Shares. This summary alone should not be relied on in taking such a decision.

Company overview

stc was established as a Saudi joint stock company pursuant to Royal Decree No. M/35, dated 24/12/1418H (corresponding to 21/04/1998G), which authorised the transfer of the telegraph and telephone division of the Ministry of Post, Telegraph and Telephone to stc, which was then wholly owned by the Government. According to Resolution No. 213, dated 12/23/1418H (corresponding to 04/20/1998G) of the Council of Ministers of Saudi Arabia, the Company's Articles of Association were approved (“Articles of Association”). At the time, the Company was fully owned by the Government. The Company has commercial register No. 1010150269 as a Saudi joint stock company, dated 04/03/1419H (corresponding to 06/29/1998G), with its registered address at P.O. Box 87912, Postal Code 11652, Riyadh, Saudi Arabia.

Pursuant to the Council of Ministers’ Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), the Government sold 30% of the Company's shares through a public offering. As a result, Saudi natural citizens were allocated at least 20% of the Company’s shares, and the Retirement Pension Department and GOSI allocated up to 10% of the Company’s shares, distributed equally between them. The initial public offering process was completed on 03/11/1423H (corresponding to 01/06/2003G). In its capacity as the Company’s Extraordinary General Assembly, the Council of Ministers agreed, pursuant to Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), to increase the Company’s share capital from twelve billion Saudi Riyals (SAR 12,000,000,000) to fifteen billion Saudi Riyals (SAR 15,000,000,000) by capitalizing the retained earnings. On 13/03/1427H (corresponding to 04/11/2006G), the Company’s Extraordinary General Assembly agreed to increase the Company’s share capital from fifteen billion Saudi Riyals (SAR 15,000,000,000) to twenty billion Saudi Riyals (SAR 20,000,000,000) by capitalizing the retained earnings and issuing one bonus share for every three (3) existing shares.

The Company's current share capital is twenty billion Saudi Riyals (SAR 20,000,000,000), divided into two billion (2,000,000,000) ordinary shares with a fully paid nominal value of ten Saudi Riyals (SAR 10) per Share.

As at the date of this Prospectus, 70% of the Company's shares are owned by PIF, 6.16% of the Company's shares are owned by the General Organization for Social Insurance, and 23.84% of the Company’s shares are owned by the public (i.e., all Shareholders except the Substantial Shareholders).

stc's Main Activities

Under stc's By-Laws, the Company's activities are as follows:

Establish, manage, operate and maintain fixed and mobile communications networks, systems and the required infrastructures which enhance the achievement of digital transformation.

Deliver, provide, maintain and manage different services of communications and information technology for subscribers.

Prepare, provide and carry out plans and studies that are required for the development of communications and information technology services with respect to all technical, financial and administrative aspects. Prepare and carry out training plans in the field of communications and information technology and provide consultancy services that relate directly or indirectly to its works and activities.

Expand and develop networks, communication systems, information technology and infrastructures through using the most updated devices and equipment developed by telecommunications technology, specifically in the field of providing and managing services, applications and programmes.

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Provide solutions of information technology and universal telecommunications, including without limitation (communications - information technology services - managed services - cloud services - content management - data centre services - big data - digital services - e-commerce - devices – software – applications – etc.).

Provide customer-based information, technologies and systems, including the preparation and distribution of phone guides, commercial manuals, publications, information and data, in addition to telecommunications required for the transmission of (internet) without prejudice to the Council of Ministers Resolution No. (163) dated 10/23/1418H and the general computer services in addition to other services relevant to activities of telecommunications or services provided by the Company, whether for information, trade, advertising or other purposes the Company considers appropriate.

Wholesale and retail trade, import, export, purchase, own, lease, manufacturing, marketing, selling, developing, design, setup and maintenance of devices, equipment, and components of different telecommunication networks including fixed, moving and special networks, computer programmes and the other intellectual properties, in addition to providing services and contracting works that are related to the different telecom networks.

Invest in real estate properties, with relevant arrangements, such as selling, purchasing, leasing, management, development and maintenance.

Obtain loans and possess movable and immovable assets with the intention to accomplish its purposes.

Provide financial and administrative support and other services for subsidiaries.

Provide services of development, training, assets management, development and other relevant services.

Provide solutions of decision support, enterprises intelligence and data investment.

Provide services of chain supplies and other services.

The Company carries on its activities according to the systems followed after the required licenses are obtained from the competent authorities, if any.

The Group's Vision, Mission and Strategy

The Group’s vision is to be the leading digital services provider regionally and lead the growth of a diverse and digital economy in the Kingdom and the MENA region. The Group’s DARE 2.0 strategy, set out in 2019, is the blueprint to achieve this vision by focusing on the following pillars:

Digitize stc: The Group plans to digitally transform its operational capabilities. Part of this drive is to digitize the Company’s internal processes to improve customer experience, enhance performance and drive efficiencies.

Accelerate Performance : The Group plans to increase more value from its core assets and traditional segments, as well as to grow non-core revenues.

Reinvent experience: The Group aims to redefine its customer experience through personalisation of every customer interaction and by unlocking the power of data analytics so that the Group can lead in network quality of experience.

Expand scale and scope: The Group intends to pursue concrete opportunities for growth in three key areas: (i) platforms, connectivity and infrastructure, (ii) adjacent services and applications, and (iii) industry-

specific solutions.

The Group’s strategy includes a balanced approach towards the execution of strategic priorities within existing businesses and increasing focus on key growth areas.

Wider IT services market: The Group is focused on building a very strong and integrated services portfolio of Cloud services (IaaS, PaaS, SaaS), IT professional services (consulting, system integration) and cybersecurity services. These will further support the needs of the Group’s Government and enterprise customers, as they continue their digitalisation journey.

Internet of Things (IoT): The Group focuses on vertical and horizontal solutions and use cases enabled by IoT. Building on existing capabilities, the Group will further develop use cases for smart city applications, industrial automation, smart logistics, public services, and smart home applications.

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Digital financial services (FinTech): Building on the success of stc pay, the Group will aim to take its capabilities to the next level, within the digital financial services (FinTech) space. The Group aims to do so by providing services beyond payments, money transfers and international remittances, to a diverse and strong customer base, built on a proven technology platform, leveraging the partnership with Western Union and the Group’s advanced digital analytics capabilities.

MENA hub data centre and connectivity market: The Group continues to develop the MENA region as a strong regional hub for international connectivity and related colocation space in data centres for global and local enterprises, government entities, hyperscalers, OTT players and content providers. The Group’s asset base, geographical location and regional presence are expected to be key success drivers of this strategy.

OTT media and content market: Building on the success of Jawwy TV, the Group aims to continue developing its capabilities and scale in the media space, with integrated and clear strategy that will allow consumers across the MENA region to benefit from a simple interface, rich content catalogue and improved personalisation. The service offering will continue expanding to address the growing space for gaming with international and local options. In addition to these specific growth areas, the Group also expects to be active if there are opportunities for value accretive geographical expansion in the telecommunications space, as the Group aims to affirm its regional ambitions.

In addition to these specific growth areas, the Group also aims to opportunistically evaluate value accretive geographical expansion in the telecommunications space, should strategic opportunities arise, as the Group affirms its regional ambitions. The Group believes its strategy embodies a holistic focus on technology infrastructure, digital growth services, accelerated value extraction from core assets and new capability build up.

Competitive strengths and Advantages of the Group

The Group believes that it has a number of key strengths, including:

Leading telecom operator in the MENA region benefiting from robust macro and market fundamentals and attractive sector tailwinds

Strategic partner of the Government and service provider of choice for delivering Vision 2030.

The Group is one of the major contributors to the Kingdom’s economic and social development, with a workforce of 24,967 people (91% of whom are Saudi Nationals) as at 11/20/1442H (corresponding to 06/30/2021G), as well as a significant contributor to the Kingdom's non-oil GDP (SAR 4.85 billion paid in 2020 as Zakat expenses and government charges and SAR 10.0 billion paid in dividends over the same year). Well-invested and superior infrastructure and technology providing the best coverage and service quality in the Kingdom.

A distinctive technical infrastructure that provides the best coverage and quality of telecommunications services in the Kingdom.

Dynamism, devotion and drive enabling multiple drivers for future growth through multi-faceted product and services offerings

Total financial return champion underpinned by strong growth and robust cash generation

- Resilient top line growth

- Stable EBITDA growth with strong margins

- Positive cash flow

- Track-record in distributing profitable dividends to shareholders

- Robust balance sheet and efficient financial policies to support future growth

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For more details about the aforementioned privileges, please refer to Section 4-3 “Competitive Strengths” of this Prospectus.

Market and Sector overview

stc is the largest telecommunications services company in the Kingdom, offering fixed and mobile telecommunication networks, systems, infrastructure and services to consumer and enterprise customers. The Company also provides information and communications technology (“ICT”), media and digital payments services. The Company operates mainly in the Kingdom, Kuwait, and Bahrain and has a presence in other international markets. The overall market of the Group can be broken down into: (i) telecommunications; (ii) ICT; (iii) digital payments; (iv) digital remittance; (v) telecommunications towers infrastructure; and (vi) other markets which include video gaming, eSports and media market.

Saudi Arabia macroeconomic environment

The economy of the Kingdom is the twentieth largest economy in the world and largest economy in the GCC region, representing nearly three times the average GDP of the countries of the region. Saudi Arabia's economy accounted for approximately 20% of the combined nominal GDP of the countries in the MENA region and approximately 50% of the combined nominal GDP of the GCC countries in the year ended 31 December 2020. It is also one of the most advanced economies of the Gulf, with a GDP of USD 700 billion and a GDP per capita of USD 20,000 in 2020. In addition, according to Oxford Economics, the total GDP of the Kingdom is expected to increase by a compound annual growth rate of 6.5% over the next five years to become USD 928 billion by 2025G.

Over the years, the Kingdom has decreased its reliance on the revenues of oil and gas. Based on figures from the General Authority for Statistics in the Kingdom, the oil sector contributed 39.2% and 39.5% to Saudi Arabia's nominal GDP in the three-month periods ended 31 March 2020 and the six-months periods ended 30 June 2021, respectively. In addition, pursuant to Vision 2030, the Kingdom aims to raise the share of non-oil exports in non-oil GDP from 16% to 50% and to raise non-government revenue from SAR 163 billion to SAR 1.0 trillion by 2030 (source: Saudi Vision 2030).

The population of Saudi Arabia is the largest and youngest demographic in the GCC region. It was estimated to be 35.0 million as at mid-year 2020 according to GASTAT, representing an increase of 2.3% as compared to 34.2 million in 2019. Saudi Arabia has a young population, with almost 69% of the population aged below 40 years old, which provides further support for the growth in demand for ICT services.

Industry overview

Saudi Arabia has a competitive telecommunications market driven by consumer demand for faster data services at competitive prices. The market is currently characterised and dominated by three players holding unified licenses: The Company, Mobile Telecommunication Company Saudi Arabia (Zain KSA) and Etihad Etisalat Company (Mobily). The market also hosts other Internet service providers (“ISPs”), fixed-line service providers, and mobile virtual network operators (“MVNOs”).

Saudi Arabia’s telecommunications market

Mobile market in the Kingdom

According to Omdia, the mobile telecommunications sector is one of the largest components of Saudi Arabia’s telecom industry, contributing around 63% to overall telecom sector revenue, which is defined as total fixed voice and fixed broadband revenues add total mobile services revenues (data and voice). Mobile service revenues amounted to USD 10.8 billion in 2020 and have been growing at a CAGR of 3% since 2018.

The Kingdom fixed telecommunications market

The fixed telecommunications market revenue in the Kingdom amounted to approximately USD 6.3 billion in 2020, according to Omdia and includes total fixed broadband (revenues generated by fixed broadband access and value added services delivered to residential and enterprise customers by communications service providers,

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excluding revenues from fixed voice and TV services) and total fixed voice (revenues generated by fixed voice services provided directly by communications service providers to residential and enterprise customers). According to Omdia, fixed broadband services constitute 94% of end-user spending while fixed voice services account for 6%.

The Kingdom telecommunications and IT market

The Company operates in the business to business (“B2B”) ICT market in the Kingdom through solutions by stc, which amounted to SAR 33.8 billion in 2018 and projected to grow at a CAGR of 6.7% to reach SAR 53.1 billion in 2025. The market is subdivided into IT services (59% in 2018) and B2B telecommunications and data (41% in 2018). In more developed markets, IT services represent a larger portion of up to 75 to 85% of B2B ICT services.

According to data extracted from the international Data Center (CTBTO) market data for 2019, spending on IT services currently stands at SAR 19.8 billion, which represents only 0.7% of GDP and thus 1.3% less than developed markets, indicating that the market in the Kingdom still has growth potential until spending on IT services reaches to the level seen in developed markets, which, if achieved, could lead to an increase of approximately 88% in spending on corporate IT services.

The Kingdom's market is also less mature compared to the US and European markets and thus offers significant advantages compared to those markets. For example, the Kingdom's market is not overburdened with service providers who offer outdated work packages in terms of time and materials, and there is more scope for offering modern technology and infrastructure.

The Company currently operates in the biggest and fastest growing ICT services market in the GCC region. The Kingdom’s B2B ICT services market is the largest market in the GCC region with a size of SAR 33.8 billion as at 2018, making it four to eight times larger than some of its peers in the fragmented markets (Oman, Kuwait, Bahrain). The UAE market is significantly smaller than the Kingdom’s market, but represents the closest comparable IT services market to the Kingdom due to its similar level of market maturity.

Saudi Arabia’s digital payments market

Saudi Arabia has low credit card penetration relative to other countries with an average of 1.4 debit and credit card per adult in 2020 compared to 4.3 in the United States. Cash payments still represent a large proportion of total payments in the Kingdom implying a substantial opportunity for digital payment providers as the move from cash to digital payments continues.

The share of digital payments is increasing as consumers adopt card-based payment methods as they gain access to bank accounts supported by improving infrastructure. In addition, Vision 2030G and the COVID-19 pandemic has increased government’s focus on diversification and accelerated the shift towards digital services, including Digital Payments.

Saudi Arabia’s digital remittance market

The Kingdom has the third largest expatriates population globally. As a result of its large and growing expatriates population, KSA is the third largest outward remittances market with an annual volume of USD 35 billion in 2020 and has grown by 10.9% compared to 2019. The outward remittance market is expected to grow to more than USD 79 billion by 2026G, representing a CAGR of 14.8%. The Company is well positioned to benefit from this underlying growth via its stc pay product proposition which includes the ability to transfer money internationally at competitive prices.

The Kingdom towers infrastructure market

Saudi Arabia is the second largest MENA market in numbers of communications towers after Iran, with more than 37 thousand towers.

Infrastructure sharing in the Kingdom has to date been very limited. This has resulted in a high degree of parallel infrastructure development across MNOs; 95% of Zain and Mobily’s sites are reported to overlap. As such, the

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Government is keen to promote infrastructure sharing. Various passive infrastructure strategies have been explored by each of the Kingdom’s MNOs in recent years.

In addition, the Kingdom is home to several smart cities projects and infrastructural megaprojects, each of which promises strong potential demand for communications infrastructure.

Other markets

Saudi Arabia’s video gaming and eSports market

Video Gaming (“gaming”) represents a large and fast-growing market opportunity in KSA, with total gaming market revenue exceeding USD 500 million in 2020. The market is projected to reach a value of USD 813 million by 2025G, registering a CAGR of 10% according to Statista Co. video gaming, Kingdom of Saudi Arabia. Growth in the sector will continue to be supported by the Government’s Vision 2030 initiative focused on diversifying the economy away from oil, creating a digital-first economy.

In terms of segmentation, mobile gaming represents the largest portion of the KSA market given the high level of smartphone penetration in the region, accounting for 60% of gaming revenue as at 2020 according to Statista - Video Games, Saudi Arabia. As smartphone penetration increases, it is expected that mobile gaming will continue to gain momentum. In turn, video game console gaming and PC gaming operates at a much smaller scale, as video game console gaming and PC gaming represent only 29% of total gaming revenues.

Saudi Arabia’s media market

Kingdom’s media and entertainment market is the largest in the Middle East at over USD 5 billion in 2020, representing 17% of the total market in 2020. Significant growth in the penetration of devices supporting digital media and over-the-top (“OTT”) platforms such as Netflix and Amazon, combined with improving Internet access speed has allowed subscribers to consume media when and how they want. These factors, in conjunction with favourable demographic trends, namely the proportion of the population below 40, are expected to drive further growth in the region, with a 7% until 2026G according to the Mordor Intelligence Middle East Media and Entertainment Market Report (2020-2025G).

Summary of Risk Factors

The following table shows a summary of the risk factors relating to an investment in the Offer Shares. As it is a summary, it does not contain all information that may be important or relevant to investors who may wish to subscribe for the Offer Shares. Prospective investors should read and review this Prospectus in its entirety, as any decision to invest in the Offer Shares should be based on consideration of this Prospectus as a whole. In particular, the Section “Important Notice” on page 1 and Section 2 “Risk Factors” of this Prospectus should be carefully reviewed before making the decision to invest in the Offer Shares. The decision must not depend on this summary alone.

Risks Relating to the Company’s Operations and Activities

Risks relating to rapid technical developments

Risks relating to core capital investments of the Group where investment decisions can be based on inaccurate expectations for the future demand

Risks relating to the incompetence of the Group to perform strategic priorities successfully or to maintain the operating policies that are distinguished for efficiency and effectiveness

Risks relating to the focusing of the Group’s revenues, profits and cash flows in the Kingdom

Risks related to the concentration of the Group's customers on government and semi-government entities

Risks relating to the Group’s facing increasing competition

Risks relating to success of the Group’s operations to attract and keep subscribers

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Risks relating to reduction of the Group’s revenues from the services of subscribers in traditional fixed line services and the future revenues of the Group to depend increasingly on data services compared to tower-based wireless services

Risks relating to a great portion of the Group’s mobile telecommunications revenues depending on short time subscriptions (pre-paid services)

Risks relating to operations of the Group outside the Kingdom

Risks relating to possession, investment or merging operations which may put the Group into great risks and there is not guarantee for success or that the Group will generate expected interests from such transactions

Risks relating to developing, expanding and maintaining telecommunications networks of the Group

Risks relating to the Group’s dependence on service providers of third parties to provide networks, services, equipment and content for its subscribers

Risks relating to repercussions of COVID-19 and its impact on the works of the Group, which is expected to continue

Risks relating to the inability of the Group to provide cash enough to pay all its debts and that it may be obliged to take other procedures to fulfil its obligations due to its debts, which may not succeed to accomplish

Risks relating to the Government ownership of the majority share in the Group, which may create a dispute between its interests in certain cases and the interests of the minority shareholders

Risks relating to the interruption of the information and technological systems of the Group and thus the suspension of the Group operations

Risks relating to electronic attacks affecting networks or systems of the Group and thus negatively impact the businesses of the Group, including the loss of data or other security breaches

Risks relating to the inability of the Group to protect intellectual property rights sufficiently, which may harm its trademark value, products and services holding its trademark

Risks relating to non-renewal of leasing contracts of the lands on which the towers of the Group are erected or may that may be renewed with terms that are not commercially good for the Group, or disputes may arise with the owners of such lands

Risks relating to the Group’s dependence on senior managers, senior executive officers and other qualified employees, attracting and keeping such employees

Risks relating to the nature of mobile telecommunications services sector and the limitedness of wireless radio frequency spectrum available for privatisation, with some privatisation operations are already under disputes

Risks relating to systems combating monopoly and competition applicable in the countries where the Group works and which may restrict the growth of the Group, impose investigations or legal procedures, including the ones relating to combating monopoly

Risks relating to the increasing requirements of Zakat/tax negatively applicable to the Group with respect to its profits

Risks relating to different accounting policies of the Group from other telecom operators, which may affect the possibility to compare its results

Risks relating to Market, Industry and Regulatory environment

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Risks relating to laws and regulations of the telecommunications industry within which the Company works. New changes in existing, laws, regulations or governmental policy could adversely affect industry participants

Risks relating to dependence of telecom companies on continuous operations of its own networks and the networks of other operators

Risks relating to the dependence of telecoms companies on standards and protocols of third parties

Actual or possible health risks or other damages relating to the use of mobile phones or transmission towers and its impact to reduce the level of mobile communications services

Risks relating to the adverse impact of the Group with the legal actions or other legal procedures (whether civil, tax or administrative ones) which may adversely affect its businesses, financial position and results of its operations

Risks relating to COVID-19 which made huge interruptions in global economy and the economy of the Kingdom

Risks relating to the dependence of the economy of the Kingdom and its revenues of the government on oil sector and its adverse impact on oil rates reduction

Risks relating to political and security risks the Kingdom and Middle East may undergo

Risks relating to the businesses of the Group in case Saudi Riyal/USD connection is cancelled or amended

Risks relating to the telecommunications networks may be adversely affected by natural disasters or other catastrophic events beyond the control of their operators

Risks relating to the Offer Shares

Risks relating to large future sales or sales expectations of the Company's shares in the capital market and its impact on the market price of the Company's shares

Risks relating to the process of settling the Offer Shares being subject to interruption or delays

Risks relating to trading halt in case share rate fluctuates with 10% or more daily

Risks relating to the transfer of the Offer Shares is subject to restrictions due to laws of the U.S. Securities Act and other countries’ acts

Risks relating to the foreign exchange rates

Risks relating to fluctuations in the price of the Offer Shares

Risks arising because securities analysts do not publish researches or reports about the businesses of the Group or sector, or such analysts change their recommendations about the Company shares negatively, which will lead to a reduction in the market price and volume of the Company share trading

Risks relating to the Company not being able to distribute dividends to its shareholders or guaranteeing the size of the dividends and the risks of modifying its dividend policy

Risks relating to the ability of investors in the Offer Shares making a claim against the Company, its Board of Directors and members of senior management.

Risks of investments in emerging markets

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Summary of Financial Information

The discussion of the Group’s financial condition and results of operations is based upon the 2020 Audited Financial Statements and the 2019 Audited Financial Statements, which have been prepared in accordance with IFRS-KSA, and the H1 2021 Unaudited Interim Condensed Consolidated Financial Statements, which have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) endorsed in KSA. This discussion contains forward looking statements that involve risks and uncertainties. The Group’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Prospectus, particularly under the Section 2 “Risk Factors” of this Prospectus.

The Group's results of operations for the six-month periods ended 30 June 2021 and 30 June 2020

The table below sets out a comparison of the Group’s results of operations for the six-month periods ended 30 June 2021 and 2020.

Table 5: The Group’s results of operations for the six-month periods ended 30 June 2021

and 2020.

For the six-month periods ended 30 June

2021 2020 % of change

(SAR ‘000)

Revenues ................................................................................................ 31,594,267 28,855,085 9.5

Cost of revenues .................................................................................... (14,684,968) (12,318,212) 19.2

Gross Profit .......................................................................................... 16,909,299 16,536,873 2.3

Operating Expenses

Selling and marketing ............................................................................ (2,870,088) (2,997,963) (4.3)

General and administration.................................................................... (2,571,504) (2,867,480) (10.3)

Depreciation and amortisation ............................................................... (4,735,814) (4,605,229) 2.8

Total Operating Expenses ................................................................... (10,177,406) (10,470,672) (2.8)

Operating Profit................................................................................... 6,731,893 6,066,201 11.0

Other Expenses and Income

Cost of early retirement program........................................................... (161,642) (300,000) (46.1)

Finance income ...................................................................................... 192,668 236,096 (18.4) Finance cost ........................................................................................... (291,812) (331,214) (11.9)

Net other expenses ................................................................................. (54,404) (24,716) 120.1

Net share in results of investments in associates and joint ventures ..... 61,164 (11,939) (612.3)

Net other (losses) gains.......................................................................... (30,714) 561,535 (105.5)

Total other (Expenses) Income ........................................................... (284,740) 129,762 (319.4)

Net Profit before Zakat and Income Tax .......................................... 6,447,153 6,195,963 4.1

Zakat and income tax............................................................................. (574,921) (465,734) 23.4

Net Profit .............................................................................................. 5,872,232 5,730,229 2.5

Net profit attributable to:

Equity holders of the Company ............................................................. 5,773,303 5,636,960 2.4

Non-controlling interests ....................................................................... 98,929 93,269 6.1

5,872,232 5,730,229 2.5

Source: H1 2021 Unaudited Interim Condensed Consolidated Financial Statements, excluding percentages.

The Group’s results of operations for the years ended 31 December 2020, 2019 and 2018

The table below sets out a comparison of the Group’s results of operations for the years ended 31 December 2020, 2019 and 2018

Table 6: The Group’s results of operations for the years ended 31 December 2020, 2019

and 2018

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For the year ended 31 December Change

2019-2020

Change

2018-2019

CAGR

2018-2020 2020

2019 2018

(SAR’000) Percentage

Revenues 58,953,318 54,367,531 51,963,243 8.4 4.6 6.5

Cost of revenues (24,998,923) (21,976,306) (161490,,21) 13.8 2.3 7.9

Gross profit 33,954,395 32,391,225 30,473,082 4.8 6.3 5.6

Operating Expenses

Selling and marketing (6,053,632) (5,581,969) (5,480,288) 8.5 1.9 5.1

General and administration (5,810,763) (5,544,276) (5,157,039) 4.8 7.5 6.1

Depreciation and amortisation (9,358,875) (8,784,587) (7,590,530) 6.5 15.7 11.0

Total Operating Expenses (21,223,270) (19,910,832) (857,18,227) 6.6 9.2 7.9

Operating Profit 12,731,125 12,480,393 12,245,225 2.0 1.9 2.0

Other Income and Expenses

Cost of early retirement program (600,000) (600,000) (450,000) — 33.3 15.5

Finance income 413,873 639,161 551,535 (35.3) 15.9 (13.4)

Finance cost (623,925) (765,154) (395,440) (18.5) 93.5 25.6

Net other expenses (42,995) (76,062) 102,943 (43.5) (173.9) —

Net share in results of investments in

associates and joint ventures 52,953 49,597 (10,605) 6.8 (567.7)

—

Net other gains (losses) 424,612 (40,960) (215,493) (1,136.7) (81.0) —

Total Other Expenses (375,482) (793,418) (417,060) (52.7) 90.2 (5.1)

Net Profit before Zakat and Income

Tax 12,355,643 11,686,975 11,828,165 5.7 (1.2) 2.2

Zakat and income tax (1,170,446) (762,144) (747,667) 53.6 1.9 25.1

Net Profit 11,185,197 10,924,831 11,080,498 2.4 (1.4) 0.5


Equity holders of the Company 10,994,875 10,664,666 10,779,771 3.1 (11.)

1.0

Non-controlling interests 190,322 260,165 300,727 (826.) (13.5) (20.4)

11,185,197 10,924,831 11,080,498 2.4 (4.1) 0.5

Financial Position data

The following table summarises the Group's consolidated statement of financial position as at 30 June 2021 and 2020:

Table 7: The Group’s consolidated statement of financial position as at 30 June 2021 and

30 June 2020

As at 30 June

2021 2020 % change

(SAR’000)

Total non-current assets 74,809,097 72,896,348 2.6

Total current assets 44,463,165 46,611,781 (4.6)

Total assets 119,272,262 119,508,129 (0.2)

Total equity 65,167,108 64,138,694 1.6

Total non-current liabilities 22,745,690 23,051,192 (1.3)

Total current liabilities 31,359,464 32,318,243 (3.0)

Total liabilities 54,105,154 55,369,435 (2.3)

Total equity and liabilities 119,272,262 119,508,129 (0.2)

Source: H1 2021 Unaudited Interim Condensed Consolidated Financial Statements, excluding percentages

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The following table shows a summary of the Group's consolidated statement of financial position as at 31 December 2020, 2019 and 2018

Table 8: The Group’s consolidated statement of financial position as at 31 December 2020,

2019 and 2018

As at 31 December Change

2019-

2020

Change

2018-

2019 CAGR

2018-

2020 2020 2019 2018

(SAR’000) %

Total non-current assets 76,113,184 73,484,764 63,341,069 3.6 16.0 9.6

Total current assets 45,858,916 44,841,492 46,029,525 2.3 (2.6) (0.2)

Total assets 121,972,100 118,326,256 109,370,594 3.1 8.2 5.6

Total equity 65,267,015 63,055,046 66,661,598 3.5 (5.4) (1.1)

Total non-current liabilities 23,813,902 22,664,438 13,251,941 5.1 71.0 34.1

Total current liabilities 32,891,183 32,606,772 29,457,055 0.9 10.7 5.7

Total liabilities 56,705,085 55,271,210 42,708,996 2.6 29.4 15.2

Total equity and liabilities 121,972,100 118,326,256 109,370,594 3.1 8.2 5.6

Source: 2019 and 2020 Audited Financial Statements, excluding percentages. The financial data as at 31 December 2019 has been extracted/derived from 2019 comparative amounts in the 2020 Audited Financial Statements. Similarly, the financial data as at 31 December 2018 has been extracted/derived from 2018 comparative amounts in the 2019 Audited Financial Statements.

Cash flow data

The table below summarises the Group’s cash flow from operating activities, investing activities and financing activities for the six-month periods ended 30 June 2021 and 2020

Table 9: The Group’s cash flow from operating activities, investing activities and financing

activities for the six-month periods ended 30 June 2021 and 2020


2021 2020 % of change

(SAR ‘000)

Net cash generated from operating activities 1,342,497 5,836,523 (77.0)

Net cash generated from (used in) investing activities 5,079,320 (1,614,630) (414.6)

Net cash used in financing activities (6,942,335) (4,804,714) 44.5

Net decrease in cash and cash equivalents (520,518) (582,821) (10.7)

Cash and cash equivalents at beginning of the period 9,004,286 8,031,010 12.1

Cash and cash equivalents at end of the period 8,493,090 7,437,882 14.2

The table below summarises the Group’s cash flow from operating activities, investing activities and financing activities in the years ended on 31 December 2020, 2019 and 2018.

41

Table 10: Cash flow from operating activities, investing activities and financing activities in

the years ended on 31 December 2020, 2019 and 2018

For the years ended 31 December

Change

2019-2020

Change

2018-2019

Compound

annual

growth

rate

(CAGR)

2018-2020

2020 2019 2018

(SAR ‘000) (%)

Net cash generated from operating activities

28,324,705 9,920,626 19,132,416 185.5 (48.1) 21.7

Net cash used in investing activities (17,429,177) (1,977,126) (5,027,028) 781.5 (60.7) 86.2

Net cash used in financing activities (9,919,218) (8,067,645) (8,516,962) 23.0 (5.3) 7.9

Net increase (decrease) in cash and cash

equivalents 976,310 (124,145) 5,588,426 (886.4) (102.2) (58.2)

Cash and cash equivalents at beginning of the

year 8,031,010 8,153,865 2,567,044 (1.5) 217.6 76.9

Cash and cash equivalents at end of the year 9,004,286 8,031,010 8,153,865 12.1 (1.5) 5.1

__________

Note: The cash flow data for the year ended 31 December 2019 has been extracted/derived from 2019 comparative amounts in the 2020 Audited Financial Statements. Similarly, the cash flow data for the year ended 31 December 2018 has been extracted/derived from 2018

comparative amounts in the 2019 Audited Financial Statements.

Alternative Performance Measures

Set forth below are certain alternative performance measures (“APMs”) used by the Group’s management to assess the performance of its business. These measures are unaudited and have not been prepared in accordance with IFRS-KSA or any other generally accepted accounting standards. These APMs are not defined or recognised under IFRS-KSA, or any other generally acceptable accounting principles. APMs should not be considered as a substitute for measures of performance in accordance with IFRS-KSA.

Table 11: Alternative Performance Measures

For the six months ended 30

June For the years ended 31 December

2021 2020 2020 2019 2018

(SAR million, except otherwise indicated)

Adjusted EBITDA(1) 11,467.7 10,671.4 22,090.0 21,265.0 19,835.8

Adjusted EBITDA margin (%)(2)

. 36.3 37.0 37.5 39.1 38.2

Capex(3) 2,828.7 3,831.8 10,840.6 11,368.2 9,757.1

Free Cash Flow(4) (1,486.2) 2,004.7 17,484.1 (1,447.5) 9,375.3

Interest Coverage Ratio(%)(5) 39.3 32.2 35.4 27.8 50.2

Total Debt(6) 11,619.0 12,062.1 11,936.1 12,194.0 4,286.0

42



2021 2020 2020 2019 2018

Net debt(7) 266,7 3,216.6 (7,502.0) 1,981.6 (13,553.3)

Net Debt to Adjusted EBITDA(%)(8)

0.0 0.3 (0.3) 0.1 (0.7)

Total Debt to Equity (9) 17.8 18.8 18.3 19.3 6.4

Return on Assets%(10) 9.5 9.2 9.2 9.2 10.1

Return on Equity%(11) 17.4 17.0 17.2 17.3 16.5

(1) Adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (Adjusted EBITDA) is a non-IFRS-KSA performance

measure. The Group views Adjusted EBITDA as a useful measure because it is used to analyse the Group’s operating profitability

and provides an indication of results before non-cash charges. Set forth below in Table 11 is information regarding the calculation

of Adjusted EBITDA for each period.

(2) Adjusted EBITDA margin is a non-IFRS-KSA performance measure and is calculated as Adjusted EBITDA divided by revenue.

(3) Capex is additions to property and equipment plus additions to intangible assets for the period.

(4) Free Cash Flow is a non-IFRS-KSA performance measure and is defined as net cash generated from operating activities less Capex.

(5) Interest Coverage Ratio is Adjusted EBTIDA divided by finance cost.

(6) Total Debt is the sum of long-term borrowings, short term borrowings, long-term lease liabilities and short-term lease liabilities.

(7) Net Debt is the total debt less cash and cash equivalents and short-term Murabaha.

(8) Net Debt to Adjusted EBITDA is net debt divided by Adjusted EBITDA.

(9) Total Debt to Equity is total debt divided by total equity.

(10) Return on Assets is net profit divided by total assets. Amounts relating to the periods ended 30 June 2021 and 2020 were calculated based on the twelve-month periods ended 30 June 2021 and 2020, respectively. The financial information for the twelve-month

period ended 30 June 2021 was calculated based on the results of operations for the six-month period ended 30 June 2021 in

addition to the difference between the results of operations for the year ended 31 December 2020 and the six months ended 30

June 2020. The financial information for the 12-month period ended 30 June 2020 was calculated based on the results of operations

for the six-month period ended 30 June 2020 in addition to the difference between the results of operations for the year ended 31

December 2019 and the six months ended 30 June 2019.

(11) Return on Equity is the net profit attributable to equity holders of the Company divided by the equity attributable to the equity

holders of the Company. Amounts relating to the periods ended 30 June 2021 and 2020 were calculated based on the twelve-month

periods ended 30 June 2021 and 2020, respectively. The financial information for the twelve-month period ended 30 June 2021

was calculated based on the results of operations for the six-month period ended 30 June 2021 in addition to the difference between the results of operations for the year ended 31 December 2020 and the six months ended 30 June 2020. The financial information

for the 12-month period ended 30 June 2020 was calculated based on the results of operations for the six-month period ended 30

June 2020 in addition to the difference between the results of operations for the year ended 31 December 2019 and the six months

ended 30 June 2019.

Table 12: Adjusted EBITDA Calculation for Each Period



2021 2020 2020 2019 2018

(SAR million)

Net Profit 5,872.2 5,730.2 11,185.2 10,924.8 11,080.5

Adjusted for:

Zakat and income tax 574.9 465.7 1,170.5 762.1 747.7

Net other losses/(gains) 30.7 (561.5) (424.6) 41.0 215.5

Net share in results of investments in

associates and joint ventures (61.2) 11.9 (53.0) (49.6) 10.6

Net other expenses/(income) 54.4 24.7 43.0 76.1 (102.9)

43



2021 2020 2020 2019 2018

Finance cost 291.8 331.2 623.9 765.2 395.4

Finance income (192.7) (236.1) (413.9) (639.2) (551.5)

Cost of early retirement program

161.6 300.0 600.0 600.0 450.0

Depreciation and amortisation

4,735.8 4,605.3 9,358.9 8,784.6 7,590.5

Adjusted EBITDA 11,467.7 10,671.4 22,090.0 21,265.0 19,835.8

44

Table of Contents

1. Definitions and Terminology ...................................................................................................................................................1

2. Risk Factors............................................................................................................................................................................10

2.1 Risks Related to the Company’s Operations and Activities ..................................................................................................10

2.1.1 Risks related to rapid technological developments................................................................................................................10

2.1.2 Risks relating to core capital investments of the Group where investment decisions can be based on inaccurate

expectations for the future demand ........................................................................................................................................11

2.1.3 Risks relating to the incompetence of the Group to perform strategic priorities successfully or to maintain the operating

policies that are distinguished for efficiency and effectiveness.............................................................................................12

2.1.4 Risks relating to the focusing of the Group’s revenues, profits and cash flows in the Kingdom ..........................................13

2.1.5 Risks related to the concentration of the Group's customers on government and semi-government entities........................13

2.1.6 Risks relating to the Group’s facing increasing competition .................................................................................................14

2.1.7 Risks relating to success of the Group’s operations to attract and keep subscribers .............................................................15

2.1.8 Risk Related to reduction of the Group’s revenues from the services of subscribers in traditional fixed line services and

the future revenues of the Group to depend increasingly on data services compared to tower-based wireless services ......16

2.1.9 Risks relating to a great portion of the Group’s mobile telecommunications revenues depending on short t ime

subscriptions (pre-paid services)............................................................................................................................................16

2.1.10 Risks relating to operations of the Group outside the Kingdom............................................................................................16

2.1.11 Risks relating to possession, investment or merging operations ...........................................................................................17

2.1.12 Risks relating to developing, expanding and maintaining telecommunications networks of the Group...............................18

2.1.13 Risks relating to the Group’s dependence on service providers of third parties to provide networks, services, equipment

and content for its subscribers................................................................................................................................................19

2.1.14 Risks relating to repercussions of COVID-19 and its impact on the works of the Group, which is expected to continue ...19

2.1.15 Risks relating to the inability of the Group to provide cash enough to pay all its debts and that it may be obliged to take

other procedures to fulfil its obligations due to its debts, which may not succeed to accomplish ........................................20

2.1.16 Risks relating to the Government ownership of the majority share in the Group, which may create a dispute between its

interests in certain cases and the interests of the minority shareholders................................................................................21

2.1.17 Risks relating to the interruption of the information and technological systems of the Group and thus the suspension of

operations of the Group..........................................................................................................................................................21

2.1.18 Risks relating to electronic attacks affecting networks or systems of the Group and thus negatively impact the businesses

of the Group, including the loss of data or other security breaches.......................................................................................22

2.1.19 Risks relating to the inability of the Group to protect intellectual property rights sufficiently, which may harm its

trademark value, products and services holding its trademark ..............................................................................................23

2.1.20 Risks relating to non-renewal of leasing contracts of the lands on which the towers of the Group are erected or may that

may be renewed with terms that are not commercially good for the Group, or disputes may arise with the owners of such

lands .......................................................................................................................................................................................23

2.1.21 Risks relating to the Group’s dependence on senior managers, senior executive officers and other qualified employees,

attracting and keeping such employees..................................................................................................................................24

2.1.22 Risks relating to the nature of mobile services sector and the limitedness of wireless radio frequency spectrum available

for privatisation, with some privatisation operations are already under disputes ..................................................................25

2.1.23 Risks relating to systems combating monopoly and competition applicable in the countries where the Group works and

which may restrict the growth of the Group, impose investigations or legal procedures, including the ones relating to

combating monopoly..............................................................................................................................................................25

2.1.24 Risks relating to the increasing requirements of Zakat/tax negatively applicable to the Group with respect to its profits...26

2.1.25 Risks relating to different accounting policies of the Group from other telecom operators, which may affect the possibility

to compare its results..............................................................................................................................................................26

2.2 Risks Related to the Market, Industry and Regulatory Environment ....................................................................................27

2.2.1 Risks relating to laws and regulations of the telecommunications industry within which the Company works. New

changes in existing, laws, regulations or governmental policy could adversely affect industry participants .......................27

45

2.2.2 Risks relating to dependence of telecom companies on continuous operations of its own networks and the networks of

other operators........................................................................................................................................................................28

2.2.3 Risks relating to the dependence of telecoms companies on standards and protocols of third parties..................................28

2.2.4 Actual or possible health risks or other damages relating to the use of mobile phones or transmission towers and its impact

to reduce the level of mobile communications services ........................................................................................................28

2.2.5 Risks relating to the adverse impact of the Group with the legal actions or other legal procedures (whether civil, tax or

administrative ones) which may adversely affect its businesses, financial position and results of its operations ................29

2.2.6 Risks relating to COVID-19 which made huge interruptions in global economy and the economy of the Kingdom ..........30

2.2.7 Risks relating to the dependence of the economy of the Kingdom and its revenues of the government on oil sector and its

adverse impact on oil rates reduction .....................................................................................................................................31

2.2.8 Risks relating to political and security risks the Kingdom and Middle East may undergo ...................................................32

2.2.9 Risks relating to the businesses of the Group in case Saudi Riyal/USD connection is cancelled or amended .....................33

2.2.10 Risks relating to the telecommunications networks may be adversely affected by natural disasters or other catastrophic

events beyond the control of their operators ..........................................................................................................................33

2.3 Risks relating to the Company’s Shares, including the Offer Shares. ...................................................................................34

2.3.1 Risks relating to large future sales or excepted sales of the Company's Shares and its impact on the market price of the

Company's Shares ..................................................................................................................................................................34

2.3.2 Risks related to the settlement of the Offer Shares being subject to interruptions or delays.................................................34

2.3.3 Risks related to trading halt in case the share price fluctuates with 10% or more daily........................................................35

2.3.4 Risks related to the transfer of the Offer Shares being subject to restrictions pursuant to securities laws of the United

States and other countries ......................................................................................................................................................35

2.3.5 Risks relating to the foreign exchange rates on the demand of Offer Shares and its trading rate .........................................36

2.3.6 Risks relating to fluctuations in the price of the Offer Shares. ..............................................................................................36

2.3.7 Risks arising because securities analysts do not publish researches or reports about the businesses of the Group or sector,

or such analysts change their recommendations about the Company's Shares negatively, which will lead to a reduction in

the market price and volume of the Company's share trading ...............................................................................................36

2.3.8 Risks relating to the Company not being able to distribute dividends to its shareholders or guaranteeing the size of the

dividends and the risks of modifying its dividend policy ......................................................................................................37

2.3.9 Risks relating to the limited ability of Investors to make claims against the Company, its Board of Directors and members

of senior management of the Company .................................................................................................................................37

2.3.10 Risks of investments in emerging markets ............................................................................................................................37

3. Market Overview ...................................................................................................................................................................39

3.1 Saudi Market macroeconomic environment ..........................................................................................................................39

3.1.1 Geography ..............................................................................................................................................................................39

3.1.2 Economy ................................................................................................................................................................................39

3.1.3 Population and demographic..................................................................................................................................................42

3.1.4 Saudi Arabia Vision 2030 ......................................................................................................................................................43

3.2 Industry overview ..................................................................................................................................................................44

3.2.1 Saudi Arabia’s telecommunications market ..........................................................................................................................44

3.2.2 Saudi Arabia’s ICT market ....................................................................................................................................................50

3.2.3 Saudi Arabia’s digital payments market ................................................................................................................................54

3.2.4 Saudi Arabia’s digital remittance market ...............................................................................................................................55

3.2.5 Saudi Arabia’s towers infrastructure market .........................................................................................................................56

3.3 Other markets .........................................................................................................................................................................57

3.3.1 Saudi Arabia’s video gaming and eSports market .................................................................................................................57

3.3.2 Saudi Arabia’s media market .................................................................................................................................................58

4. Overview of the Group and the Nature of its Business..........................................................................................................60

46

4.1 Company Overview ...............................................................................................................................................................60

4.2 A brief summary of the most important historical developments of the Group ....................................................................64

4.3 Competitive strengths ............................................................................................................................................................66

4.3.1 Competitive strengths ............................................................................................................................................................66

4.3.2 Strategy ..................................................................................................................................................................................72

4.4 Ownership Structure of the Company Pre and Post Offering ................................................................................................74

4.5 Overview of the Company’s Substantial shareholders ..........................................................................................................75

4.5.1 PIF ..........................................................................................................................................................................................75

4.5.2 GOSI ......................................................................................................................................................................................75

4.6 The Group’s relationship with the Government ....................................................................................................................75

4.6.1 Government as shareholder ....................................................................................................................................................75

4.6.2 Government as customer........................................................................................................................................................75

4.6.3 Government as regulator ........................................................................................................................................................76

4.6.4 Government as partner ...........................................................................................................................................................76

4.6.5 Market Section Information on ordinary shares ....................................................................................................................76

4.7 General Description of the Saudi Arabian business operations, infrastructure and Regulatory environment.......................77

4.7.1 Business segments inside Saudi Arabia .................................................................................................................................77

4.7.2 Products and services .............................................................................................................................................................77

4.7.3 Marketing and distribution.....................................................................................................................................................80

4.7.4 The Group’s Network infrastructure......................................................................................................................................82

4.7.5 An overview of the Group’s work organisational environment in Saudi Arabia ..................................................................83

4.8 Overview of the Group’s businesses outside Saudi Arabia ...................................................................................................88

4.8.1 Subsidiaries located outside Saudi Arabia .............................................................................................................................88

4.8.2 Equity accounted investments................................................................................................................................................90

4.8.3 Investment funds ....................................................................................................................................................................90

4.9 Information technology..........................................................................................................................................................90

4.10 Environment ...........................................................................................................................................................................91

4.11 Corporate social responsibility (“CSR”)................................................................................................................................92

4.11.1 Strategy and framework .........................................................................................................................................................92

4.11.2 SDG initiatives .......................................................................................................................................................................93

4.11.3 Research and Development....................................................................................................................................................95

4.11.4 Response to the COVID-19 pandemic...................................................................................................................................95

5. Organisational Structure and Corporate Governance ............................................................................................................97

5.1 Management of the Company ................................................................................................................................................97

5.2 Organisational structure of the Company ..............................................................................................................................97

5.3 The Board of Directors ..........................................................................................................................................................97

5.4 Biographies of the Directors and the Secretary .....................................................................................................................99

5.4.1 His Royal Highness Prince Mohammed K. A. Al-Faisal (Chairman) ...................................................................................99

5.4.2 Mr. Yazeed A. AlHumied (Vice Chairman) ........................................................................................................................100

5.4.3 His Excellency Dr. Khaled H. Biyari (Board Member).......................................................................................................100

5.4.4 His Excellency Mohammed Talal Al-Nahas (Board Member) ...........................................................................................100

5.4.5 Mr. Sanjay Kapoor (Board Member) ...................................................................................................................................100

5.4.6 Mr. Ahmed Mohammed Alomran (Board Member) ...........................................................................................................101

47

5.4.7 Ms. Rania M. Nashar (Board Member) ...............................................................................................................................101

5.4.8 Mr. Arndt F. Rautenberg (Board Member) ..........................................................................................................................101

5.4.9 Ms. Sarah J. AlSuhaimi (Board Member)............................................................................................................................101

5.4.10 Mr. Jameel Abdullah AlMulhem (Board Member) .............................................................................................................102

5.4.11 Mr. Walid I. Shukri (Board Member) ..................................................................................................................................102

5.5 Committees of the Board of Directors .................................................................................................................................102

5.5.1 Executive Committee ...........................................................................................................................................................102

5.5.2 Audit Committee..................................................................................................................................................................102

5.5.3 Nomination and Remuneration Committee .........................................................................................................................103

5.5.4 Investment Committee .........................................................................................................................................................103

5.5.5 Risk Committee....................................................................................................................................................................103

5.6 Senior Management/ Executive Management .....................................................................................................................103

5.6.1 Olayan M. Alwetaid (stc Group Chief Executive Officer) ..................................................................................................103

5.6.2 Ameen Fahad Alshiddi (Chief Financial Officer) ................................................................................................................104

5.6.3 Jose Del Valle (Chief Strategy Officer) ...............................................................................................................................104

5.6.4 Haithem Mohammed Alfaraj (Chief Technology Officer) ..................................................................................................104

5.6.5 Riyadh Saeed Muawad (Chief Business Officer) ................................................................................................................104

5.6.6 Faisal Alsaber (Chief Commercial Officer) .........................................................................................................................105

5.6.7 Abdullah Abdulrahman Alkanhal (Chief Corporate Affairs Officer)..................................................................................105

5.6.8 Ahmad Musfer Alghamdi (Chief People Officer) ...............................................................................................................105

5.6.9 Mohammed Abdullah Alabbadi (Chief Wholesales Officer) ..............................................................................................105

5.6.10 Mathad Faisal Alajmi (Chief Legal Officer and General Counsel) .....................................................................................106

5.6.11 Abdullah Sail Alanizi (Chief Audit Officer) ........................................................................................................................106

5.7 Remuneration and Compensation of Directors and Executive Management ......................................................................106

5.8 Corporate Governance .........................................................................................................................................................106

5.9 Conflicts of interest ..............................................................................................................................................................107

5.10 Cases of Bankruptcy and Insolvency of Members of the Board of Directors and Executive Management ........................107

5.11 Direct and Indirect Interests of Board Members and Executive Management ....................................................................107

5.12 Employees ............................................................................................................................................................................108

5.13 Employees long-term incentives program ...........................................................................................................................108

6. Management’s Discussion and Analysis of Financial Position and Results of Operations.................................................109

6.1 Directors’ declaration for Financial Statements...................................................................................................................109

6.2 Description of principal line items .......................................................................................................................................109

6.2.1 Revenues ..............................................................................................................................................................................109

6.2.2 Cost of revenues...................................................................................................................................................................109

6.2.3 Selling and marketing expenses ...........................................................................................................................................110

6.2.4 General and administration expenses...................................................................................................................................110

6.2.5 Depreciation and amortisation expenses..............................................................................................................................110

6.2.6 Cost of early retirement program .........................................................................................................................................110

6.2.7 Finance income ....................................................................................................................................................................110

6.2.8 Finance cost..........................................................................................................................................................................110

6.2.9 Net other expenses ...............................................................................................................................................................110

6.2.10 Net share in results of investments in associates and joint ventures....................................................................................110

48

6.2.11 Net other (losses) gains ........................................................................................................................................................110

6.2.12 Zakat and income tax ...........................................................................................................................................................110

6.3 Principal factors affecting results of operations...................................................................................................................111

6.3.1 The Group’s principal operating market in terms of revenue, cash flows from operations and profitability for Saudi

Arabia...................................................................................................................................................................................111

6.3.2 Impact of the number of active clients and the amounts spent by clients on revenue in communications services ............111

6.3.3 Demographic, political and economic impacts ....................................................................................................................112

6.3.4 Competition in the markets in which the Group operates....................................................................................................113

6.3.5 Network development and maintenance ..............................................................................................................................113

6.3.6 Business Efficiency Program ...............................................................................................................................................114

6.4 Alternative performance measures.......................................................................................................................................114

6.5 Results of operations for the six-month periods ended 30 June 2021 and 30 June 2020 ....................................................115

6.5.1 Revenues ..............................................................................................................................................................................116

6.5.2 Cost of revenues...................................................................................................................................................................116

6.5.3 Gross profit ..........................................................................................................................................................................116



6.5.6 Depreciation and amortisation .............................................................................................................................................117

6.5.7 Operating profit....................................................................................................................................................................117


6.5.9 Finance income ....................................................................................................................................................................117

6.5.10 Finance costs ........................................................................................................................................................................117



6.5.13 Net profit ..............................................................................................................................................................................118

6.6 Results of operations for the years ended 31 December 2020 and 31 December 2019 .......................................................118

6.6.1 Revenues ..............................................................................................................................................................................118

6.6.2 Cost of revenues...................................................................................................................................................................119

6.6.3 Gross profit ..........................................................................................................................................................................119






6.6.9 Finance income ....................................................................................................................................................................121

6.6.10 Finance costs ........................................................................................................................................................................121



6.6.13 Net profit ..............................................................................................................................................................................121

6.7 Results of operations for the years ended 31 December 2019 and 31 December 2018 .......................................................121

6.7.1 Revenues ..............................................................................................................................................................................122

6.7.2 Cost of revenues...................................................................................................................................................................122

6.7.3 Gross profit ..........................................................................................................................................................................123

49






6.7.9 Finance income ....................................................................................................................................................................124

6.7.10 Finance costs ........................................................................................................................................................................125



6.7.13 Net profit ..............................................................................................................................................................................125

6.8 Summary of consolidated financial position as at 30 June 2021 and 2020 .........................................................................125

6.8.1 Non-current assets................................................................................................................................................................126

6.8.2 Current assets .......................................................................................................................................................................126

6.8.3 Non-current liabilities ..........................................................................................................................................................126

6.8.4 Current liabilities..................................................................................................................................................................126

6.8.5 Equity ...................................................................................................................................................................................126

6.9 The Summary of the consolidated financial position as at 31 December 2020 and 2019 ...................................................126


6.9.2 Current assets .......................................................................................................................................................................127



6.9.5 Equity ...................................................................................................................................................................................127

6.10 The Summary of the consolidated financial position as at 31 December 2019 and 2018 ...................................................127


6.10.2 Current assets .......................................................................................................................................................................128



6.10.5 Equity ...................................................................................................................................................................................128

6.11 Liquidity and capital resources ............................................................................................................................................128

6.11.1 Overview ..............................................................................................................................................................................128

6.11.2 Cash flow .............................................................................................................................................................................128

6.11.3 Net cash generated from operating activities .......................................................................................................................129

6.11.4 Net cash generated from (used in) investing activities ........................................................................................................129

6.11.5 Net cash used in financing activities ....................................................................................................................................130

6.11.6 Borrowings ...........................................................................................................................................................................130

6.11.7 Maturity profile of the Group’s financing............................................................................................................................131

6.11.8 Receivables/payables from the Government........................................................................................................................131

6.11.9 Capital expenditure ..............................................................................................................................................................131

6.11.10 Capital commitments ...........................................................................................................................................................131

6.11.11 Contingent liabilities ............................................................................................................................................................132

6.11.12 Off-balance sheet arrangements...........................................................................................................................................132

6.11.13 Retirement benefit schemes .................................................................................................................................................132

6.11.14 Dividend...............................................................................................................................................................................132

50

6.12 Quantitative and qualitative disclosure about market risk ...................................................................................................133

6.12.1 Profit rate risk.......................................................................................................................................................................133

6.12.2 Foreign currency risk ...........................................................................................................................................................133

6.12.3 Credit risk.............................................................................................................................................................................133

6.12.4 Liquidity risk........................................................................................................................................................................133

6.13 Critical accounting policies ..................................................................................................................................................134

6.14 Related party transactions ....................................................................................................................................................134

6.15 Telecommunications services provided and received ..........................................................................................................135

6.16 Benefits, remuneration and compensation of the members of the Board and senior management .....................................135

7. Dividend Policy....................................................................................................................................................................136

8. Use of Offering Proceeds .....................................................................................................................................................138

9. Capitalisation and IndebteDness of the Company ...............................................................................................................139

10. Statement by Experts ...........................................................................................................................................................140

11. Directors’ Declarations ........................................................................................................................................................141

12. Legal Information ................................................................................................................................................................144

12.1 Declarations Related to the Legal Information ....................................................................................................................144

12.2 Material Agreements............................................................................................................................................................144

12.2.1 Network Supply and Support Agreements...........................................................................................................................144

12.2.2 Agreements with Government and Government related entities .........................................................................................144

12.2.3 Western Union Agreement...................................................................................................................................................145

12.2.4 Certain financing arrangements of the Group......................................................................................................................145

12.3 Insurance ..............................................................................................................................................................................146

12.4 Intellectual Property .............................................................................................................................................................146

12.5 Litigation, arbitration and disputes ......................................................................................................................................146

12.6 Summary of Company Bylaws ............................................................................................................................................147

12.6.1 Objectives of the Company..................................................................................................................................................147

12.6.2 Participation and Ownership in Companies.........................................................................................................................148

12.6.3 Head Office of the Company ...............................................................................................................................................148

12.6.4 Term of Existence of the Company .....................................................................................................................................148

12.6.5 Capital of the Company .......................................................................................................................................................148

12.6.6 Subscription for Shares ........................................................................................................................................................148

12.6.7 Preferred Shares ...................................................................................................................................................................148

12.6.8 The issuance of Shares .........................................................................................................................................................148

12.6.9 Selling Non-Fully Paid Shares .............................................................................................................................................148

12.6.10 Acquiring, Selling and Mortgaging the Company Shares ...................................................................................................149

12.6.11 Shares Negotiation and Shareholders Register ....................................................................................................................149

12.6.12 Increase of Capital ...............................................................................................................................................................149

12.6.13 Decrease of Capital ..............................................................................................................................................................150

12.6.14 Bonds and Sukuk .................................................................................................................................................................150

12.6.15 Board of Directors................................................................................................................................................................150

12.6.16 Board Membership Expiration.............................................................................................................................................151

12.6.17 Vacancies .............................................................................................................................................................................151

12.6.18 Powers of the Board of Directors.........................................................................................................................................151

51

12.6.19 Remuneration of Board of Directors....................................................................................................................................153

12.6.20 Powers of Board Chairman, Vice-Chairman, and Board Secretary.....................................................................................153

12.6.21 Board Meetings ....................................................................................................................................................................154

12.6.22 Quorum and Resolutions......................................................................................................................................................154

12.6.23 Board Deliberations .............................................................................................................................................................154

12.6.24 Attending General Assemblies.............................................................................................................................................154

12.6.25 Competencies of Ordinary General Assembly.....................................................................................................................154

12.6.26 Competencies of Extraordinary General Assembly .............................................................................................................154

12.6.27 Manner of Convening General Assemblies .........................................................................................................................155

12.6.28 Record of Attendance at the Meetings of the General Assemblies......................................................................................155

12.6.29 Quorum of Ordinary General Assembly ..............................................................................................................................155

12.6.30 Quorum of Extraordinary General Assembly ......................................................................................................................155

12.6.31 Voting Rights .......................................................................................................................................................................155

12.6.32 Assembly Resolutions..........................................................................................................................................................156

12.6.33 Discussions at the Assembly Meetings ................................................................................................................................156

12.6.34 Chairing the General Assemblies and Preparing the Minutes .............................................................................................156

12.6.35 Committee Formation ..........................................................................................................................................................156

12.6.36 Meeting Quorum ..................................................................................................................................................................156

12.6.37 Committee Competencies ....................................................................................................................................................156

12.6.38 Committee Reports ..............................................................................................................................................................157

12.6.39 Appointment of Auditor.......................................................................................................................................................157

12.6.40 Auditor’s Authorities ...........................................................................................................................................................157

12.6.41 Financial Year ......................................................................................................................................................................157

12.6.42 Annual Accounts..................................................................................................................................................................157

12.6.43 Distribution of Profits ..........................................................................................................................................................158

12.6.44 Dividends Maturity ..............................................................................................................................................................158

12.6.45 Distribution of Dividends of Preferred Shares .....................................................................................................................158

12.6.46 Company Losses ..................................................................................................................................................................158

12.6.47 Liability Action ....................................................................................................................................................................159

12.6.48 Company Expiration ............................................................................................................................................................159

13. Book-Building......................................................................................................................................................................160

13.1 Pricing and Allocation .........................................................................................................................................................160

13.2 Closing Date.........................................................................................................................................................................160

13.3 Termination ..........................................................................................................................................................................160

13.4 Representations and Warranties...........................................................................................................................................160

13.5 Fees, costs and expenses ......................................................................................................................................................160

13.6 Contractual Lock-up ............................................................................................................................................................161

13.7 Stabilisation..........................................................................................................................................................................161

13.8 Other relationships ...............................................................................................................................................................161

14. Offering Expenses................................................................................................................................................................163

15. Subscription Terms and Conditions .....................................................................................................................................164

15.1 Subscription for the Offer Shares.........................................................................................................................................164

15.2 Subscription Period ..............................................................................................................................................................165

52

15.3 Book-building and subscription by Participating Parties.....................................................................................................165

15.4 Subscription by Individual Investors ...................................................................................................................................165

15.5 Allocation and Refunds ........................................................................................................................................................167

15.6 Circumstances where listing may be suspended or cancelled ..............................................................................................168

15.6.1 Power to Suspend or Cancel Listing ....................................................................................................................................168

15.6.2 Voluntary Cancellation of Listing........................................................................................................................................169

15.6.3 Temporary Trading Suspension ...........................................................................................................................................170

15.6.4 Lifting of Suspension ...........................................................................................................................................................170

15.7 Approvals and decisions under which the Shares will be Offered ......................................................................................170

15.8 Lock-up Period.....................................................................................................................................................................171

15.9 Pricing ..................................................................................................................................................................................171

15.10 Acknowledgments by Individual Investors..........................................................................................................................171

15.11 Acknowledgments by Participating Parties .........................................................................................................................171

15.12 Brief Summary of the Trade Process ...................................................................................................................................172

15.13 Settlement and Trading ........................................................................................................................................................172

15.14 Miscellaneous.......................................................................................................................................................................173

16. Financial Statements and Auditor's Report..........................................................................................................................174

16.1 Financial performance for the nine-month period ended 30 September 2021.....................................................................174

16.1.1 Key Financial Data and Business Highlights.......................................................................................................................174

16.1.2 Results of Operations ...........................................................................................................................................................174

16.1.3 Revenues ..............................................................................................................................................................................175

16.1.4 Cost of revenues...................................................................................................................................................................176

16.1.5 Gross profit ..........................................................................................................................................................................176






16.1.11 Finance income ....................................................................................................................................................................176

16.1.12 Finance cost..........................................................................................................................................................................177



16.1.15 Net Profit..............................................................................................................................................................................177

53

Tables Guide

Table 1: stc - Board of Directors ............................................................................................................................................................5

Table 2: Substantial Shareholders and Their Ownership Percentages in the Company Pre-Offering and Post-Offering. ..................15

Table 3: The Expected Offering Timetable..........................................................................................................................................23

Table 4: Key Announcement Dates .....................................................................................................................................................24

Table 5: The Group’s results of operations for the six-month periods ended 30 June 2021 and 2020................................................38

Table 6: The Group’s results of operations for the years ended 31 December 2020, 2019 and 2018 .................................................38

Table 7: The Group’s consolidated statement of financial position as at 30 June 2021 and 30 June 2020 .........................................39

Table 8: The Group’s consolidated statement of financial position as at 31 December 2020, 2019 and 2018 ...................................40

Table 9: The Group’s cash flow from operating activities, investing activities and financing activities for the six-month periods

ended 30 June 2021 and 2020 ................................................................................................................................................40

Table 10: Cash flow from operating activities, investing activities and financing activities in the years ended on 31 December 2020,

2019 and 2018 ........................................................................................................................................................................41

Table 11: Alternative Performance Measures ........................................................................................................................................41

Table 12: Adjusted EBITDA Calculation for Each Period ....................................................................................................................42

Table 13: The Group’s most important subsidiaries inside and outside the Kingdom as at 30 September 2021 ..................................61

Table 14: The most important historical developments of the Group....................................................................................................64

Table 15: Ownership Structure of the Company Pre and Post Offering ................................................................................................75

Table 16: The closing prices for the years 2018, 2019 and 2020...........................................................................................................76

Table 17: The closing prices for the nine months period ended 30 September 2021 ............................................................................76

Table 18: Structure of pre-offering and post-offering ownership ..........................................................................................................97

Table 19: Current Board Directors of the Company ..............................................................................................................................98

Table 20: Alternative performance measures.......................................................................................................................................114

Table 21: Adjusted EBITDA for each period ......................................................................................................................................115

Table 22: A comparison of the Group’s results of operations for the six-month periods ended 30 June 2021 and 2021 ...................115

Table 23: The Group’s results of operations for the years ended 31 December 2020 and 2019. ........................................................118

Table 24: The Group’s cost of revenues for each of the years ended 31 December 2020 and 31 December 2019 ............................119

Table 25: The Group’s selling and marketing expenses for each of the years ended 31 December 2020 and 2019. ..........................120

Table 26: The Group’s general and administration expenses for each of the years ended 31 December 2020 and 31 December

2019......................................................................................................................................................................................120

Table 27: The Group’s results of operations for the years ended 31 December 2019 and 2018. ........................................................122

Table 28: The Group’s cost of revenues for each of the years ended 31 December 2019 and 31 December 2018 ............................122

Table 29: The Group’s selling and marketing expenses for each of the years ended 31 December 2019 and 31 December 2018. ...123

Table 30: The Group’s general and administration expenses for each of the years ended 31 December 2019 and 31 December

2018......................................................................................................................................................................................124

Table 31: The Group’s consolidated statement of financial position as at 30 June 2021 and 2020 ....................................................125

Table 32: The Group’s consolidated statement of financial position as at 31 December 2020 and 31 December 2019 .....................126

Table 33: The Group’s consolidated statement of financial position as at 31 December 2019 and 2018 ...........................................127

Table 34: The Group’s cash flow from operating activities, investing activities and financing activities for the six-month periods

ended 30 June 2021 and 2020 and for each of the years ended 31 December 2020, 2019 and 2018. .................................129

Table 35: The Group’s borrowings as at 31 December 2020 ..............................................................................................................130

Table 36: The Group’s financing at 31 December 2020 ......................................................................................................................131

Table 37: The outstanding balances as at 31 December 2020, 2019 and 2018: ..................................................................................134

54

Table 38: Loans to related parties ........................................................................................................................................................135

Table 39: Group’s trading transactions with related during the years ended 31 December 2020, 2019 and 2018 ..............................135

Table 40: Benefits, remuneration and compensation of the members of the Board and senior management during the years ended 31

December 2020, 2019 and 2018: .........................................................................................................................................135

Table 41: Dividends Distributed for the Years Ended on 31 December 2018, 2019 and 2020, and the six-month period ended 30

June 2021. ............................................................................................................................................................................137

Table 42: Capitalisation of the consolidated Equity and Indebtedness of the Group as at 30 September 2021 ..................................139

Table 43: Comparison of the Group’s results of operations for the nine-month periods ended 30 September 2021 and 2020. .........174

55

Figures Guide

Figure 1: Saudi Arabia GDP vs. other GCC countries, 2020 (GDP 2020 in USD billion and GDP per capita in ‘000)......................40

Figure 2: Saudi Arabia GDP evolution and growth outlook (USD billion) ..........................................................................................40

Figure 3: Decreasing GDP share of oil and natural gas, 1Q19 – 2Q21 (USD billion) ..........................................................................41

Figure 4: Inflation rate annual evolution (%) ........................................................................................................................................41

Figure 5: Saudi unemployment rate (15+) (%)......................................................................................................................................41

Figure 6: Saudi Arabia population distribution by age group, H1 2020 (%) ........................................................................................42

Figure 7: Saudi Arabia population census, 2014 – 2020 (%) ................................................................................................................43

Figure 8: Vision 2030 objectives ...........................................................................................................................................................43

Figure 9: Mobile service revenue, 2018A–2021E (USD billion) ..........................................................................................................44

Figure 10: Number of mobile subscribers and penetration, 2018A – 2021E (million)...........................................................................45

Figure 11: Pre-paid versus post-paid subscriptions, 2018A – 2021E (million) ......................................................................................45

Figure 12: 5G connections as proportion of total by 2025 (%) ...............................................................................................................46

Figure 13: Mobile subscriptions by technology, 2018 – 2025 (million) .................................................................................................46

Figure 14: Mobile data download volume in Saudi Arabia (million terabytes) ......................................................................................47

Figure 15: Mobile ARPU (USD) .............................................................................................................................................................47

Figure 16: Saudi Arabia telecommunication service providers mobile service by mobile revenue, 2020 (%) ......................................48

Figure 17: Development of the number of fixed broadband and voice subscriptions, 2018 – 2021E (million) .....................................48

Figure 18: Comparison of fixed voice household penetration, 2020 (%) ...............................................................................................49

Figure 19: Fixed line voice market shares, 2020 (Service revenues as a% of total) ...............................................................................49

Figure 20: Comparison of fixed broadband household penetration, 2020 (%) .......................................................................................50

Figure 21: Fixed broadband (Optical fibre) market shares, 2020 (Service revenues as a% of total) ......................................................50

Figure 22: Saudi Arabia’s B2B ICT services market size by category, 2018 – 2025 (SAR billion) ......................................................51

Figure 23: Industry verticals CAGR, 2018 – 2025..................................................................................................................................51

Figure 24: Top investment priorities expectations for H2 2020 (%).......................................................................................................52

Figure 25: B2B IT services spend as a share of GDP and market size, 2018 (as% of GDP)..................................................................53

Figure 26: B2B IT services market*, 2019 – 2025 (%)...........................................................................................................................53

Figure 27: Debit and credit cards per adult, 2020 ...................................................................................................................................54

Figure 28: Digital payments penetration – share of non-cash transactions, 2020 (as% of Total Consumer and Commercial Payment

Transactions, in volume)........................................................................................................................................................54

Figure 29: Immigrant/ expatriates population by country, 2021 (million) ..............................................................................................55

Figure 30: Saudi Arabia outward remittance volume (USD billion) .......................................................................................................56

Figure 31: Largest outward remittance markets and GDP contribution, 2020 (USD billion).................................................................56

Figure 32: Tower counts across MENA markets, 2020 ..........................................................................................................................57

Figure 33: Saudi Arabia estimated tower count, 2020 (as% of total) .....................................................................................................57

Figure 34: Media and entertainment market in revenue share (%) .........................................................................................................58

Figure 35: Media and entertainment revenue in Saudi Arabia, 2019-2026 (USD million) ....................................................................59

Figure 36: Ownership structure of the Group’s most important subsidiaries and other major institutions and investment funds .........64

Figure 37: Organisational structure of the Company ..............................................................................................................................97

1

1. Definitions and Terminology

SOCPA Saudi Organization for Chartered and Professional Accountants (formerly known as Saudi Organization for Certified Public Accountants (SOCPA).

“SAR”, “Saudi Riyals” or

“Riyals”

The Saudi Riyal (SAR), the official currency of the Kingdom of Saudi Arabia.

3G The third generation (3G) technology for mobile phones with more bandwidth than 2G technology.

4G The fourth-generation technology for mobile phones. This technology is one of the continuous developments of mobile technology to provide a comprehensive and secure service based on the Internet protocol. With 4G technology, users can be provided with services such as Internet telephony, high-speed Internet access and multimedia playback directly through the Internet.

5G The fifth generation of wireless technology.

Advisors The Company's advisors in relation to the Offering, whose names are listed in pages (8) to (12) of this Prospectus.

Affiliate Pursuant to the definition stated in the Glossary of Defined Terms of the CMA Regulations, a person who directly or indirectly, Controls another person or that is Controlled by such other person, or who is under common Control with that person by a third party.

Aqalat Aqalat Limited Company (one person company), a subsidiary of the Company.

Arab Submarine Cables

Company

The Arab Submarine Cables Company, a subsidiary of the Company.

Arabsat Arab Satellite Communications Organization.

Articles of Association The Articles of Association of the Company, approved by the General Assembly.

Auditor Ernst and Young & Co Public Accountants (Professional Limited Liability Company) (formerly known as Ernst & Young & Co. (Certified Public Accountants)).

Bid Form The bid form submitted to the Bookrunners within the Kingdom by the Participating Parties registered in the Kingdom. This term includes, as appropriate, the bid form when the Offer Price Range is adjusted. The bid form will be deemed binding on the participating parties to accept the allocation of Offer Shares and will include instructions to the broker to take the necessary actions to execute the settlement of the shares that are being subscribed to.

Bid/Subscription Orders Bid/subscription orders submitted by the Participating Parties not registered in the Kingdom to the Bookrunners by phone or email without the need to complete and sign an application in accordance with the instructions set out in Section 15 "Subscription Terms and Conditions" of this Prospectus.

Board Members The Board of Directors of the Company.

2

Board Secretary The Board of Directors Secretary of the Company.

Book-building Period The Book-building Period shall commence at 6:00 pm (Riyadh time) on Sunday, 01/05/1443H (corresponding to 05/12/2021G) and shall end at 5:00 pm (Riyadh time) on Thursday, 05/05/1443H (corresponding to 09/12/2021G) (for more details, please refer to Section "Key Dates and Subscription Procedures" on page 23 of this Prospectus).

Bookrunner Goldman Sachs Saudi Arabia, HSBC Saudi Arabia, Morgan Stanley Saudi Arabia, SNB Capital, Credit Suisse Saudi Arabia and Citigroup Saudi Arabia.

Bookrunners’ Agreement The bookrunners’ agreement entered into by and between the Company, the Selling Shareholder and the Bookrunners with regard to the sale of Offer Shares to Participating Parties.

Broadband Several bands of frequency that bear a single signal. The capacity of the communication line to carry the signal is measured according to the used bandwidth, and the necessary bandwidth is the amount of spectrum required to transmit the signal without damaging or losing information.

Business day Any day on which Receiving Entities are open for business in the Kingdom (with the exception of Fridays, Saturdays and any official holidays).

Capital Market Institution A capital market institution licensed by the Authority to engage in the securities business.

Capital Market Law The Capital Market Law promulgated by Royal Decree No. M/30 of 06/02/1424H (corresponding to 07/31/2003G) and its amendments.

channels by stc Saudi Telecom Channels Company (one person company), a subsidiary of the Company.

Closing Date The date falling two (2) trading days from the date of execution of the buy orders by the Selling Shareholder on which the announcement of the completion of the Offer and the Total Offering Value will be made (for more details, please refer to Section “Key dates and Subscription Procedures” on page 23 of this Prospectus).

Companies Law The Companies Law promulgated by Royal Decree No. M/3 dated 28/01/1437H (corresponding to 10/11/2015G), and its amendments.

Company Lock-up Period According to the Bookrunners’ Agreement (set out in Section 13 “Book-Building” of this Prospectus), the Company may not issue new shares within a period of six (6) months from the Closing Date (for more information regarding the Bookrunners’ Agreement, including the contractual lock-up period, please refer to Section 13 “Book-Building” of this Prospectus).

Contact Center Company Contact Center Company, a subsidiary of the Company.

Control Pursuant to the definition in the Glossary of Defined Terms Used in of the CMA Regulations, the ability to directly or indirectly influence the actions or decisions of another person directly or indirectly, individually or collectively with a relative or dependent, through any of the following: (a) holding 30% or more of the voting rights in the Company; or (b) the right to appoint 30% or more of the administrative staff; and the word “controlling” or “controlled” shall be construed accordingly.

3

Coronavirus (COVID-19)

A virus designated as SARS-CoV-2 (coronavirus), which spread in the majority of countries, including the Kingdom, from the start of 2020 and has been categorised as a pandemic by the World Health Organization.

Corporate Governance

Regulation

The Corporate Governance Regulation issued by the Authority’s Board, according to the Companies Law, by virtue of the Authority’s Board resolution No. 8-16-2017, dated 16/05/1438H (corresponding to 13/02/2017G), and as amended by the Authority's Board Resolution No. 1-7-2021, dated 01/06/1442H (corresponding to 14/01/2021G).

Current Shareholders The Shareholders of the Company as at the date of this Prospectus (with the exception of the Selling Shareholder).

Cybersecurity The practice of protecting electronic systems, networks, and programmes from digital attacks, which are usually aimed at accessing, changing, or destroying sensitive information, or extorting money from users.

DC-HSPA+ Dual Carrier High-Speed Packet Access Plus, an update to the existing HSPA networks.

Extraordinary General

Assembly

The shareholders' extraordinary general assembly held in accordance with the Company's Articles of Association.

Final Offer Price The Final Offer Price for the Offer Shares, amounting to SAR ( ), which will be determined by the Selling Shareholder and the Bookrunners in consultation with the Company based on the level of demand from investors for the Offer Shares, and will be announced after the completion of the Book-building process.

Financial Advisors The Company's Financial Advisors, namely: Goldman Sachs Saudi Arabia, HSBC Saudi Arabia, Morgan Stanley Saudi Arabia and SNB Capital.

Financial Year The financial year of the Company, starting from 1 January to 31 December of each financial year.

FinTech The use of new and evolving technology in financial services.

Frequency Spectrum The frequency spectrum practically starts from 9 kHz to 3,000 GHz.

Fully Marketed Secondary

Public Offering Process

With regards to a listed company, the process of partially selling shares, that are not traded on the Exchange by one of its shareholders by way of public offering and listing of such shares on the Exchange.

G Gregorian year.

GCC The Cooperation Council for the Arab States of the Gulf.

Gigabyte passive optical

network (GPON)

An improved standard for data transmission over fibre-optic networks.

H Hijri year.

HSDPA An enhanced 3G technology, also known as post 3G technology (3.5G) or turbo 3G. It allows networks based on the Universal Mobile Telecommunications System (UMTS) to have higher data speeds and capacity.

4

HSPA High-speed packet access, consisting of the HSDPA and the HSUPA protocols.

HSPA+ High-Speed Packet Access Plus, an update to the existing HSPA networks.

HSUPA High Speed Uplink Packet Access, which is the same as HDSPA but relates to uplink versus downlink paths.

IFRS-KSA International Financial Reporting Standards that are endorsed in KSA and other standards and pronouncements that are endorsed by the Saudi Organization for Chartered and Professional Accountants (formerly known as the Saudi Organization for Certified Public Accountants).

Individual Investors Saudi Arabian natural Persons, including divorced or widowed Saudi women and those who have children from a non-Saudi husband who may subscribe for Offer Shares in their own names or the name(s) of any of their minor children for their benefit, provided that they shall provide documents proving that they divorced or widowed, and any non-Saudi natural Person who is a resident or a national of the GCC and has a bank account at a receiving agent and an investment portfolio account with a brokerage company affiliated with the same receiving agent that provides such services.

Instructions for Book-building Process and

Allocation Method in

Initial Public Offerings

(IPOs)

Instructions for book-building and allocation of shares in initial subscriptions issued by virtue of the Authority’s resolution No. 2-94-2016, dated 15/10/1437H (corresponding to 20/07/2016G) and as amended by the Authority's resolution No. 3-102-2019, dated 18/01/1441H (corresponding to 17/09/2019G).

Internet A set of interconnected networks spread around the world. It is a means of communication and includes the networks of universities, companies, governments and international research through the use of the Internet Protocol.

Internet of Things (IoT) A system of interrelated computing devices that are provided with unique identifiers to transfer data over a network without requiring human-to-human interaction.

Internet Protocol A method of transmitting data over the Internet in packets of data.

Intigral Gulf Digital Media Holding Company, a subsidiary of the Company.

Investment funds

Regulation

The Investment Funds Regulation issued by the Authority’s Board Resolution No. 2006-219-1, dated 12/03/1427H (corresponding to 24/12/2006G), in accordance with the CMA Law promulgated by the Royal Decree No. M/30, dated 06/02/1424H, and as amended by the Authority’s Board Resolution No. 2-22-2021, dated 12/07/1442H (corresponding to 24/02/2021G).

Labor Law The Saudi Labor Law promulgated by Royal Decree No. M/51 dated 23/08/1426H (corresponding to 09/27/2005G) and its amendments.

Lead Manager SNB Capital Company.

Listing Rules The listing rules approved by the Authority’s Board Resolution No. 3-123-2017G, dated 09/04/1439H (corresponding to 27/12/2017G), as amended by the Authority’s Board Resolution No. 1-22-2021, dated 07/12/1442H (corresponding to 24/10/2021G).

5

Localisation/Saudisation Replacement of expatriate workers by Saudi citizens in private sector jobs.

Long-Term Evolution

(LTE)

A high-performance air interface for cellular mobile communication systems that is considered as the last step toward the 4th generation (4G) of radio technologies designed to increase the capacity and speed of mobile telephone networks.

Ministry of Commerce The Ministry of Commerce in the Kingdom of Saudi Arabia.

Ministry of Human

Resources and Social

Development

The Ministry of Human Resources and Social Development in the Kingdom of Saudi Arabia.

Net Proceeds The Offering proceeds, after the deduction of the Offering Expenses.

Offer of Securities and

Continuing Obligations

The Offer of Securities and Continuing Obligations issued by the Authority's Board under Resolution No. 2017-123-3, dated 04/09/1439H (corresponding to 12/27/2017G) (based on the Saudi Stock Exchange Law issued by Royal Decree No. M/30, dated 06/02/1424H), and as amended by the Authority's Board Resolution No. 2021-7-1, dated 06/01/1442H (corresponding to 01/14/2021G).

Offer Price Range From SAR 100 to SAR 116 per Offer Share.

Offer Shares 100,200,000 ordinary shares.

Offering The sale of 100,200,000 ordinary shares, representing 5.01% of the Company's share capital, by the Selling Shareholder through a Fully Marketed Secondary Public Offering Process.

Offering Size 100,200,000 ordinary shares, representing 5.01% of the Company's share capital

OTT The over-the-top services.

Participating Parties The entities mentioned in Paragraph (5) of the Book-building Instructions in accordance with the terms and conditions stipulated in Section 15 "Subscription Terms and Conditions" of this Prospectus as follows:

a. public and private funds that invest in securities listed on Exchange, if permissible according to the terms and conditions of such funds and in compliance with the provisions and restrictions stipulated in the Investment Funds Regulation and Book-building Instructions;

b. Stock Exchange institutions that are licensed to act as a principal, in accordance with the provisions set forth in the Financial Adequacy Rules on submission of application for participation;

c. customers of a Capital Market institution that is licensed by the Authority to conduct management services in accordance with the provisions and restrictions set forth in the Book-building Instructions;

d. legal Persons allowed to open an investment account in the Kingdom and an account with the Securities Depository Center, with the exception of non-resident foreign qualified investor (qualified in accordance with the Rules for Qualified Foreign Financial Investment Institutions in Listed Securities, issued by the Authority's Circular No. 6/05158, dated 11/08/1435H (corresponding to 09/06/2014G) issued pursuant to

6

Authority’s Board Resolution No. 9-28-2014 dated 20/07/1435H (corresponding to 05/19/2014G);

e. Governmental entities and any other international body recognised by the Authority, the Exchange, or other exchange recognised by the Authority or the Securities Depository Center;

f. companies and firms either directly owned by the Government or through a private portfolio manager; and

g. GCC companies and funds, if the terms and conditions of such funds permit so.

Penetration The number of subscriber ID cards divided by the population.

Person A natural or legal person who has this capacity under the laws of the Kingdom.

PIF A Substantial Shareholder in the Company that owns 70% of the Company's shares as at the date of this Prospectus.

Pricing Agreement The pricing agreement that will be entered into by the Bookrunners, the Company and the Selling Shareholder in accordance with the form agreed upon in the Bookrunners’ Agreement.

Prospectus This document prepared by the Company in relation to the Offering.

Public Any person other than those listed below:

(1) affiliates of the Company;

(2) Substantial Shareholders of the Company;

(3) Directors and Senior Executives of the Company;

(4) directors and senior executives of the Company's affiliates;

(5) directors and senior executives of the Company's Substantial Shareholders;

(6) any relatives of the persons referred to in (1, 2, 3, 4, or 5) above;

(7) any company controlled by any person referred to in (1, 2, 3, 4, 5 or 6) above; and

(8) persons acting in concert and, collectively, holding 5% or more of the class of shares to be listed.

QFI Rules Rules for Qualified Foreign Financial Institutions Investment in Listed Securities issued by the Authority’s Board Resolution No. 1-42-2015 dated 15/07/1437H (corresponding to 05/04/2015G), as amended by the Authority’s Board Resolution No. 3-65-2019 dated 14/10/1440H (corresponding to 6/17/2019G).

Qualified Foreign Investor A foreign investor qualified in accordance with the Rules for Qualified Foreign Financial Institutions Investment in Listed Securities and the to invest in listed securities. Qualification Applications are submitted to a Capital Market Institution for evaluation and approval in accordance with the Rules for Qualified Foreign Financial Institutions Investment in Listed Securities.

Ransomware Applications that are used to lock electronic devices with the aim of blackmailing victims.

Receiving Entities The Receiving Entities are those mentioned on page 9 of this Prospectus.

7

Related Party The terms "Related Party" or "Related Parties" in this Prospectus include, pursuant to the Glossary of Defined Terms of the Authority’s Regulations, issued by the Authority’s Board Resolution No. 4-11-2004, dated 20/08/1425H (corresponding to 04/10/2004G), as amended by the Authority’s Resolution No. 1-7-2021, dated 01/06/1442H (corresponding to 14/01/2021G), the following:

a. Affiliates of the Company;

b. Substantial Shareholders of the Company;

c. Directors and Senior Executives of the Company;

d. Directors and Senior Executives of the Company’s Affiliates;

e. Directors and Senior Executives of the Company’s Substantial Shareholders;

f. Any relative of the Persons referred to in (a, b, c, d, or e) above; and

g. Any company controlled by any Persons referred to in (a, b, c, d, e, or f) above.

For the purposes of paragraph (g), "Control" means the ability to directly or indirectly affect the acts or decisions of a third party, individually or collectively with a relative of an affiliate through any of the following: (a) holding 30% or more of the voting rights in the company, (b) the right to appoint 30% or more of the administrative staff, the term “controlling” or “controlled” shall be construed accordingly.

Relatives Spouse and minor children

For the purposes of the Corporate Governance Regulation:

- parents, grandparents and ancestors;

- sons, grandsons and descendants;

- brothers and sisters, including half brothers and sisters; and

- spouses

SAIBOR The interbank offered rate adopted in the Kingdom of Saudi Arabia

Selling Shareholder The shareholder that is selling the Offer Shares as of the date of this Prospectus, being, PIF.

Selling Shareholder Lock-

up Period

According to the Bookrunners’ Agreement (mentioned in Section 13 “Book-Building” of this Prospectus), the Selling Shareholder may not dispose of its shares in the Company within a period of twelve (12) months from the Closing Date (for more information regarding the Bookrunners agreement including contractual lock-up period, please refer to Section 13 “Book-Building” of this Prospectus).

Senior Executives Any natural Person who is assigned, severally or jointly with third parties, by the Board of Directors or a Board Member with supervision and management tasks. Such person shall report to any of the Board of Directors, a Board Member or the CEO.

8

Shareholder or

Shareholders Any owner(s) of shares in the Company.

Shares Two billion (2,000,000,000) ordinary shares of the Company, with a fully paid nominal value of ten Saudi Riyals (SAR 10) per Share.

SIM card Subscriber ID chip. A smart chip that includes the subscriber's phone number, encrypted network identification details, personal identification number and many other user data such as phone number directory.

sirar by stc Advanced Technology and Cyber Security Company Ltd. (one person company), a subsidiary of the Company.

Smart Zone Properties Smart Zone Properties (one person company), a subsidiary of the Company.

Social Engineering A mean of manipulating internet users to obtain their confidential information.

solutions by stc Arabian Internet and Communication Services Company, a subsidiary of the Company.

specialized by stc Public Telecommunications Company (single shareholder company), a subsidiary of the Company.

stc Bahrain stc Bahrain B.S.C. (Closed), a subsidiary of the Company.

stc Gulf Cable Systems

Company

stc Gulf Cable Systems Company L.L.C, a subsidiary of the Company.

stc Kuwait Kuwait Telecommunications Company, a subsidiary of the Company.

stc pay stc Bank (mixed closed joint stock company), a subsidiary of the Company.

STV stc Ventures Fund.

STVLP Fund STVLP Fund.

Subscribers Include the Participating Parties and Individual Investors.

Subsidiary or Subsidiaries Pursuant to the definition in the Glossary of Defined Terms of the CMA Regulations, in relation to a company, any other company controlled by such company.

TAWAL Telecommunications Towers Company Ltd. (single shareholder company), a subsidiary of the Company.

The Authority The Capital Market Authority in the Kingdom of Saudi Arabia.

The Board or the Board of

Directors

The Board of Directors of the Company.

The Company or stc Saudi Telecom Company.

The General Assembly An Ordinary General Assembly or ExtraOrdinary General Assembly of the Company

The Government Government of the Kingdom of Saudi Arabia, and the term "governmental" shall be construed accordingly.

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The Kingdom, Saudi

Arabia, KSA

The Kingdom of Saudi Arabia.

The Official Gazette Umm Al-Qura newspaper, which is the official gazette of the Kingdom of Saudi Arabia.

The Ordinary General

Assembly

The shareholders' ordinary general assembly held in accordance with the Company's Articles of Association.

The Saudi Stock Exchange

or Tadawul

The Saudi Arabian Stock Exchange (Tadawul) (a subsidiary of Saudi Tadawul Group).

The Subscription Period

for the Participating

Parties

The Subscription Period for the Participating Parties shall commence at 6:00 pm (Riyadh time) on 01/05/1443H (corresponding to 05/12/2021G) and shall end at 5:00 pm (Riyadh time) on 05/05/1443H (corresponding to 09/12/2021G) (for more details, please refer to Section "Key Dates and Subscription Procedures" on page 23 of this Prospectus).

The Subscription Period Means, collectively, the Subscription Period for Participating Parties and the Subscription Period for Individual Investors.

The Subscription Period

for Individual Investors

The Subscription Period for Individual Investors shall commence at 11:59 pm (Riyadh time) on 03/05/1443H (corresponding to 07/12/2021G) and shall end at 11:59 pm (Riyadh time) on 04/05/1443H (corresponding to 08/12/2021G) (for more details, please refer to Section "Key Dates and Subscription Procedures" on page 23 of this Prospectus).

VAT Value added tax with respect to which a Council of Ministers Resolution was issued on 02/05/1438H (corresponding to 02/09/2017G) to adopt the Unified VAT Agreement for the member States of the Gulf Cooperation Council, which began to be applied on 14/04/1439H (1/1/2018G), as a new tax added to the taxation system that must be applied by specific sectors in the Kingdom and GCC countries. A number of products (such as basic foods and healthcare and education services) are excluded from the scope of application of such tax. In addition, the Ministry of Finance has recently announced an increase in VAT rate to 15% as of 10/11/1441H (corresponding to 07/01/2020G).

Voice over Internet

Protocol (VoIP)

A method for the delivery of voice conversations over the Internet or any network that uses the Internet Protocol.

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2. Risk Factors

Potential investors should carefully study the following risk factors and other information contained in this Prospectus before making any investment decision as regards the Offer Shares. The risks and uncertainties described below are those that the Company currently believes may affect it or any investment in the Offer Shares. The risks listed below do not necessarily represent all the risks that may affect the Company or are associated with investing in the Offer Shares. There may be other risks and uncertainties that are currently unknown to the Board members, or which the Board members believe to be currently irrelevant. The occurrence or realisation of any of these risks and uncertainties may adversely and/or substantially affect the Company's business, financial position, results of operations and future expectations. This may also lead to a decline in the Company's share price, weaken its ability to distribute dividends to shareholders, and may result in investors losing their entire equity investment or part thereof.

The Company's business, financial position, results of its operations and future expectations may be adversely and/or substantially affected. The Company may not be able to distribute dividends, and the Company’ share price may fall. Investors may lose part or all of their investment in the Company's shares if any of the risks referred to below, or any other risks not identified by Board members, or that are currently considered to be non-substantial, were realised or became substantial. Due to these risks or other factors that may affect the Company's business, future expected events and circumstances that have been presented in this Prospectus may not occur as expected by the Company and/or the Board members, or may not occur at all. Therefore, investors should consider all future statements mentioned in this Prospectus in the light of this interpretation and not rely on such statements without verifying them (for further details, please refer to page 1 "Important Notice" of this Prospectus).

Board members represent that, to the best of their knowledge and belief, there are no other substantial risks as on the date of this Prospectus - other than as stated in this Part - that may affect investors’ decisions to invest in the Offer Shares. All potential investors wishing to invest in the Offer Shares should assess the risks associated with the Offering process in general and the economic and regulatory environment in which the Company operates.

An investment in the Offer Shares is suitable only for investors who are able to assess investment risks and have sufficient resources to sustain any potential resulting loss. Potential investors with doubts about the actions to be taken should consult a financial adviser accredited by the Authority before investing in the Offer Shares.

The risks described below are not arranged in a manner that reflects the extent of their significance and expected impact on the Company. There may also be other unknown risks to the Company or risks which the Company currently considers to be non-substantial and have the same effects or consequences stated in this Prospectus. Accordingly, the risks described in this Part or in any other Part of this Prospectus may: (a) not cover all risks that may affect the Company, its operations, activities, assets or the market where it operates; and/or (b) not cover all the risks inherent in investing in the Offer Shares.

2.1 Risks Related to the Company’s Operations and Activities

2.1.1 Risks related to rapid technological developments

The information technology, communications, related infrastructure and FinTech markets are characterised by technological developments and the Group is exposed to the risk that it may be late in exploiting new technological developments as compared to its competitors or the quality of its services may be affected by other companies developing and exploiting new technological developments before the Group is able to respond appropriately.

As new technologies develop, the Group’s operating entities’ equipment and systems may need to be replaced or upgraded, or its networks may need to be rebuilt in whole or in part in order to sustain a competitive position as a market leader. Continuing technological advances, ongoing improvements in the capacity and quality of digital technology also contribute to the need for continual upgrading and

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development of the operating entities’ equipment, technology and operations. To respond successfully to technological advances, substantial capital expenditures and access to related or enabling technologies are required in order to integrate the new technology with its/the existing technology. If the Group fails to anticipate customer preferences or industry changes, or if it is unable to modify its networks on a timely and cost-effective basis, it may lose customers, which will have a negative impact on the Group's business, results of operations, financial position and prospects.

Many of the services the Group offers are technology-intensive and the development or implementation of new technologies may render the Group services non-competitive, replace such services or reduce their prices. Although the Group invests in new products and services, such as cybersecurity products, Internet, cloud, FinTech and gaming electronic platforms and products. There is no guarantee that these new products and services will meet the needs of its customers, that they will be launched effectively and in a timely manner with market opportunities, or that they will be commercially successful and profitable for the Group. In the event of any of the aforementioned negative results, the Group's business, financial condition, results of operation and prospects will be negatively affected. As telecommunications technology continues to develop, the Group’s competitors may be able to offer telecommunications products and services that are,, substantially similar or better than those offered by the Group. This could have an adverse effect on the Group’s business, financial condition, results of operations and prospects. If the Group is not successful in anticipating and responding to technological changes and resulting consumer needs in a timely and cost-effective manner, the Group’s quality of services and products, business, financial condition, results of operations and prospects could be adversely affected.

2.1.2 Risks relating to core capital investments of the Group where investment decisions can be based on

inaccurate expectations for the future demand

The Group operates in capital-intensive industries that require substantial amounts of capital and other long-term expenditure, including those relating to the development and possession of new telecommunication networks and the expansion or improvement of existing networks, or acquiring other companies or assets in the future.

The Group’s ability to raise external financing, and the cost of such financing, depends on numerous factors, including the Group’s future financial condition and results of operations, general economic and capital markets conditions, interest rates, credit availability from banks or other lenders, investor confidence in the Group, tax and securities systems as well as political and economic conditions in the relevant jurisdiction. There can be no assurance that the Group will be able to raise external financing on commercially reasonable terms, if at all. The Group inability to do so will adversely affect the Group's business, financial condition, results of operations and prospects.

The Group commits substantial capital expenditure each year to the development of its networks and technologies in order to meet customer demand. In particular, the Group has made significant capital expenditures in the past years relating to the build out of its FTTH network and the rollout of 5G services in Saudi Arabia, with 49% coverage already in the main cities of Saudi Arabia. It should be noted that the Group's capital expenditures amounted to SAR 9.8 billion, SAR 11.4 billion, SAR 10.8 billion and SAR 2.8 billion during the financial years ended 31 December 2018, 2019 and 2020 and the six-month period ended 30 June 2021. Accordingly, the Group’s capital expenditures increased by 16.5% in the financial year ended 31 December 2019 and by 11.1% in the financial year ended 31 December 2020, both as compared to 2018. The Group expects capital expenditure to return in the following years to historic levels as before 2019. The Group’s current capital expenditure programme is based upon forecasts for growth in demand for telecommunications in Saudi Arabia and the other core markets in which it operates which are based on a number of material assumptions, including population growth trends and trends in future demand for telecommunications services, and there is the risk that such assumptions may be inaccurate, which will adversely affect the Group's business, financial condition, results of operations and prospects.

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The Group’s customers expect that the Group will continue to regularly introduce more sophisticated telecommunications, cybersecurity and other applications, media and internet services, such as Voice over Internet Protocol (“VoIP”), 5G, LTE, premium content and high-speed data services, including audio and video streaming, mobile gaming, video conferencing, cloud services, internet and web hosting. The launch of new services or products may require significant capital and capital expenditures in terms of infrastructure in order for the Group to gain or maintain a competitive advantage. The Group also has to meet customer demand for new technology at the same, or at a quicker rate, than the Group’s competitors are able to do, in order to be able to attract and retain customers.

Accordingly, the Group’s future growth and success will depend, in part, on sourcing new content, new technologies and innovative services and exploitation of these technologies, which in turn will lead to the demand for the Group's services and products and thus generate revenues. However, if the Group is unable to achieve this, the Group's business, financial condition, results of operations and prospects will be adversely affected.

To the extent that the Group has miscalculated/failed to anticipate the expected telecommunications demand and is, subsequently, unable to revise its previously approved capital expenditure programme, it may be unable to meet demand, which may adversely affect its reputation and lead to a decline in customer numbers and a decrease in the Group’s market share in the markets in which it operates along with its revenues. Either result may have an adverse effect on its business, financial condition, results of operations and prospects.

2.1.3 Risks relating to the incompetence of the Group to perform strategic priorities successfully or to

maintain the operating policies that are distinguished for efficiency and effectiveness

The Group’s strategic priorities include, multiple things, such as, digitising the Group’s service offering and internal operations, accelerating performance, developing the nature of the services provided to its customers and expanding these services in scale and scope. This includes acquisitions of investments in new services in the MENA region, as well as the acquisition of other telecommunications operators in the MENA region, as well as continuing to develop and expand its telecommunications network in the Kingdom, Kuwait and Bahrain. The Group also intends to build out its connectivity and infrastructure by building leading pan-Arab connectivity, becoming the leading company in the region, the owner of an independent/ separate tower company and being the premier regional hub for global carrier services, as well as being at the forefront of the network buildout of 5G services in Saudi Arabia, Kuwait and Bahrain. Growth opportunities in adjacent services and applications include OTT (as defined below) media and ICT services, such as, without limitation, the Group’s cybersecurity offering. As part of its industry-specific solutions, the Group further aims to provide services directed at industries, such as finance and healthcare, including solutions provided by the Saudi Digital Payment Company (“stc pay”) in the digital banking sector (For further information, please see Section 4.7 “Overview of the Group and Nature of the Business—General Description of the Saudi Arabian business operations, infrastructure and Regulatory environment”). However, there can be no assurance that the Group’s strategy will be successfully implemented, will not substantially require more capital expenditures than anticipated by the Group or that changes in the Group's operational efficiencies or its structure will not have a negative impact on the Group's business, financial condition, results of operations and prospects. The Company's dealings with its subsidiaries when they become publicly listed, and are no longer wholly owned by the Company, with independent governing bodies and their own decision making mechanisms, could be affected, and therefore it is necessary to deal with these subsidiaries at an arms-length basis. For example, as part of its strategy, in September 2021, 20% of the Company's shares in solutions by stc were sold in an initial public offering on the Saudi Stock Exchange. A failure to realise the anticipated benefits of the Group’s strategy including increased revenue and cost optimisation, unanticipated expenses or delays in the implementation of the Group’s strategic priorities, could adversely affect the Group’s business, financial condition, results of operations, and prospects.

Further, successful execution of the Group’s strategy will require effective management of growth, which may include acquisitions. The management team, operational systems and internal controls currently in place or to be implemented may not be adequate for such growth, and the steps taken to

13

hire employees and to improve such systems and controls may not be sufficient. If the Group is unable to grow as anticipated, manage its growth effectively or successfully integrate any acquisitions, this could have a material adverse effect on the Group’s business, financial condition, results of operations or prospects.

In addition, the Group’s strategic and operational plans need to be continually reassessed, and it must also maintain efficient and effective operational policies to meet the challenges and needs of its businesses in order for it to remain competitive. The failure to implement and execute the Group’s strategic and operating plans in a cost-effective and timely manner, or at all, to maintain efficient and effective operational policies, to realise the cost savings, or other benefits or improvements associated with the Group’s strategic and operating plans, to have financial resources to fund the costs associated with such plans or to incur costs in excess of anticipated amounts, or sufficiently assess and reassess the plans, could have a material adverse effect on the Group’s business, financial condition, results of operations or prospects.

2.1.4 Risks relating to the focusing of the Group’s revenues, profits and cash flows in the Kingdom

The Group’s revenue, profits and cash flows are concentrated in Saudi Arabia (For further information, please refer to Section 4.7 “Overview of the Group and the Nature of its Business—General Description of the Saudi Arabian business operations, infrastructure and Regulatory environment”) of this Prospectus. In the financial year ended 31 December 2020, revenue generated in Saudi Arabia accounted for 91.9% of the Group’s total revenue. As a result, the Group’s operating results and growth are affected by general economic and political developments in or affecting the Kingdom.

The economies of the Group’s main markets, Saudi Arabia, Bahrain and Kuwait, are materially dependent upon the level of international hydrocarbon prices. (For further information, please refer to Section 2.2.7 “Risks relating to Saudi Arabia and the Middle East—Saudi Arabia’s economy and the Government is substantially dependent upon the oil sector and is adversely affected by a low oil price environment” of this Prospectus. High rates of inflation in any of the Group’s main markets in which the Group operates could also cause consumer purchasing power in those markets to decrease, which may reduce consumer demand for the Group’s services in those markets. Additionally, any decrease in the population growth or gross domestic product (“GDP”) in those markets may adversely affect the Group’s business, financial condition, results of operations or prospects. There can be no assurance that economic conditions in Saudi Arabia will not worsen in the future or that demand for telecommunications services in those markets will not stagnate or decrease, which will have an adverse effect on the Group’s business, financial condition, results of operations and prospects. (For further information, please refer to Section 2.2.8 “Risks relating to Saudi Arabia and the Middle East—Saudi Arabia and the Middle East are subject to ongoing political and security concerns” of this Prospectus.

In addition, the workforce in the Kingdom has historically relied significantly on expatriate labour. However, recent Government policy initiatives to increase the percentage of Saudi nationals in the workforce and to increase levies imposed on expatriates has reduced, and may continue to reduce, the number of expatriates in the country, many of whom were customers of the Group. Any further initiatives which reduce the number of expatriates in Saudi Arabia could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.

2.1.5 Risks related to the concentration of the Group's customers on government and semi-government

entities

The Group’s sales to government and government-related entities in the Kingdom were SAR 6,335 million, SAR 7,154 million, SAR 9,646 million and SAR 5,625 million in the financial years ended 31 December 2018, 2019 and 2020 and the financial period ended 30 June 2021, respectively, representing 12.2%, 13.2%, 16.4% and 17.8% of the Group's total net revenue, respectively. The Group expects that government and government-related entities will continue to form a large percentage of its revenues and may even increase in future periods. The Kingdom’s government has confirmed that IT services and digitisation are strategic priorities.

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Given the Company’s concentration of government and government-related customers, the Company is impacted by budgetary changes, regulatory constraints, or changes in government policy and public spending constraints, which could have a significant impact on the size, scope, timing and duration of contracts and procurements and, therefore, on the level of business which the Company derives from such customers. Such factors could also result in a suspension, cancellation, termination or non-renewal of existing contracts. In addition, the risks include delayed collections from government and government-related entities. The balances of accounts receivable from government and government-related entities were SAR 12,342.7 million, SAR 18,508.1 million, SAR 13,889.2 million and SAR 20,349.3 million as at 31 December 2018, 2019 and 2020 and 30 June 2021, respectively, which represent 85.2%, 86.6%, 86.4% and 87.6% of the total accounts receivable in as at 31 December 2018, 2019 and 2020 and 30 June 2021, respectively.

With regard to accounts receivable from government and government-related entities, the receivables aging of less than one year were SAR 6,936.9 million, SAR 7,903.1 million, SAR 10,275.7 million and SAR 12,680.2 million as at 31 December 2018, 2019 and 2020 and 30 June 2021, respectively. Receivables aging from government entities and government related entities between one and two years were SAR 5,367.4 million, SAR 6,393.6 million, SAR 3,153.8 million and SAR 6,827.0 million as at 31 December 2018, 2019 and 2020 and 30 June 2021, respectively. Receivables aging from Government entities and government related entities in more than two years were SAR 38.4 million, SAR 4,211.4 million, SAR 459.7 million, and SAR 842.1 million as at 31 December 2018, 2019 and 2020 and 30 June 2021, respectively.

Any loss of key government and semi-government customers, reduced expenditure on IT services by the Group’s customers in the government sector, or increased days receivables outstanding for the Group’s government customers would have a material adverse effect on the Group’s business, results of operations, financial position and future prospects.

If the contracting parties with the Group terminate any or all of these agreements - in accordance with the rights granted thereto under those agreements - or if it refuses to renew them on acceptable terms to the Company or at all, this will result in the Group losing part of its revenues. If the Group is unable to manage the risks associated with government sector work, the Group could lose these contracts, which would have a material adverse effect on the Group’s business, results of operations, financial position and future prospects.

2.1.6 Risks relating to the Group’s facing increasing competition

The Group operates telecommunications networks, as well as information technology, related infrastructure and FinTech products and services in Saudi Arabia, Bahrain and Kuwait. The information technology, communications, related infrastructure and FinTech markets across the Group’s jurisdictions of operation are highly competitive. The Group competes with a number of established operators in each of its markets. In addition, the information technology, communications, related infrastructure and FinTech markets may also be subject to competition from non-traditional competitors or industry disrupters who rely on technological innovation to compete in established markets. To compete effectively, the Group must respond swiftly to the developments and potential competition risks in each of its core markets.

Further, the proliferation of VoIP offerings for both voice and instant messaging, and the convergence of social media and search products or other services delivered over the internet (referred to as “Over-The-Top” or “OTT” services), such as Zoom, Microsoft Teams, Skype and WhatsApp, further increase competitive risks. Despite the Group’s efforts regarding the development of its applications and platforms, including cooperation with some of its companies to conduct research in this regard, there is no guarantee that it will be able to effectively achieve its goals; which will have a negative and material impact on the Group's business, results of operations, financial position and prospects. The growth in internet connectivity has led to the proliferation of entrants offering VoIP services or audio or video content services delivered over the internet. Such operators could displace the services the Group provides by using the Group’s customers’ internet access (which may or may not be provided by the

15

Group) to enable the provision of voice calls and instant messaging services directly to the Group’s customers. The Group’s failure to continue to successfully transform business models toward such data-driven products, which will spread much faster than voice calls and instant messaging, to account for this industry shift could have a negative impact on the Group’s existing services and adversely impact the Group’s business, financial condition and results of operations and prospects.

Further, the Group’s competitors may, from time to time, adopt more competitive pricing policies, offer better products and services, develop and deploy more rapidly any new or improved technologies, expand and enhance their networks and coverage more rapidly, and undertake more extensive advertising and marketing than the Group. In addition, there is no assurance that new competitors with substantially greater financial, personnel, technical, marketing and other resources will not enter the core market where the Group operates. These factors may result in increased pressure on the Group’s margins or result in the Group losing market share in its core markets. Any failure by the Group to compete effectively could have an adverse effect on its business, financial condition, results of operations or prospects (For further information, please refer to Section 2-1-7 “—Risks relating to the Group’s Business—The success of the Group’s operations depends on its ability to attract and retain subscribers” of this Prospectus).

2.1.7 Risks relating to success of the Group’s operations to attract and keep subscribers

The mobile telecommunications market in Saudi Arabia reached a penetration rate of 119%, below the GCC weighted average penetration (based on population size) of 135% as of 2020, according to Omdia. As a result, the competitive focus in Saudi Arabia continues to shift from acquiring new customers to retaining existing high-value customers and increasing usage of the Group's products and services by existing customers as a result of increased penetration of the mobile telecommunications market and increased competition. There can be no assurance that the Group will not experience increases in the rates at which mobile communications service customers disconnect from the relevant communications networks, which will be reflected in increased numbers in customer churn rates, particularly as competition for existing customers intensifies, which will have an adverse effect on the Group's business, financial conditions, results of operations and prospects. The cost of acquiring a new subscriber is much higher than the cost of maintaining an existing subscriber. Accordingly, increased churn rates could have a negative impact on the Group’s operating income, even if the Group is able to replace lost subscribers. Consistent with the Saudi Arabian market generally, the majority of the Group’s telecommunications subscribers are prepaid, which contributes to churn, as subscribers are not contractually bound in the long-term to use the Group’s services and are free to move to other operators with more attractive pricing or other advantages. If the Group fails to reduce or maintain its rates of churn, or other telecommunications operators improve their ability to retain subscribers and thereby lower their churn levels, the Group’s cost of retaining and acquiring new subscribers could increase , which will have an adverse effect on the Group's business, financial condition, results of operations and prospects.

The extent to which the Saudi Arabian mobile telecommunications market may expand is uncertain, as it is a mature market, and depends on numerous factors beyond the Group’s control. Such factors include, among others, the business strategies and capabilities of the Group’s competitors, prevailing market conditions, the development of new and/or alternate technologies for mobile telecommunications products and services, the development of new devices that require a mobile connection and the effect of applicable regulations. The Group’s ability to attract new subscribers or to grow its average revenue per user (“ARPU”) from existing subscribers despite the high market penetration and the increased competition that has resulted from this mature market will depend in large part upon its ability to offer innovative services on new devices, stimulate and increase subscriber usage, convince subscribers to switch from other telecommunications operators to its services and its ability to minimise churn. If the Group is not successful in anticipating and responding to technological change and resulting consumer preferences in a timely and cost-effective manner, the Group’s quality of services, business, financial condition, results of operations and prospects could be adversely affected.

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2.1.8 Risk Related to reduction of the Group’s revenues from the services of subscribers in traditional fixed

line services and the future revenues of the Group to depend increasingly on data services compared

to tower-based wireless services

As data usage increases, revenue from fixed-line and mobile telephony is generally declining globally. In Saudi Arabia, similar trends apply for fixed-line telephony; however, usage of mobile telephony (and revenue therefrom) is declining less rapidly. In particular, fixed-line telephony usage is in decline all over the world. It should be noted in this regard that the rate of decrease in the use of mobile telephony services by the business sector exceeds the rate of decrease in the use of mobile telephony services by the retail sector. Accordingly, there is a risk that business and retail customers will continue to migrate fixed-line telephony to using mobile telephony or other forms of telephony. Furthermore, new technologies such as OTT services create the risk of a further decline in the use of fixed-line telephony. There can be no assurance that the Group’s fixed-line telephony customers who ceased using such services will migrate to the Group’s other telecommunications services. If the Group is unable to retain its fixed line customers, the Group’s business, financial condition, and results of operations and prospects could be adversely affected.

The Group expects demand for data services to continue to be driven by rising smartphone and tablet penetration and usage, usage of video and other multimedia services, as well as improvements in fixed-line and mobile network capability. It is worth noting that there can be no assurance that the Group will successfully monetise the increase in data traffic and any increase in the revenue generated from data services may not be sufficient to offset the decline in other subscriber services revenue. This could have an adverse effect on the Group’s business, financial condition, results of operations and prospects (For further information, please refer to Section 4-3 “Competitive Strengths” of this Prospectus).

Furthermore, the development and application of new technologies to enhance the efficiency of wireless networks or the implementation by mobile network operators (“MNOs”) of potential active sharing technologies could reduce the use of and need for tower-based wireless services transmission and reception and the demand for wireless services and tower-based antenna services and ancillary services the Group provides, which will have a material adverse effect on the Group’s tower infrastructure business and generally on its business, financial condition, results of operations and prospects.

2.1.9 Risks relating to a great portion of the Group’s mobile telecommunications revenues depending on

short time subscriptions (pre-paid services)

Prepaid customers, who are customers who pay for service in advance through the purchase of wireless airtime or data access, represented the majority of the Group’s mobile customers as at 31 December 2020. Although the Group’s prepaid customers provide higher cash flows, they are more likely to resort to other operators in order to take advantage of their promotional offers, as opposed to postpaid customers. Many of the Group’s mobile telecommunications customers also subscribe to short-term data packages with lengths of one-day to one-week. As a result, the Group cannot be certain that prepaid customers or short-term data package customers will continue to use the Group’s services in the future, which makes the Group’s future revenue expectations harder to predict. A significant decrease in the Group’s prepaid customers could have an adverse effect on its business, financial condition, results of operations or prospects.

2.1.10 Risks relating to operations of the Group outside the Kingdom

The Group operates in Kuwait and Bahrain through its subsidiaries, including stc Kuwait and stc Bahrain (For more details about these companies, please refer to Section 4 “Overview of the Group and the Nature of its Business” of this Prospectus). Additionally, part of the Group’s strategy Group's strategy includes expansion in scale and scope which may include investments in telecommunications operators in growing markets, primarily in the MENA region.

The Group’s ability to manage its operations outside the Kingdom and to achieve profits depends upon a number of factors, including its ability:

17

to integrate acquired business operations into its current operations and/or implement an effective management structure given the terms of the investment (particularly in cases where the Group has only a minority interest);

to realise the benefits of expected planned synergies (such as branding, marketing and equipment sourcing) and successfully execute operations in new jurisdictions (such as rolling out a new network, managing vendors, establishing billing systems and addressing security concerns);

to increase the scope of its management, operational and financial systems and controls to handle the increased complexity, expanded breadth and geographic area of its operations;

to recruit, train and retain qualified staff to manage and operate its business;

to evaluate the contractual, financial, regulatory, environmental and other obligations and liabilit ies associated with its international operations, including the appropriate implementation of financial oversight and internal controls and the timely preparation of financial statements that are in conformity with the Group’s accounting policies, and potential legal or regulatory proceedings may arise as a result;

to manage foreign currency exchange risks;

to foresee whether there could be a reduction in demand for sites or space on sites which could adversely affect the growth of the Group’s business;

to judge market dynamics, demographics, growth potential and the competitive environment in its target markets; and

to maintain and obtain necessary permits, licences, spectrum allocation and approvals from governmental and regulatory authorities and agencies.

Any difficulties in addressing these issues or integrating one or more of its operations outside the Kingdom could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.

2.1.11 Risks relating to possession, investment or merging operations

The Group's strategy includes expansion in scale and scope and, accordingly, the Group may pursue acquisitions, investments or mergers that complement or expand the Group’s business. Some of these transactions could be significant relative to the size of the Group’s business and may require significant capital and/or additional leverage. Such transactions would involve a number of financial, administrative and operational risks, including: diverting members of the executive management attention from running the Group’s existing business or from other viable acquisition or investment opportunities; incurring significant expenses; increased costs to integrate/ combine financial and operational reporting systems, technology, personnel, customer base and business practices of the businesses involved in any such transaction with the Group; not being able to integrate/ combine the Group’s businesses in a timely fashion or at all; potential exposure to any material liabilities not discovered in the due diligence process of these companies or as a result of any litigations arising in connection with any acquisitions or related mergers and failure to retain any of the important members of the management team of the merged or acquired companies, which will adversely affect the Group’s business, financial condition, results of operations and prospects.

In addition, the Group’s acquisitions, mergers or investments may not perform as expected, which may result in the Group recording losses or expenses, or significant impairment charges against the value of those investments, which will adversely affect the Group's business, financial condition, results of operations and prospects. For example, during 2016, the share of losses in Oger Telecom Limited (“OTL”), (one of the Group’s investments) exceeded the Group’s remaining balance sheet value of OTL and accordingly the Group reduced the value of OTL to zero on its balance sheet and discontinued recognising its share of further losses. In 2018, OTL started to liquidate and restructure its main

18

subsidiaries and the liquidation of OTL commenced in 2020, and as of the date of this Prospectus, the liquidation is under finalisation. (For further information, please refer to Section 4-8-2 “Description of the Group—Equity accounted investments—Oger Telecom Limited” of this Prospectus).

Moreover, the Group may not be, able to successfully complete acquisitions on favourable terms or at all in light of challenges such as strong competition from its competitors and other prospective acquirers who may have substantially greater financial resources than the Group.

Based on the foregoing, acquisitions, investments or mergers, or failure to properly execute the divestiture of an existing business, could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.

2.1.12 Risks relating to developing, expanding and maintaining telecommunications networks of the Group

The Group’s ability to increase its subscriber base depends on many factors including the success of the expansion and management of its telecommunications networks and its ability to fund such expansions. The build-out of new, or the expansion of existing, networks is subject to risks which could delay the introduction of services in some areas and increase the cost of networks construction. Networks expansion and infrastructure projects (such as the roll-out of fibre throughout Saudi Arabia as part of the national broadband programme and the recently announced first submarine cable system of the Group (Saudi Vision Cable) typically require substantial capital expenditure throughout the planning and construction phases and significant delays may occur before the Group can obtain the necessary permits and approvals and the new projects become operational. (For further information, please refer to Section 4-7 “Description of the Group—Network infrastructure” of this Prospectus) During the planning and expansion process, the Group is subject to a number of construction, financing, operating, regulatory and other risks beyond its control, including, but not limited to:

an inability to obtain and maintain project development permission or requisite governmental licences, permits or approvals;

changes in laws, rules, regulations, governmental priorities and regulatory regimes which adversely impact the relevant project or any failure to meet licencing or other obligations;

failure to complete projects according to specifications, including (i) inadequate engineering, project management, capacity or infrastructure, including as a result of failure by third parties to fulfil their obligations relating to the provision of transportation links that are necessary or appropriate for the successful operation of a project, (ii) shortages or unavailability of materials, equipment and trained and untrained labour and/or (iii) labour disputes and disputes with contractors and sub-contractors;

an inability to obtain necessary financing on terms favourable to the Group, if at all;

increases in capital and/or operating costs, including as a result of foreign exchange rate fluctuations;

changes in demand for services or inaccurate estimates of service need;

environmental regulations, including the need to perform feasibility studies and conduct remedial activities; and

a range of other factors that are outside the control of the Group, including, but not limited to, electricity and power interruptions due to electricity load shedding and/or blackouts, and energy shortages, adverse weather conditions and natural disasters, accidents and fraud and other malicious acts.

The occurrence of one or more of these events may have an adverse effect on the Group’s ability to complete its current or future network expansion projects on schedule or within budget, if at all, and may prevent the Group from achieving the projected revenue, internal rates of return or capacity

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associated with such projects. There can be no assurance that the Group will be able to generate revenue or profits from its expansion projects that meet its planned targets and objectives, or that such revenue will be sufficient to cover the associated construction and development costs, either of which could have an adverse effect on the Group’s business, financial condition, results of operations or prospects.

2.1.13 Risks relating to the Group’s dependence on service providers of third parties to provide networks,

services, equipment and content for its subscribers

Once a manufacturer of telecommunications equipment has designed and installed equipment or devices within a particular telecommunications system or network, the relevant telecom operator will often be reliant on such manufacturer to provide services and supplies necessary to operate that system. The Group’s ability to maintain and grow its subscriber base depends in part on its ability to provide adequate and timely communications supplies, including equipment and devices associated with its communications systems, mobile phones, handsets, software and content. As of 30 June 2021, the Company relies on 9,449 suppliers for the provision of communications supplies and associated services provided by these suppliers, including ongoing maintenance services and supplementary supplies.

Therefore, it is important to continue cooperating with these suppliers so that there is no interruption in the Group's operations could happen, which will adversely and materially affect the Group's business, results of its operations, financial position and prospects.

Furthermore, the Group has Huawei as one of its telecommunications devices and equipment suppliers. Since May 2019, the U.S. government has imposed restrictions barring American firms from selling equipment and software to Huawei and its affiliates, which could affect Huawei’s ability to source these raw materials. The latest of said restrictions were adopted by the Department of Commerce in 01/09/1443H (corresponding to 08/17/2020G). The U.S. government’s actions against Huawei have also led other governments to call for telecommunications providers to divest themselves from Huawei equipment (including base stations, for example) entirely. There can be no assurance that current or future export restrictions or economic and trade sanctions, that are imposed under the relevant laws and regulations and their amendments, will not have a negative impact on the Group’s reputation, and in general, on its business, financial position and prospects.

The relationship between the Group and its major suppliers is subject to the relevant agreements concluded between them. The Group does not have direct operational or financial control over these major suppliers or the way they run their businesses. Therefore, there can be no assurance that these suppliers will not delay in the supply of products and services, which will have an adverse effect on the Group's business, financial position and prospects. Unexpected changes in business conditions, materials pricing, labour issues, wars, governmental changes, tariffs, natural disasters, health epidemics such as the COVID-19 pandemic, trade and shipping disruptions and other factors beyond the Group’s or its suppliers’ control could also affect these suppliers’ ability to deliver products and services to the Group or to be solvent and operational. The inability or unwillingness of key suppliers to provide the Group with adequate equipment and supplies on a timely basis and at reasonable prices could adversely impact the Group’s ability to retain and attract subscribers or offer attractive product offerings, which will negatively impact the Group’s business, financial condition, results of operations and prospects.

2.1.14 Risks relating to repercussions of COVID-19 and its impact on the works of the Group, which is

expected to continue

In March 2020, the novel Coronavirus (COVID-19) pandemic spread across nearly all regions around the world and was declared a global pandemic by the World Health Organization (the “WHO”). This resulted in governments in affected areas taking unprecedented steps to put restrictions on international, national and local travel and social gatherings, leading to economic, business and societal slowdowns and, in some cases, lockdowns. The COVID-19 pandemic has had a material impact on Saudi Arabia, as well as the Group’s customers and local and international suppliers.

As a result of the various Government restrictions related to the COVID-19 pandemic, including travel and Umrah restrictions, which impacted the inflow and outflow of expatriates and Saudi nationals, the

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Group’s sales and international/roaming revenues were significantly impacted. Furthermore, a significant number of expatriates to Saudi Arabia left in 2020 and 2021, amounting to approximately 0.5 million departures between the third quarters of 2020 and 2021, according to the General Organization for Social Insurance (“GOSI”))For further details, please refer to Section 6-3-3 “Demographics, political and economic impacts” of this Prospectus).

Despite the impact mentioned above, as of the reporting date of the H1 2021 Unaudited Interim Condensed Consolidated Financial Statements, the Group’s operations and financial results have not been significantly impacted by the COVID-19 pandemic, taking into consideration the relatively lower impact of the COVID-19 pandemic over the operations and activities of companies operating in the telecommunications sector. It should be noted that the Group's commercial business, mainly new sales, ARPU (as defined herein) and its international/roaming revenues, and its operating environment, have been negatively affected by COVID-19 pandemic-related lockdowns. As of the date of this Prospectus, the Group has not yet been able to accurately predict the medium or long-term impact of the COVID-19 pandemic on its business.

Continued disruptions to the Group’s operations, the shift in focus to digital sales channels and the impact on its customers, local and international suppliers and the Saudi economy may materially impact its business, financial condition, results of operations and prospects (For further details, Please refer to Section 2-2-7 “—Risks relating to Saudi Arabia and the Middle East—The COVID-19 pandemic has caused and is likely to continue to cause significant disruption to both the global economy and Saudi Arabia’s economy” of this Prospectus.

2.1.15 Risks relating to the inability of the Group to provide cash enough to pay all its debts and that it may

be obliged to take other procedures to fulfil its obligations due to its debts, which may not succeed to

accomplish

The Group requires a significant amount of cash to service its debt and sustain its operations. The Group’s total borrowings were SAR 4,286.0 million, SAR 9,312.8 billion, SAR 8,956.1 million and SAR 8,718.8 million as at 31 December 2018, 2019 and 2020, and 30 June 2021, respectively (for more details about the indebtedness of the Group, please refer to Section 9 “Capitalisation and Indebtedness of the Group” and Section 6-11-6 “Borrowings”). The Group’s ability to make scheduled payments on, or to refinance, its debt obligations and to fund planned capital expenditures and working capital requirements depends on its future performance and ability to generate cash, which is subject, among other things, to the success of the Group’s strategy, prevailing economic conditions and financial, competitive, legislative, legal, regulatory and other factors, including those other factors discussed in Section 2 ‘‘Risk Factors’’, many of which are beyond the Group’s control.

The Group can make no assurances that it will be able to generate an adequate level of cash flow from operating activities sufficient to permit it to pay the principal, premium, if any, and interest on its debt or that future borrowings will be available to the Group to enable it to service and repay its debt or to fund its other liquidity needs. If the Group defaults on the payments required by any current or future debt, that debt, together with debt incurred pursuant to debt agreements or instruments that contain cross-default or cross-acceleration provisions, may become payable on demand, and the Group may not have sufficient funds to repay all of its debts. Any such demand could lead to a default or an event of default under its debt, which may as a result lead to an earlier due date to settle said debt. The Group cannot assure you that it would be able to satisfy any such demands, which would adversely affect the Group’s business, financial condition, results of operations and prospects.

In addition, any refinancing of the Group’s debt could be at higher interest rates and may require it to comply with more onerous covenants, which could further restrict the Group’s business operations, and there can be no assurances that any assets which it will have to dispose of could be sold under the related obligations or that, if sold, the timing of the sales and the amount of proceeds realised from those sales could be on acceptable terms. If any of these events materializes, they will adversely affect the Group's business, financial condition, results of operations and prospects.

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Furthermore, if the Group’s cash flows and capital resources are insufficient to service its debt obligations, the Group may be forced to reduce or delay investments and capital expenditures or to sell assets, seek additional capital or restructure or refinance its debt, any of which will depend on the Group’s cash needs, its financial condition at such time, the then prevailing market conditions and the terms of its then existing debt instruments, which may restrict the Group from adopting some of these alternatives.

Any failure by any subsidiary of the Company to make payments of interest and principals of debts on their due dates would likely result in a reduction of the Company’s credit rating, which could also harm the ability of the Company and its subsidiaries to incur additional debt through credit facilities, debt instruments or any other financing. The Company was assigned a rating of A1 by Moody’s in September 2021 and A- by S&P in June 2021. It should be noted that the Company's outlook is negative by Moody's and stable by S&P. Although the Company's ratings benefit from government ownership therein, any changes in the percentage of government ownership in the Company or the rating agencies' perception in this regard, or any decrease in the government's credit standing, may lead to a decrease in the Company's ratings or announcing that it is placed under rating watch. This will lead to an increase in the cost of financing in general, including credit facilities and debt instruments, and a decrease in the market value of the Company's shares, which will adversely affect the Group's business, financial condition, results of operations and prospects.

2.1.16 Risks relating to the Government ownership of the majority share in the Group, which may create a

dispute between its interests in certain cases and the interests of the minority shareholders

As at the date of this Prospectus, the main shareholders in the Company are government agencies, namely PIF, which owns 70% of the Company’s share capital, and the General Organization for Social Insurance, which owns 6.16%. Seven of the eleven members of the Group’s Board of Directors are nominated by, and represent, the two key Government shareholders. As the majority shareholder of the Group, the government agencies has the ability to significantly influence the Group’s business through its ability to control decisions and actions of the Group that require shareholder approval as well as its ability to control the composition of the Company’s board of directors (the “Board”) and thus influence Board decisions.

Given that the government agencies controls decisions regarding amendments to the Company’s Articles of Association, it has the ability to control the decisions issued by the Company’s General Assembly. These decisions include but are not limited to, the appointment of a majority of the Company’s directors and, in turn, the selection of the Group’s management, the Group’s business policies and strategies, budget approval, the issuance of equity and debt securities, mergers, acquisitions and disposals of the Group’s assets or businesses, dividends and other matters. The interests of the majority shareholder may be different from those of the Group’s minority shareholders. For example, the Government’s key objective is to ensure the stable supply of telecommunications services to Saudi Arabia’s residents and businesses at affordable costs rather than the optimisation of the Group’s revenue and profits. The interests of Substantial Shareholders may differ from those of other shareholders. If the interests of the aforementioned government agencies conflict with the interests of those of minority shareholders, the minority shareholders may be disadvantaged.

2.1.17 Risks relating to the interruption of the information and technological systems of the Group and thus

the suspension of operations of the Group

The Group’s information and technology systems are designed to enable the Group to use its infrastructure resources as effectively as possible and to monitor and control all aspects of its operations. Any failure or breakdown in these systems could interrupt daily business operations and result in a significant slowdown in operational and management efficiency for the duration of such failure or breakdown. Any prolonged failure or breakdown could impact the Group’s ability to offer services to its customers, which could have an adverse effect on the Group’s business, financial condition or results of operations. For example, the Group depends on certain technologically sophisticated management information systems and other systems, such as its customer billing system, to enable it to conduct its

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operations. As part of the Group’s digitisation strategy, it has implemented a number of new IT systems and applications. While these have historically been implemented with minimum impact on the business, there can be no assurance that any future new IT will not result in any business interruptions. Any significant delays or interruptions in providing services could negatively impact the Group’s reputation as an efficient and reliable telecommunications service provider.

In addition, the Group relies on third-party vendors to supply and maintain much of its IT, although it also maintains its own IT systems and has IT business continuity procedures in place. In the event that one or more of the third-party vendors that the Group engages to provide support and upgrades with respect to components of the Group’s IT ceased operations or became otherwise unable or unwilling to meet its needs, the Group cannot assure investors that it would be able to replace any such vendor promptly or on commercially reasonable terms, if at all. Delay or failure in finding a suitable replacement or implementing its IT business continuity procedures could adversely affect the Group’s business, financial condition or results of operations.

To serve its customers, the Group must always maintain its data centre operations, which include network, storage, and server operations. Any significant disruption in operations and any major system failure or major virus attack, or the Group’s inability to move the data centres to alternative locations if it is required to do so for any reason including due to the lack of a suitable alternative location, could compromise the Company’s ability to deliver services according to its contracts or to complete projects for its customers on a timely basis (which could trigger penalty and/or damage payments by the Group), result in the loss of customers or curtailed operations, any of which would have a material adverse effect on the Group’s business, results of operations, financial position and future prospects. In addition, if the Group loses any of its customers due to any performance problems, interruption or failure of the systems, this will lead to a loss of revenue, damage to the Group’s reputation and additional operating costs in order to correct any of these errors, in addition to the Group incurring additional losses that include addressing backlog issues when systems are restored, any of which would have a material adverse effect on the Group's business, results of operations, financial position and future prospects.

2.1.18 Risks relating to electronic attacks affecting networks or systems of the Group and thus negatively

impact the businesses of the Group, including the loss of data or other security breaches

In the event the Group is exposed to cyberattacks through the use of malware, computer viruses, dedicated denial of services attacks, credential harvesting, social engineering and other means for obtaining unauthorised access to or disrupting the operation of the Group’s networks and systems and those of the Group’s suppliers, vendors and other service providers, it will have an adverse effect on the Group’s business, results of operations, financial position and prospects.

Cyber-attacks may cause equipment failures as well as disruptions to the Group’s or the Group’s customers’ operations. Cyber-attacks against companies, including the Group, have increased in frequency, scope and potential harm in recent years. Other businesses have been victims of ransomware attacks in which the business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information. Further, perpetrators of cyber-attacks are not restricted to particular groups or persons. These attacks may be committed by company employees or external actors operating in any part of the world, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective, and may even be launched by or at the behest of nation states. Cyber-attacks may occur alone or in conjunction with physical attacks, especially where disruption of service is an objective of the attacker.

The inability to operate or use the Group’s networks and systems or those of the Group’s suppliers, vendors and other service providers as a result of cyber-attacks, even for a limited period of time, may result in significant expenses to the Group and/or a loss of market share to other communications providers, which will have an adverse effect on the Group’s business, results of operations, financial position and prospects. The Group maintains a cybersecurity insurance policy. However, the costs associated with a major cyber-attack on the Group could include expensive incentives offered to existing customers and business partners to retain their business, increased expenditures on

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cybersecurity measures and the use of alternate resources, lost revenues from business interruption and litigation, which may not be covered completely or at all by the cybersecurity insurance policy. Further, as the Group sells cybersecurity services to its enterprise clients any cybersecurity incident affecting the Group could have an adverse effect on its reputation and ability to sell these services to customers, which will have an adverse effect on the Group’s business, results of operations, financial position and prospects.

Additionally, the Group’s business involves the receipt, storage, and transmission of confidential information, including sensitive personal information and payment card information, confidentia l information about the Group’s employees and suppliers, and other sensitive information about the Group, such as the Group’s business plans, transactions and intellectual property. Unauthorised access to confidential information may be difficult to anticipate, detect, or prevent, particularly given that the methods of unauthorised access constantly change and evolve. The Group may experience unauthorised access or distribution of confidential information by third parties or employees, errors or breaches by third party suppliers, or other breaches of security that compromise the integrity of confidential information, and such breaches can have an adverse effect on the Group’s reputation and in general on its business.

Furthermore, the Group could experience cyber-attacks, subscriber database piracy, other attacks of terrorism or vandalism or database security breaches, which may materially adversely affect its reputation, lead to subscriber lawsuits, loss of subscribers or hinder the Group’s ability to gain new subscribers. These events, individually or in the aggregate, may adversely affect to the Group’s business, financial condition, results of operations and prospects.

2.1.19 Risks relating to the inability of the Group to protect intellectual property rights sufficiently, which

may harm its trademark value, products and services holding its trademark

The Group depends on its brands and branded products and believes that these brands are important to its business. The success of the Group’s business depends on its ability to increase brand awareness and further develop its branded products and services in its markets. The Group has trademark licence agreements with certain subsidiaries in connection to the relevant brand names. It should be noted that the Company has agreements with some of its subsidiaries regarding trademark licensing. There can be no assurance that any measures taken by the Company to protect its intellectual property rights will be effective and sufficient to prevent unauthorised use by third parties and other violations of the intellectual property rights of the Group. Any violations of the Group's intellectual property rights will have negative effects on its business, results of operations, financial condition and prospects.

Further, the Group cannot always be certain that the brands it uses will not infringe on previously protected third-party rights in any of its markets. As a result, the Group may incur liability for trademark or other intellectual property right infringement, which could result in damage to the Group’s reputation and potentially significant financial costs, which will have an adverse effect on the Group’s business, results of operations, financial condition and prospects.

2.1.20 Risks relating to non-renewal of leasing contracts of the lands on which the towers of the Group are

erected or may that may be renewed with terms that are not commercially good for the Group, or

disputes may arise with the owners of such lands

The Group’s communication tower site portfolio consists primarily of ground-based towers constructed on land that is leased under long-term ground lease agreements.

For various reasons, landowners or lessors may not want to renew their ground leases, may seek substantially increased rents, or they may lose their rights to the land, or transfer their land interests to third parties, which could affect the Group’s ability to renew ground leases on commercially viable terms or at all. In addition, the Group may not have the required available capital to extend these ground leases at the end of the applicable period. In the event that the Group cannot extend these ground leases, it will be required to dismantle and/or relocate these towers and may lose the cash flows derived from

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such towers, which may have an adverse effect on the Group’s business, results of operations, financial condition and prospects.

Real property interests relating to towers consist primarily of leasehold interests, which in some cases relate to sites for which special access arrangements may be required due to their sensitivity, such as towers located on or near airports, government facilities or rooftops. Lessors may not provide the Group with documents or agreements related to these leased sites, including title deeds or usufruct agreements for the purposes of verifying the ownership or usufruct rights of lessors prior to concluding related lease contracts with them, or the Group may be unable to contractually agree to amendments in relation to sensitive site access issues, all of which could affect the rights to access and operate the site. From time to time, the Group may also experience disputes with lessors regarding the terms of ground leases, which could affect its ability to access and operate a tower site. The termination of a ground lease may interfere with the Group’s ability to operate and generate revenues from the tower. If this were to happen at a material number of sites, it would have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

2.1.21 Risks relating to the Group’s dependence on senior managers, senior executive officers and other

qualified employees, attracting and keeping such employees

The Group’s success depends upon its ability to identify, hire, develop, motivate and retain a highly-qualified senior and mid-level management team with appropriate professional qualifications, in its core markets. The Group’s future performance will be affected by any disruptions in the continued service of its executives and other officers, notwithstanding succession planning arrangements that the Group has in place (For further details, please refer to Section 4-11-1 “Strategy and Framework” of this Prospectus). Any departure or transition of key management personnel could disrupt the Group’s operations or customer relationships, or materially impact its business, results of operations, financial condition and prospects. Competition for senior and mid-level management and skilled professionals in the IT industry is intense, and the Group may not be able to retain senior and mid-level management and skilled professionals or attract and retain new senior and mid-level management and skilled professionals in the future. The Group’s competitors may actively seek to recruit members of the Group’s senior and mid-level management and skilled professionals and may succeed in such efforts. The loss of some members of the Group’s senior management team or any significant number of its senior and mid-level managers and skilled professionals, whether due to non-renewal of their contracts or inability to recruit new qualified personnel with the same experience for reasonable remuneration, may result in a loss of organisational focus, poor execution of operations and corporate strategy or an inability to identify and execute potential strategic initiatives such as expansion of capacity or acquisitions and investments. These adverse consequences could, individually or in the aggregate, have an adverse effect on the Group’s business, financial condition, results of operations or prospects.

In addition, in accordance with the Saudisation requirements, all companies operating in Saudi Arabia, including the Company and certain subsidiaries, must employ and maintain a certain percentage of Saudi employees. Such percentage varies based on the activity of each entity as set out under the “Nitaqat” programme. The Ministry of Labour approved an amendment to the “Nitaqat” programme under the name of “Nitaqat Mawzon” (Balanced Nitaqat) in order to improve market performance and develop and eliminate the non-productive Saudisation. It was supposed to come into effect on 12/03/1438H (corresponding to 11/12/2016G). However, in response to private sector demands for additional time to achieve the Saudisation rate, the Ministry of Labour postponed the implementation of such programme until further notice, and, as of the date of this Offering Prospects, no new implementation date has been set. Under the “Nitaqat Mawzon” programme, points would be calculated based on five factors, namely: (i) Saudisation rate; (ii) average wage for Saudi employees; (iii) percentage of female Saudisation; (iv) job sustainability for Saudi employees; and (v) percentage of Saudi employees with high wages. As of the date of this Prospectus, the existing framework under “Nitaqat” remains in place, and entities continue to be ranked on the basis of a system of rolling averages which calculate average weekly “Saudisation” over a 26-week period.

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In addition to the foregoing, Saudi Arabia has implemented a number of reforms aimed at increasing Saudi employees’ participation in the labour market, including imposing fees on non-Saudi employees employed at Saudi institutions as well as fees on residency permits of non-Saudi employees’ family members. The non-Saudi employees fee became effective on 14/04/1439H (corresponding to 1/01/2018G) while the residency permit fees became effective on 07/10/1438H (corresponding to 01/07/2017G), noting that such fees increased gradually up to SAR 9,600 annually per employee in 2020. Implementation of such fees and increases increased governmental fees paid by the Group for its non-Saudi employees. In addition, an increase in fees payable by non-Saudi employees for their family members resulted in higher living costs, which may affect the attractiveness of Saudi Arabia for such employees who may look to relocate to other countries with lower living costs. Consequently, high government fees and difficulty in maintaining non-Saudi employees may have an adverse effect on the Group’s business, financial condition, results of operations or prospects.

2.1.22 Risks relating to the nature of mobile services sector and the limitedness of wireless radio frequency

spectrum available for privatisation, with some privatisation operations are already under disputes

The Group’s future success partially depends upon its ability to secure new radio frequency spectrum, which might be necessary for the launch of new or enhanced technologies or, as its business grows, to carry the traffic of its own subscribers. The amount of radio frequency spectrum available for allocation is limited and the process for obtaining it is highly competitive. The Group’s inability to obtain a frequency spectrum necessary to launch any new or enhanced technologies or the success of any of its competitors in obtaining such spectrum, could materially affect its growth strategy and, accordingly, may have a material adverse effect on its business, results of operations, financial condition and prospects. The Group also cannot assure you that it will be able to obtain any necessary or desirable frequency spectrum at acceptable costs, which could have a material adverse effect on the Group’s revenue, margins and cash flows. Any challenges to allocate radio frequency spectrum to the Group could also result in the loss of prior radio frequency spectrum allocation, and there may not be radio frequency spectrum available for sale to enable the Group to fulfil its operating requirements, which could have a material adverse effect on its business, results of operations, financial condition and prospects.

2.1.23 Risks relating to systems combating monopoly and competition applicable in the countries where the

Group works and which may restrict the growth of the Group, impose investigations or legal

procedures, including the ones relating to combating monopoly

The antitrust and competition laws and related regulatory policies in Saudi Arabia generally favour increased competition in the telecommunications industry and may impact its operating entities’ commercial decisions and ability to maximise competitiveness and prohibit the Group from making further acquisitions; or impact its operating entities’ ability to continue to engage in particular practices to the extent that such entity holds a significant market share in such countries. In addition, violations of such laws and policies could expose the Group’s operating entities to administrative proceedings, regulatory measures, civil lawsuits or criminal prosecution, including fines and imprisonment, and to the payment of punitive damages, which in turn will have an adverse effect on the Group's business, results of operations, financial condition and prospects.

Regulators in Saudi Arabia are particularly focused on establishing rules and a regulatory framework for interconnection between telecommunications networks, including mobile voice termination services (i.e., the ability of a telecommunications provider to terminate a call on another operator’s network (i.e., calling between networks)) and the related pricing mechanisms (i.e., mobile termination rates). In fixed-line networks, although the leading provider, such as the Group in Saudi Arabia, has generally been obliged by the regulator to offer access to its network for the purposes of interconnection or call termination at prices which have usually been set by the regulator to equal cost, such pricing could also be set well below cost. Decisions by any of the Group’s operating entities’ relevant regulators requiring the relevant entity to provide mobile termination and interconnection services well below current rates, which is more likely to be required in countries in which the Group is viewed or designated by the local regulator as having significant market power, could prevent the Group from realising a significant

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amount of revenue and have an adverse effect on the Group’s business, financial condition, results of operations and prospects.

In addition, antitrust and competition laws are subject to change, and existing or future laws may be implemented or enforced in a manner that is detrimental to the Group. The Group cannot predict the effect that current or any future lawsuits, appeals or investigations by regulatory bodies or by any third party in any of the countries in which it operates will have on its business, financial condition or results of operations. There can be no assurance that there will not be additional material antitrust or competition related lawsuits and as a result cause the Group material losses and expenses. In addition, any fines, or other penalties on an operating entity imposed by an antitrust or competition authority as a result of any such investigation, or any prohibition on such entity’s engaging in certain types of business in Saudi Arabia, Kuwait or Bahrain, could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.

2.1.24 Risks relating to the increasing requirements of Zakat/tax negatively applicable to the Group with

respect to its profits

The Group is subject to Zakat and tax requirements in Saudi Arabia. Any increase of Zakat and/or tax requirements applicable to the Group may adversely affect its profitability. The Group has submitted Zakat and tax returns for the financial years up to 2020, and paid Zakat and tax dues within the required time. Effective from year 2009G, the Group started the submission of consolidated zakat returns for the Company and its wholly owned subsidiaries whether directly or indirectly in accordance with the executive regulations for collecting zakat. The Group obtained the Zakat certificates from the Zakat, Tax and Customs Authority (“ZATCA”) for all years up to 2020, and has received the final Zakat certificate.

It should be noted that the Group had previously submitted an appeal regarding the assessments for 2008 and 2009, and a ruling was issued by the Appeal Committee for Tax Violations and Disputes in favour of the Company as it supports its standing not to consider the adjusted net profit as a basis for assessing Zakat for 2008 and 2009. Accordingly, the amounts due were paid during the third quarter of 2021.

The Group also submitted appeals to the zakat assessments for the years from 2015 to 2017 amounting to SAR 134 million. These appeals are still being considered by the General Secretariat of Tax Committees, and the Group considers the soundness of its Zakat position and that it will not result in any substantial additional provisions.

Saudi Arabia issued the Value Added Tax (“VAT”) Law, which became effective on 14/04/1439H (corresponding to 01/01/2018G). This law imposes a VAT of 5% on a number of products and services, including the Group’s products. On 17/09/1441H (corresponding to 10/05/2020G), and as a response to the economic impact of the COVID-19 pandemic, Saudi Arabia announced increasing VAT to 15%, which was effective on 10/11/1441H (corresponding to 01/07/2020G). While the increase in the VAT is borne by the end consumer, the Group expects an increase in the selling price of its products. Such increase or any future increase may affect customer spending and competition in the market, which could have an adverse effect on the Group’s business, results of operations, financial position, and future prospects.

In addition, the Group may commit errors while implementing the regulatory requirements of VAT implementation, which may result in penalties imposed by ZATCA in accordance with the VAT Law, which, in turn, could have an adverse effect on the Group’s business, financial position, results of operations or prospects.

2.1.25 Risks relating to different accounting policies of the Group from other telecom operators, which may

affect the possibility to compare its results

The Group’s accounting policies may differ from the accounting policies of other mobile telecommunications operators in the mobile telecommunications industry with respect to, for example,

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valuation methods, presentation, critical assumptions, estimates and judgements. In addition, the Group has adopted certain amendments to IFRS, including amendments to IFRS 16 “Covid-19 Related Rent Concessions” (effective on 10/10/1441H (corresponding to 01/06/2020G)) and amendments to IAS 39, IFRS 7 and IFRS 9 “Interest Rate Benchmark Reform” (effective from 09/10/1441H (corresponding to 01/01/2020G)). Further, the Group’s Audited Financial Statements are prepared in accordance with IFRS-KSA, which differ from IFRS standards endorsed in other jurisdictions. The Group’s results may therefore not be directly comparable to those of other companies in its industry.

2.2 Risks Related to the Market, Industry and Regulatory Environment

2.2.1 Risks relating to laws and regulations of the telecommunications industry within which the Company

works. New changes in existing, laws, regulations or governmental policy could adversely affect

industry participants

Telecommunications companies, including the Group, must comply with a number of laws and regulations governing the licensing, construction and operation of telecommunications networks and services, as implemented by relevant agencies or other regulatory bodies in the countries in which they operate.

Telecommunications regulators generally have broad power in the administration and interpretation of telecommunications licences and laws, rules and regulations. In connection with the general trend toward liberalisation of telecommunications services, these regulators have sought, and may continue to seek, to regulate the market in such a way that companies with existing networks (including the Group) must permit their competitors access to those networks instead of building their own. Changes in the regulatory environment may include amending or enacting legislation related to local loop unbundling, asymmetric voice-terminate rates, roaming regulation, price regulation, interconnection arrangements and provision of open access to mobile virtual network operators. In addition, telecommunications regulators may prohibit the Group from making further acquisitions or continuing to engage in particular practices to the extent that it holds a significant market share in that jurisdiction. Actions taken by regulators in the administration and interpretation of licences and laws, rules and regulations may be influenced by local political and economic pressures.

Telecommunications licences, including the Group’s licences, contain extensive obligations with which the licensee is required to comply. These obligations may include network buildout requirements, restrictions on rates, capital investment requirements, minimum quality standards, service, and coverage conditions. These licences also typically include provisions for their termination in specific circumstances, such as, for example, the noncompliance with licence conditions or for general public interest reasons. Licences could possibly be revoked or amended for other reasons, such as changes in regulation, laws, government policy and/or the economic or political environment. Certain of the Group’s licences have finite terms. Decisions by regulators regarding the grant, amendment or renewal of licences to members of the Group or to third parties, or regarding laws, rules, and regulations, could adversely affect the Group’s operations. The Group cannot provide any assurance that governments or regulatory bodies in the countries in which it operates will not issue telecommunications licences to new operators whose services will compete with the services provided by the Group.

In addition, other changes in the regulatory environment concerning the use of mobile phones may lead to a reduction in the usage of mobile phones or otherwise adversely affect telecommunications operators such as the Group. Decisions by regulators and new legislation, including in relation to retail, wholesale and interconnect price regulation, could adversely affect the pricing of, or adversely affect the revenue from, the services by these operators. Decisions by regulators may include limiting an operator’s pricing flexibility, raising its costs, reducing its retail or wholesale revenues or conferring greater pricing flexibility on competitors.

Laws and regulations are subject to change which could result in material compliance costs for the Group. Existing or future laws and regulations may be implemented or enforced in a manner that is detrimental to the Group. In addition, violations of any applicable laws and regulations could expose the Group to administrative proceedings, civil lawsuits, criminal prosecution (including fines) or a

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prohibition on the Group engaging in certain types of business or offering certain products or services in one or more of the main markets in which it operates. The Group also cannot predict the effect that current or any future lawsuits, appeals or investigations by regulatory bodies or by any third party in any of the countries in which it operates will have on its business, financial condition, results of operations or prospects.

2.2.2 Risks relating to dependence of telecom companies on continuous operations of its own networks

and the networks of other operators

Telecommunication companies depend to a significant degree on the uninterrupted operation of their networks to provide their services. Customers may experience blocked or dropped calls because of network capacity constraints. In addition, telecommunications networks, including related information systems, information technology and infrastructure, are vulnerable to damage or interruptions in operation from a variety of sources including natural disasters, power loss, equipment failure, malicious acts, network software flaws, transmission cable disruption or similar events. In the event that the Group is exposed to any of these events, this will have an adverse effect on its business, results of operations, financial condition and prospects.

Telecommunications companies also rely to a certain extent on interconnection to the networks of other telecommunications operators to carry calls from their customers to the customers of fixed line and mobile operators, both within a given country and internationally. While the Group has interconnection and international roaming agreements in place with many other telecommunications operators, it has no direct control over the quality of these networks and the interconnections and international roaming services they provide.

Any difficulties or delays in interconnecting with other networks and services, or the failure of any operator to provide reliable interconnections or roaming services to the Group on a consistent basis, could cause customer dissatisfaction and result in a loss of subscribers or a decrease in traffic, which could adversely affect the Group’s business, financial condition, results of operations or prospects.

Any interruption of the Group’s operations or interruption of the provision of any service, whether from operational disruption, natural disaster or otherwise, could damage the Group’s ability to attract and retain customers, cause significant customer dissatisfaction and have an adverse effect on its business, financial condition, results of operations or prospects.

2.2.3 Risks relating to the dependence of telecoms companies on standards and protocols of third parties

Telecommunications companies are reliant on third-party standards and protocols in delivering communication services and depend on the efficient and uninterrupted operation of communication networks. The third-party standards and protocols on which the Group relies could be compromised due to various factors, including, but not limited to, power loss, telecommunications failures, attacks, data corruption, security breaches, software malfunction, natural disasters or other acts not in the Group’s control. If any of these standards were to be compromised, or in the case of GSM, the encryption code breached, customers could lose faith in the integrity of the affected mobile networks. Any compromise in third-party standards and protocols or customers moving to providers with alternative delivery methods could have an adverse effect on the Group’s business, financial condition , results of operations or prospects.

2.2.4 Actual or possible health risks or other damages relating to the use of mobile phones or transmission

towers and its impact to reduce the level of mobile communications services

The effects of any damage caused by exposure to an electromagnetic field have been and continue to be the subject of careful evaluations by the international scientific community. The Group’s mobile communications business may be harmed as a result of these alleged health risks. For example, the perception of health risks could result in a lower number of customers and reduced usage per customer or, if the risks were to be established, in potential liability to customers. In addition, concerns in relation to electromagnetic risks may cause regulators to impose greater restrictions on the construction of base

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station towers or other infrastructure, which may hinder the completion of network build-outs and the commercial availability of new services and may require additional investments, which will have an adverse effect on the Group’s business, results of operations, financial condition and prospects.

2.2.5 Risks relating to the adverse impact of the Group with the legal actions or other legal procedures

(whether civil, tax or administrative ones) which may adversely affect its businesses, financial

position and results of its operations

The Group’s business is subject to extensive government regulation and can be adversely affected by changes in law, regulation or regulatory policy. The licensing, construction, operation, sale, resale, competition, billing, environmental impact, environmental occupational safety and health, radio frequency emissions and interconnection arrangements of wireless telecommunications systems are regulated to varying degrees by government or regulatory authorities. In particular, the Group’s tower infrastructure operations are subject to the requirements of various environmental and occupational safety and health laws and regulations, including those relating to the management, use, storage, disposal thereof and of their emission and remediation of, and exposure to, hazardous and non-hazardous substances, materials and waste. Any of these authorities having jurisdiction over any of these areas could adopt or change regulations or take other actions that could materially adversely affect the Group’s financial condition, results of operations and prospects.

The Group also may be subject to adverse changes in laws or regulations (or in the interpretation or enforcement thereof). The impact of any new laws or regulations affecting the Group’s services, as well as any amendments to, or new interpretations of, the existing laws and regulations covering related activities, is difficult to predict. The same applies to new tax laws or tax regulations (or a change in the interpretation of existing tax laws and regulations by the tax authorities and tax courts). All such changes could increase the Group’s costs of regulatory compliance or its tax burden, affect its ability to introduce premium and advanced services and/or force the Group to change its marketing and other business practices, which, in turn, could have a material adverse effect on its business, financial condition, results of operations and prospects.

Furthermore, mobile networks carry and store large volumes of confidential personal and business voice traffic and data. In common with other telecommunications companies, the Group hosts significant quantities and types of customer data in each of its core markets and needs to ensure its service environments are sufficiently secure to protect it from loss or corruption of customer information. In addition, many countries are imposing new data protection regulations. For example, the general data protection regulation recently implemented in Europe could be adopted by regulators in the countries in which the Group operates. Failure to adequately protect customer information could have an adverse effect on the Group’s reputation and may lead to legal action against the Group, which could have an adverse impact on its financial position and its operations.

In addition, the Group may be exposed to risks related to litigation and administrative proceedings that could materially and adversely affect its business, financial condition and results of operations in the event of an unfavourable ruling.

The Group’s business may expose it to litigation relating to labour, regulatory, tax and administrative proceedings, governmental investigations, environmental occupational safety and health laws, tort claims and contract disputes, criminal prosecution, among other matters. In the context of these proceedings the Group may not only be required to pay fines or money damages but also be subject to complementary sanctions or injunctions affecting its ability to continue its operations (For more details, please refer to Section 12-5 “Litigation, Arbitration and Disputes” of this Prospectus). While the Group may contest these matters vigorously and make insurance claims when appropriate, litigation and other proceedings are inherently costly and unpredictable, making it difficult to accurately estimate the outcome of actual or potential litigation or proceedings. Although the Group may establish provisions as it deems necessary, the amounts that it reserves could vary significantly from any amounts it actually pays due to the inherent uncertainties in the estimation process, which will have an adverse effect on the Group's business, results of operations, financial condition and prospects.

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2.2.6 Risks relating to COVID-19 which made huge interruptions in global economy and the economy of

the Kingdom

At the end of December 2019, a novel coronavirus, COVID-19, was reported to the WHO by the Chinese public health authorities. COVID-19 spread very rapidly across the world and was classified as a global pandemic by the WHO on 16/07/1441H (corresponding to 11/03/2020G). According to WHO data, COVID-19 has now been detected almost all over the world, and as of 13/02/1443H (corresponding to 20/09/2021G) had infected over 228.2 million people around the world. The COVID-19 pandemic has significantly negatively impacted global growth rates and affected global investment sentiment, resulting in volatility in global capital markets, reducing international trade and impacting commodity prices. In addition, it has resulted in restrictions on travel and public transport, restrictions on trade and transportation of goods, prolonged closures of workplaces, and has contributed to declines in global demand for oil and global bond and stock valuations, which is having and may continue to have a material adverse effect on the global economy and Saudi Arabia.

As a result of the outbreak, many governments have implemented a series of measures in an attempt to slow the spread of COVID-19, including closing major transit hubs, reducing public transportation, prohibiting large public gatherings, closing schools and launching e-learning programmes, requiring citizens to remain at home and practice social distancing, and closing borders to non-nationals.

As of 13/02/1443H (corresponding to 20/09/2020G), Saudi Arabia had 546,479 confirmed cases of COVID-19 and 8,656 COVID- 19 related deaths. Saudi Arabia implemented a number of temporary precautionary and preventative measures to contain the COVID-19 pandemic, including suspending all international flights, closing all non-essential businesses, prohibiting attendance by employees at most government workplaces, requiring citizens to remain at home and practice social distancing, closing commercial markets and malls other than for pharmacies and food supply activities, imposing curfews in several cities, and banning citizens, residents and visitors from performing the Umrah. In June 2020, the stay-at-home orders were lifted and economic and commercial activities were allowed to resume with preventive protocols in place. Saudi Arabia also implemented strict coronavirus preventative measures in relation to the Hajj pilgrimage in 2020, including limiting the number of Hajj pilgrims to only a very limited number of individuals of various nationalities residing in the country and meeting certain criteria, as well as imposing self-isolation and social distancing requirements. While some of these measures have been eased recently, including allowing the performance of Umrah, there can be no assurance that additional preventive measures will not be required in the future.

In addition, Saudi Arabia has implemented a number of significant fiscal stimulus measures to support the domestic economy, including for the banking industry, small medium enterprises (“SMEs”) and other private sector businesses. Saudi Arabia also launched an immunisation campaign to distribute a COVID-19 vaccine to its residents on a free and optional basis. However, the efficacy of any public health or economic preventive measures may be insufficient to ameliorate the negative impact of the COVID-19 pandemic on Saudi Arabia, including its economy, particularly if it impacts the operations of Saudi Arabia’s oil infrastructure or essential government services, and there can be no assurance that the immunisation campaign will achieve its objectives within the intended timeframes, or at all. Additionally, the reduction in global oil demand and prices may also slow the pace of investment in Saudi Arabia.

The COVID-19 pandemic is ongoing and there is a significant risk of recurring outbreaks in affected countries and possible future mutations in the virus may prove difficult to contain. For example, some countries in Europe have re-introduced full or partial lockdowns in 2021 in order to suppress higher infection rates. The long-term effects of the pandemic on the global economy are still unclear. There can be no assurance that COVID-19 or any future mutations of the virus, or similar pandemic communicable diseases, will not result in a prolonged or further decline in oil prices, or that they will not have a prolonged adverse effect on Saudi Arabia’s economy and the tourism, aviation and construction sectors in particular.

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To the extent that the effects of the COVID-19 pandemic have a significant adverse effect on the Government’s wholly owned companies or other systemically important entities the Government may need to provide significant financial support to such companies or entities, which could be significant in the context of Saudi Arabia’s annual budget and entail substantial fiscal outflows. No assurance can be given that the Group’s business, results of operations, financial condition and prospects will not be adversely affected by the disruption to Saudi Arabia’s economy caused by the COVID-19 pandemic, which could adversely affect the market price of the Company's Shares.

2.2.7 Risks relating to the dependence of the economy of the Kingdom and its revenues of the government

on oil sector and its adverse impact on oil rates reduction

The hydrocarbon sector is the single largest contributor to Saudi Arabia’s economy and oil revenues account for a majority of the Government’s total revenues and export earnings.

As oil is Saudi Arabia’s most important export, any change in oil prices affects various macroeconomic and other indicators, including, but not limited to, GDP, Government revenues, balance of payments and foreign trade. International oil prices have fluctuated significantly over the past two decades and may remain volatile in the future. Saudi Arabia’s economy has, in the past, been adversely affected by periods of low international oil prices, including in the period from mid-2014 to early 2016. More recently, global oil prices fell sharply in the first four months of 2020, with the price of Brent oil falling below USD 16 per barrel in April 2020. This was primarily due to the impact of the COVID-19 pandemic on the global economy and the increase in supply, each as described in more detail below. Oil prices have partially recovered since April 2020, with the OPEC Reference Basket price generally fluctuating between USD 54 and USD 73 per barrel in the first half of 2021. The OPEC Reference Basket price was USD 77.72 per barrel as at 30 September 2021. However, there is no certainty that such price levels will continue to rise or be maintained as global oil prices continue to be volatile.

One of the reasons for increased volatility in oil prices in early 2020 was the increased oil supply in the market and uncertainty surrounding production output levels. On 11/07/1441H (corresponding to 06/03/2020G), a meeting between members of the Organisation of the Petroleum Exporting Countries (“OPEC”) and certain non-OPEC oil-producing countries, in particular, Russia, failed to reach an agreement on whether to reduce oil production in response to the widespread outbreak of COVID-19 ending three years of cooperation on production levels. As a result, OPEC removed all limits on production, thereby prompting Saudi Arabia, along with other producers, to increase production. These events, combined with the significant decrease in demand for oil due to the economic slowdown caused by the COVID-19 pandemic, caused a sharp drop in oil prices. A series of meetings took place on 16/08/1441H (corresponding to 04/09/2020G) and 19/08/1441H (corresponding to 12/04/2020G) between OPEC and non-OPEC oil producing countries, which culminated in an agreement to reduce their overall oil production in stages between 08/09/1441H (corresponding to 01/05/2020G) and 29/09/1443H (corresponding to 30/04/2022G). During the initial two-month period beginning 08/09/1441H (corresponding to 01/05/2020G,), it was agreed that production would be reduced by a total of 9.70 million barrels a day, followed by a six-month period starting 1/11/1441H (corresponding to 01/07/2020G) where production would be reduced by a total of 7.68 million barrels a day, followed by a final 16-month period between 09/10/1441H (corresponding to 01/01/2021G) and 29/09/1443H (corresponding to 30/04/2022G) where production would be reduced by a total of 5.76 million barrels a day. In December 2020, OPEC+, which comprises OPEC and its allies, agreed on a compromise to increase oil output slightly from January 2021 onward. Oil demand has gradually recovered following the drop at the outset of the COVID-19 pandemic, with prices also supported by Saudi Arabia’s voluntary 1 million barrels per day cut in January 2021. As demand improved, OPEC+ agreed to partially ease cuts from May 2021 onward, which is expected to continue in the second half of 2021. In addition, it was agreed that the OPEC+ group will further increase supply by 2 million barrels per day from August 2021 until December 2021 and that it aims to fully phase out cuts by around September 2022. However, it is unclear what effect the agreement will have on oil prices in the short- to medium-term and there can be no guarantee that crude oil prices will not decrease.

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In general, international prices for crude oil are also affected by the economic and political developments in oil producing regions, particularly the Middle East; prices and availability of new technologies; and the global climate and other relevant conditions. There can be no assurance that these factors, in combination with others, will not result in a prolonged or further decline in oil prices, which may continue to have an adverse effect on Saudi Arabia’s GDP growth, Government revenues, balance of payments and foreign trade. In addition to the negative impact of low oil prices on Government reserves and revenues, lower oil prices have also negatively impacted Saudi Arabia’s current account position, which could make it more vulnerable to adverse changes in global markets. Furthermore, if Saudi Arabia increases its oil production in the future, there can be no assurance that Saudi Arabia’s export earnings will also increase, to the extent that such increase in production is offset by any decline in international oil prices due to conditions in the global oil market. Conversely, if Saudi Arabia decreases its oil production in the future, this could result in a decline in Saudi Arabia’s export earnings to the extent that such lower production is not offset by any increase in international oil prices due to conditions in the global oil market.

Potential investors should also note that many of Saudi Arabia’s other economic sectors are, in part, dependent on the oil sector, and the above analysis does not take into account the indirect impact that a prolonged or further decline in oil prices may have on Saudi Arabia’s economy. Sectors such as education, healthcare and housing, may, indirectly, be adversely affected by lower levels of economic activity that may result from lower Government revenues from the oil sector.

The financial performance of the Group has been affected by these trends, and could be materially adversely affected in the future, by challenging economic conditions and uncertainty caused by a low oil price environment and/or oil price volatility. No assurance can be given that the Group’s business, results of operations, financial condition and prospects will not be adversely affected by the aforementioned challenging economic conditions, which could adversely affect the market price of the Company's Shares.

2.2.8 Risks relating to political and security risks the Kingdom and Middle East may undergo

Saudi Arabia and other parts of the Middle East region have been subject to political and security concerns, especially in recent years. Several countries in the region are currently subject to armed conflicts and/or social and political unrest, including conflicts or disturbances in Afghanistan, Yemen, Syria, Libya and Iraq, as well as the multinational conflict with ‘Da’esh’ (also referred to as the Islamic State). In some instances, the recent and ongoing conflicts are a continuation of the significant political and military upheaval experienced by certain regional countries from 2011 onwards, commonly referred to as the ‘Arab Spring’, which gave rise to several instances of regime change and increased political uncertainty across the region. Furthermore, in March 2015, a coalition of countries, led by Saudi Arabia and supported by the international community, commenced military action against the Al-Houthi rebels in Yemen. Although the coalition scaled back its military operations in Yemen in March 2016 and a ceasefire was declared in April 2016, the conflict in Yemen is not yet fully resolved, military operations continue at a reduced scale. Saudi Arabia was targeted on several occasions by ballistic missiles fired by the Al-Houthi rebels in Yemen during 2017, 2018, 2019, 2020 and 2021, all of which were successfully intercepted by Saudi Arabia’s defence systems. There can be no assurance that the conflict in Yemen will not continue or re-escalate. Additionally, on 15/01/1441H (corresponding to 14/09/2019G), the Abqaiq processing facility and the Khurais oil field in Saudi Arabia were damaged in a major act of sabotage which resulted in the temporary interruption of Saudi Arabia’s oil and gas production. The Al- Houthi rebels claimed responsibility for the act of sabotage, although this claim has not been verified and has been disputed. 08/04/1442H (corresponding to 23/11/2020G), an explosion took place as a result of a terrorist attack by a projectile, causing a fire in a fuel tank at a Saudi Aramco petroleum products distribution terminal in the north of Jeddah. While there were no casualties or interruption of Saudi Aramco’s fuel supplies as a result of the attack, there can be no assurance what impact such acts of terrorism and sabotage may have on the geopolitical situation in the region, including any potential escalation of tensions. (For more details, please refer to Section 2-7-7 “Risks relating to the dependence of the economy of the Kingdom and its revenues of the government on oil sector and its adverse impact on oil rates reduction” of this Prospectus).

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In addition, Saudi Arabia has experienced occasional terrorist attacks and other disturbances in recent years, including incidents in Jeddah, Medina and Qatif in July 2016 and the acts of sabotage discussed above. There can be no assurance that extremists or terrorist groups will not attempt to target Saudi Arabia or commit or attempt to commit violent activities in the future. Any occurrences or escalation of terrorist incidents or other disturbances in Saudi Arabia could have an adverse impact on Saudi Arabia’s economic and financial condition.

Tensions have persisted between Saudi Arabia and Iran, as exemplified in January 2016 by Saudi Arabia recalling its ambassador to Iran. In addition, on 8 May 2018, the United States announced its withdrawal from the comprehensive agreement between the U.N. Security Council’s five permanent members plus Germany and Iran that was reached on July 2015, reinstating U.S. nuclear sanctions on the Iranian regime. The United States also announced that it would not renew exceptional waivers for importing Iranian oil for several oil-importing countries, effective from May 2019, and on 08/05/1441H (corresponding to 03/01/2020G), the United States carried out a military strike which killed a senior Iranian military commander. As a result of this military strike, Iran launched missile attacks on U.S. forces based in Iraq. Any continuation or escalation of international or regional tensions regarding Iran, including further attacks on, or seizures of, oil tankers which disrupt international trade, including any impairment of trade flow through the Strait of Hormuz, or any military conflict, could have a destabilising impact on the Gulf region, including with respect to Saudi Arabia and its ability to export oil.

These geopolitical events may contribute to instability in the Middle East and surrounding regions (that may or may not directly involve Saudi Arabia) and may have a material adverse effect on Saudi Arabia’s attractiveness for foreign investment and capital, its ability to engage in international trade and, subsequently, its economy and financial condition. Furthermore, such geopolitical events may also contribute to increased defence spending, which could in turn have an adverse impact on Saudi Arabia’s fiscal position or the budget available for other projects. It is not possible to predict the occurrence of events or circumstances such as, or similar to, a war or hostilities, the cessation of diplomatic ties, or the impact of such occurrences, and no assurance can be given that the Group would be able to sustain its current performance if such events or circumstances were to occur. Continued instability affecting the countries in the MENA region could adversely impact Saudi Arabia, which, in turn, could have a material adverse effect on the Group’s business, results of operations and financial condition, and thereby adversely affect the market price of the Offer Shares.

2.2.9 Risks relating to the businesses of the Group in case Saudi Riyal/USD connection is cancelled or

amended

The Group’s financial statements are presented in Saudi Riyals, which is the Group’s functional and presentation currency. The Saudi Riyal has been pegged to the U.S. dollar since 1986. However, there can be no assurance that future unanticipated events, including an increase in the rate of decline of the Government’s reserve assets, will not lead the Government to reconsider its exchange rate policy. Any change to the existing exchange rate policy that results in a significant depreciation of the Saudi Riyal against the U.S. dollar or other major currencies could have an adverse effect on Saudi Arabia’s social, economic and financial condition, which could have an adverse effect on the Group’s business, results of operations and financial condition, and thereby affect the market price of the Company's Shares.

2.2.10 Risks relating to the telecommunications networks may be adversely affected by natural disasters or

other catastrophic events beyond the control of their operators

Telecommunications operators face the risk that their business operations, technical infrastructure (including network infrastructure) and development projects could be adversely affected or disrupted by natural disasters (such as earthquakes, floods, tsunamis, hurricanes, fires or typhoons) or other catastrophic or otherwise disruptive events (such as changes to predominant natural weather, hydrologic and climatic patterns; major accidents, including chemical or other material environmental contamination; and power loss). Furthermore, the collapse of all or part of a site or the occurrence of

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another site-related accident may result in property damage, injury or death, which may adversely affect the Group’s financial condition and reputation.

The occurrence of any of these events, or a similar such event, at one or more of the Group’s facilities or in the regions in which the Group operates may cause disruptions to the Group’s operations in part or in whole, may increase the costs associated with providing services as a result of, among other things, costs associated with remedial work, may subject the Group to liability or impact the Group’s brands and reputation and may otherwise hinder the normal operation of the Group’s business, which could adversely affect its business, financial condition or results of operations.

In addition, the Group’s technical infrastructure is vulnerable to damage or interruption from information and telecommunication technology failures, acts of war, terrorism, intentional wrongdoing, human error and similar events. Unanticipated problems at the Group’s facilities, system failures, hardware or software failures, computer viruses or cybercrime in any form could affect the quality of its services and cause service interruptions. Any of these occurrences could result in reduced user traffic and reduced revenues and could harm the Group’s operations.

The effect of any of these events on the Group’s business, financial condition or results of operations may be worsened to the extent that any such event involves risks for which the Group is uninsured or not fully insured, or which are not currently insurable, such as acts of war and terrorism. It is the Group’s policy to procure appropriate insurance cover (such as property damage and business interruption cover); however, the Group cannot give any assurance that the insurance procured by the Group and in place at any particular time will cover all potential risks sufficiently or that its insurers will have the financial ability to pay all claims that may arise. Further, if there are changes in the insurance markets or insurance costs rise, the Group cannot provide assurance that insurance coverage will continue to be available on terms similar to those presently available to the Group or at all.

2.3 Risks relating to the Company’s Shares, including the Offer Shares.

2.3.1 Risks relating to large future sales or excepted sales of the Company's Shares and its impact on the

market price of the Company's Shares

Sales of the Company’s Shares before or after the Offering, or an expectation amongst investors that such sales may take place in the future, may lead to a decrease in the market value of the Company’s Shares. In the event of a fall in the price of the Company’s Shares the share price drop is accompanied by limited demand for the Offer Shares within the Offer Price Range, the Selling Shareholder may cancel the offering process.

In the event that the market price of the Company's shares becomes less than the minimum subscription price or the Offer Price, investors will suffer an immediate unrealised loss. The Company cannot assure investors that, after they subscribe for the Offer Shares, they will be able to sell them at a price equal to or greater than the Final Offer Price. Moreover, investors will be unable to sell the Offer Shares upon completion of the Offering until the Offer Shares are credited with the Exchange securities accounts designated in the relevant subscription forms.

According to the Bookrunners’ Agreement (set out in Section 13 “Book-Building” of this Prospectus), the Selling Shareholder may not dispose of the Company’s Shares for a period of twelve (12) months starting from the Closing Date (as defined herein in Section 1 “Definitions and Terminology”). According to the Bookrunners’ Agreement, the Company may not issue new shares during the six (6) months starting from the Closing Date (for more information regarding the Bookrunners’ Agreement and the Contractual Lock-up Period, please refer to Section 13 “Book-Building” of this Prospectus). Following the Lock-up Period, if the Selling Shareholder decides to sell additional shares, this will adversely affect the market price of the Company's shares.

2.3.2 Risks related to the settlement of the Offer Shares being subject to interruptions or delays

The Offering process under this Prospectus is a fully marketed secondary public offering. It should be noted that no similar offering has previously been executed in the Kingdom; which may cause

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unexpected risks regarding the settlement of the Offer Shares. Unlike initial public offerings, the Offer Shares are not settled at the same time by the Exchange. Instead, they are settled through a modern settlement framework that includes several parties. The shares are settled by way of separate deals via brokers that perform the subscription procedures in relation to the Offer Shares in line with the investors’ orders. The settlement is made once each transaction is registered with the trading and depository systems. It should be noted that this process is subject to human or technical errors. For example, brokers may not accept the transaction in a timely manner or may not properly execute the transfer of the Offer Shares. This may lead to settlement delays for some investors. In the event of non-execution of the negotiated trade, there would be an instant reallocation between the Participating Parties and/or the cancellation of the subscription form. Moreover, the delay in the settlement of /trades may result in a loss for Investors if the price of the Shares on the Exchange declines and the Investor is unable to sell its Offer Shares until they are registered. A breach or delay in the closure of the Offer Shares' transactions may lead to instability in the price of the Shares price on the Exchange.

It is worth noting that it is anticipated that the settlement of the Offer Shares in respect of Participating Parties will take place by virtue of negotiated trades mechanism via several brokers (financial investors’ brokers) from the sale side who will keep the shares of the Selling Shareholders that would be sold in their custody until execution of the deal with the brokers of the Participating Parties. The negotiated trades include two types of transactions:

Cross Trades: execution of both sale and buy orders takes place through same broker, and the delay risk, if any, is limited. This type is limited to the investors who have portfolio with any of the sale brokers in the Offering.

Two-sided Trades: there is a broker for the sale side and another broker for the buy side, the sale broker places the sale transaction immediately after commencement of trading session. The buy side broker must accept (where a delay may occur) the transaction and the sale side broker has no control over this side of transaction.

Any delay in execution of negotiated trades represents a commercial risk that the investors evaluate based on the abilities of their brokers and their willingness to take risks. It should also be noted that to the extent of a delay by a broker in executing the Negotiated Trades for a Participating Entity, receipt of the relevant Shares by such Participating Entity will be relatively delayed compared to the other Investors including Individual Investors and Participating Entities, which did not experience delays in executing their Negotiated Trades by their relevant brokers.

2.3.3 Risks related to trading halt in case the share price fluctuates with 10% or more daily.

The listed shares on the Main Market are subject to the Exchange's restrictions that the daily fluctuation limit for the share price shall be 10% or more of the closing price of the previous trading day, whether increases or decreases. If the share price fluctuations are 10% or more of the closing price of the previous trading day, whether they are increases or decreases, the trading will stop and the subscribers will not be able to buy or sell shares until the next trading day, on which the daily fluctuation limits of 10% or more will be applied again. This restriction may affect the trading price of the Company's shares.

2.3.4 Risks related to the transfer of the Offer Shares being subject to restrictions pursuant to securities

laws of the United States and other countries

The Offer Shares have not been, and will not be, registered under the U.S. Securities Act or securities laws of any jurisdiction other than the Kingdom. However, the Offer Shares will be offered and sold to the following foreign institutional investors: (i) foreign investors located outside the United States of America, based on an exemption from registration in accordance with Regulation S under the U.S. Securities Act and (ii) “qualified institutional buyers” located within the United States of America, pursuant to Rule 144A under the U.S. Securities Act.

It should be noted that Rule 144A is part of the U.S. Securities Act and is a rule regulating the offering of securities in the United States. In particular, it allows the sale of securities in the United States to

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certain investors (i.e., “qualified institutional buyers”) without the need to register such securities and without the need for any regulatory authority in the United States to review this Prospectus (i.e., Rule 144A is an exemption to the registration requirements for securities offered under the U.S. Securities Act).

It should be noted that foreign investors who subscribe for Offer Shares in accordance with Regulation S and Rule 144A under the U.S. Securities Act are subject to the regulations of their jurisdictions which may include, but not limited to, restrictions regarding the transfer of the Company’s Shares to other foreign investors, the participation in capital increases or the subscription to priority shares which may affect their ability to take advantage of or dispose of all of the rights related to the Offer Shares.

2.3.5 Risks relating to the foreign exchange rates on the demand of Offer Shares and its trading rate

All purchases and sales transactions of the Shares on the Exchange, or interests therein through swap arrangements, will be denominated in SAR for Foreign Investors and Foreign Strategic Investors. There can be no assurance that Foreign Investors and Foreign Strategic Investors will have the ability to obtain SAR in amounts necessary to purchase the desired amount of Offer Shares or swap interests. In addition, the Company will pay dividends to its shareholders in SAR with the exception of Substantial Shareholders. Accordingly, Foreign Investors and Foreign Strategic Investors are subject to risks arising from adverse movements in the value of the respective investor’s reference currency against SAR , as well as additional transaction costs in converting SAR into the respective investor’s reference currency, which may materially reduce the value of the Offer Shares, as well as that of any dividends paid. Investors whose reference currency is a currency other than SAR are therefore urged to consult their financial advisers. Any actual or perceived inability for foreign investors to exchange SAR for other currencies could have a material adverse effect on demand for, and the trading price of, the Offer Shares.

2.3.6 Risks relating to fluctuations in the price of the Offer Shares.

The market price of the Company's Shares may be volatile and subject to wide fluctuations as a result of a variety of factors, including, but not limited to, those referred to in these risk factors, as well as period to-period variations in operating results or changes in revenue or profit estimates by the Group, industry participants or financial analysts. The market price could also be adversely affected by developments unrelated to the Group’s operating performance, such as the operating and share price performance of, or the potential application of resolution measures to or potential litigation against, other credit institutions or financial holding companies that investors may consider comparable to the Group, speculation about the Group in the press or the investment community, unfavourable press, strategic actions by competitors (including acquisitions and reorganisations), changes in market conditions, regulatory changes and broader market volatility and movements, including in relation to the COVID-19 pandemic.

It is also worth noting that the market price of the Company's Shares can become less than the final price of the Offer Shares or the minimum subscription price after the investors submitted their subscription applications for the offer Shares. Although Participating Parties are permitted to change or cancel their subscription form at any time during the book-building period, Individual Investors cannot amend or withdraw their subscription form once submitted

Any or all of these factors could result in material fluctuations in the price of Company's Shares, which could lead to investors receiving back less than they invested or a total loss of their investment.

2.3.7 Risks arising because securities analysts do not publish researches or reports about the businesses

of the Group or sector, or such analysts change their recommendations about the Company's Shares

negatively, which will lead to a reduction in the market price and volume of the Company's share

trading

The trading price and volume for the Company's Shares are affected by the research and reports that securities or industry analysts publish about the Company or its business. If securities or industry analysts do not publish or cease to publish research or reports about the Company's business or industry,

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it could lose visibility in the financial markets, which could cause the market price or trading volume of the Company's Shares to decline. Also, if one or more of the analysts covering the Company’s business recommends selling Company's Shares, or if negative research is published on the industry or geographic markets it serves, the market price of the Company's Shares could decline.

2.3.8 Risks relating to the Company not being able to distribute dividends to its shareholders or

guaranteeing the size of the dividends and the risks of modifying its dividend policy

As described in the Company’s announcement on Tadawul’s website on 20/02/1443H (corresponding to 9/27/2021G), the Company’s Board of Directors approved the Company's Dividend Policy in its meeting held on 20/02/1443H (corresponding to 9/27/2021G) for the upcoming three years, starting from the fourth quarter of 2021. It is expected that such policy would be introduced to the General Assembly in its upcoming meeting for approval. The objective of the Dividend Policy is to maintain a minimum dividend level of SAR 1 per Share on a quarterly basis. The additional dividends are subject to the Board of Director's recommendation to the Company's General Assembly, after assessing the Company's financial position, future forecasts and capital requirements (including any future financial commitments under the Shareek programme), general economic conditions, market conditions and other factors. For further details on the Shareek programme, see Section 4 “Overview of the Group and the Nature of its Business—Relationship with the Government—Government as partner”. The additional dividends are likely to vary from quarter to quarter based on the Company's performance. The Dividend Policy may be changed based on several factors (for more information, see Section 7 “Dividend Policy” of this Prospectus). There can be no assurance that no amendments will be made to the Company's Dividend Policy, the Company will continue to pay dividends to its shareholders, or the dividends will be profitable.

2.3.9 Risks relating to the limited ability of Investors to make claims against the Company, its Board of

Directors and members of senior management of the Company

With respect to a foreign investor, the Company’s presence outside his country may limit his legal recourse against the Company. The Company is incorporated under the laws of Saudi Arabia, and all of the members of its Board of Directors and executive management reside in Saudi Arabia. Most of the Company’s assets and the assets of the directors and members of executive management are located in Saudi Arabia. As a result, foreign investors may not be able to affect service of process within the United States, the United Kingdom or any other foreign country upon the Company, its directors and members of the Company’s executive management or to enforce these foreign countries court judgements obtained against the Company, its directors and members of the Company’s senior management.

2.3.10 Risks of investments in emerging markets

Investing in securities involving emerging markets, such as Saudi Arabia, generally involves a higher degree of risk than investments in securities of issuers from more developed countries. Therefore, it is considered relatively more suitable for sophisticated investors.

The Saudi economy may be susceptible to adverse effects similar to those suffered by other emerging market countries in the future. The Kingdom could be adversely affected by negative economic or financial developments in other emerging market countries. Key factors affecting this environment include the timing and size of increases in interest rate in the United States, further evidence of an economic downturn in China, geopolitical tensions in the Middle East and the Korean Peninsula, and other similar significant global events. In addition, the global economic downturn may affect the global oil demand and its prices (for more information, see Subsection 2.2.7 “Risks relating to the dependence of the economy of the Kingdom and its revenues of the government on oil sector and its adverse impact on oil rates reduction” of this Prospectus). There can be no assurance that a further contraction in the global economy or a financial crisis will not occur. If the global financial markets become more unstable, this may have an adverse effect on the financial sectors and economies in the Kingdom and other countries in the Middle East. Any of the risks related to the investment in securities in emerging

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markets may cause the market price for the Shares to decline significantly. Accordingly, this could have a material adverse effect on the Investors’ anticipated returns on the investment in the Offer Shares.

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3. Market Overview

stc is the largest telecommunications services company in Saudi Arabia, offering fixed and mobile telecommunication networks, systems, infrastructure and services to consumer and enterprise customers. The Company also provides information and communications technology (“ICT”), media and digital payments services. The Company operates mainly in Saudi Arabia, Kuwait, Bahrain and has a presence in other international markets. stc’s overall market can be broken down into: (i) telecommunications; (ii) ICT; (iii) digital payments; (iv) digital remittance; (v) towers infrastructure; and (vi) other markets, which consist of video gaming and eSports market and media market.

3.1 Saudi Market macroeconomic environment

3.1.1 Geography

Saudi Arabia comprises a land area of approximately 2,150,000 square kilometres and is located in the Arabian Peninsula, a peninsula of south-west Asia situated north-east of Africa. Saudi Arabia has coastlines on the Red Sea to the west and the Arabian Gulf to the east. It is bordered in the north and north-east by the Hashemite Kingdom of Jordan and the Republic of Iraq, in the east by Kuwait, Qatar and the UAE, in the south-east by Oman, in the south by the Republic of Yemen, and is connected to Bahrain by the King Fahd Causeway. Saudi Arabia is the largest country in the GCC by GDP.

The capital city of Saudi Arabia is Riyadh. Saudi Arabia has undergone rapid urbanisation in recent decades, and over 80% of the population of Saudi Arabia currently lives in cities, with approximately half the population of Saudi Arabia being concentrated in the six largest cities of Riyadh, Jeddah, Makkah, Medina, Ta’if and Dammam. Makkah, the birthplace of the Prophet Muhammad (peace be upon him (“PBUH”)), is home to the Grand Mosque (al-masjid al-haram) and, which surrounds Islam’s holiest site (al-ka’bah), which is the direction of Muslim prayer. Medina, the burial place of the Prophet Muhammad (PBUH), is home to the Prophet’s Mosque (al-masjid an-nabawi) and is Islam’s second holiest city after Makkah.

In the west of Saudi Arabia, a geological exposure known as the Arabian-Nubian Shield contains various precious and basic metals such as gold, silver, copper, zinc, lead, tin, aluminium and iron and, mainly in the east of Saudi Arabia, extensive sedimentary formations containing various industrial minerals. Saudi Arabia’s deeper sedimentary formations in the eastern part of the country contain most of its proven and recoverable oil reserves. Data and information related to the Non-banking Financial Institutions (“NBFIs”) market in Saudi Arabia and stated in the market section are derived from information available to the public. We understand that there is no reason to consider such information as inaccurate. Therefore, the Board of Directors, Shareholders and Advisors have not independently checked the accuracy of such data and information.

3.1.2 Economy

The economy of Saudi Arabia is the 20th largest economy in the world and largest economy in the GCC region, representing nearly three times the average GDP of the countries of the region. Saudi Arabia’s economy accounted for approximately 20% of the combined nominal GDP of the countries in the MENA region and approximately 50% of the combined nominal GDP of the GCC countries in the year ended 31 December 2020. It is also one of the most advanced economies of the Gulf, with a GDP of USD 700 billion and a GDP per capita of USD 20,000 in 2020. In addition, Saudi Arabia’s GDP is expected to increase by a compound annual growth rate (“CAGR”) of 6.5% over the next five years to USD 928 billion by 2025.

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Figure 1: Saudi Arabia GDP vs. other GCC countries, 2020 (GDP 2020 in USD billion and

GDP per capita in ‘000)

Source: Oxford Economics, Saudi Arabia population as of H1 2020 (GASTAT- Saudi Arabia)

Figure 2: Saudi Arabia GDP evolution and growth outlook (USD billion)

Source: Oxford Economics

Saudi Arabia possesses the world’s second largest proven oil reserves (accounting for 17.2% of the world’s total oil reserves) as at 31 December 2020 and was the world’s third largest oil producer (accounting for 12.6% of the world’s total oil production) and the world’s largest oil exporter (accounting for 12.3% of the world’s total oil exports by volume) in the year ended 31 December 2020 (source: BP statistical review of World Energy). The hydrocarbon industry is the single largest contributor to Saudi Arabia’s economy.

In addition, the prioritisation by the Government of the non-oil private sector, which is a key element of the Government’s economic diversification policy, has contributed and is expected to continue to contribute to growth in the non-oil private sector of Saudi Arabia.

Over the years, Saudi Arabia has decreased its reliance on the revenues of oil and gas. Based on figures from GASTAT, the oil sector contributed 25% and 29% to Saudi Arabia’s nominal GDP in the three-month periods ended 31 March 2021 and 30 June 2021, respectively. In addition, pursuant to Vision 2030, Saudi Arabia aims to raise the share of non-oil exports in non-oil GDP from 16% to 50% and to raise non-government revenue from SAR 163 billion to SAR 1.0 trillion by 2030 (source: Vision 2030).

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Figure 3: Decreasing GDP share of oil and natural gas, 1Q19 – 2Q21 (USD billion)

Source: GASTAT

Inflation in Saudi Arabia was limited and stable over the past years with 1.5% average annual increase from June 2016 to June 2020. However, Saudi Arabia’s general consumer price index registered an annual increase of 6.2% in the second quarter of 2021 as it was projected that inflation will rise due to the continued impact of VAT increase from 5 to 15%, which came into effect from July 2020 onwards.

Figure 4: Inflation rate annual evolution (%)

Source: GASTAT

Saudi Arabia unemployment decreased to 12.6% in the fourth quarter of 2020, down from 14.9% in the third quarter of 2020. Male unemployment decreased to 7.1%, down from 7.9%, whereas female unemployment decreased significantly to 24.4%, down from 30.2% in the third quarter of 2020.

Figure 5: Saudi unemployment rate (15+) (%)

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Source: GASTAT

3.1.3 Population and demographic

The population of Saudi Arabia is the largest and youngest demographic in the GCC region. It was estimated to be 35.0 million as at mid-year 2020 according to GASTAT, representing an increase of 2.3% as compared to about 34.2 million in 2019. Saudi Arabia has a young population, with almost 69% of the population aged below 40 years old, which provides further support for the growth in demand for ICT services.

Figure 6: Saudi Arabia population distribution by age group, H1 2020 (%)

Source: GASTAT

Saudi nationals were estimated to comprise 21.1 million, or 62% of the total population, and non-Saudi nationals comprised 13.1 million, or 38% of the total population in 2019, according to GASTAT. The non-Saudi portion of Saudi Arabia’s total population comprises expatriates from neighbouring states, as well as significant numbers of expatriates from Asia (mostly from India, Pakistan, Bangladesh, Indonesia and the Philippines), Europe, the Americas and other countries around the world. The official language of Saudi Arabia is Arabic, although English is widely spoken.

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Figure 7: Saudi Arabia population census, 2014 – 2020 (%)

Source: GASTAT

3.1.4 Saudi Arabia Vision 2030

In 2016, the Council of Ministers approved a social and economic reform plan called Vision 2030, with the goal of reducing Saudi Arabia’s economic dependence on oil and converting the region into a technological hub. Vision 2030 is expected to transform Saudi Arabia to become a more digitalised economy, society and nation with an expanding e-government. Saudi Arabia has already made strong progress with e-government, as online services have expanded over the last decade to include online job searches, employment programmes, e-learning services, traffic, passports, civil affairs and government services among others. As part of Vision 2030 commitments, Saudi Arabia targets to rank in the e-Government Survey Index among the top five nations, from position 36 as of 2014. In addition, artificial intelligence (“AI”), robotics, augmented reality, virtual reality, cloud, IoT and e-commerce are some of the new technologies that are expected to be adopted under Vision 2030. The plan is expected to drive sector digitalisation in areas such as government, telecommunications, media, entertainment, financial services, manufacturing, healthcare and education, which will increase the demand for ICT services.

Vision 2030 will also act as a catalyst for the development of new mega projects, smart city clusters and support SMEs in Saudi Arabia. This will drive economic growth and improve the quality of life of Saudi Arabia’s citizens. Several large megaprojects such as the Riyadh Metro and the King Abdullah Financial District as well as smart cities projects including NEOM, Al-Qiddiya Entertainment City and King Abdullah Economic City are currently under development. The General Authority for SMEs also announced that its goal is to increase the contribution from SMEs from 20% to 35% by 2030, as part of the Vision 2030 plan.

As part of Vision 2030, Saudi Arabia targets to attract an increased number of Umrah visitors, which is expected to increase from 8 million to 30 million visitors every year. As a result of this target, Saudi Arabia intends to increase the number of airports, transport systems, Mosques capacity, as well as improving quality of the pilgrimage experience. In this regard, Saudi Arabia intends to improve visa application procedures and integrate new e-services into the pilgrims’’ journey to enrich their religious and cultural experience. As a result, demand for ICT services is set to benefit from a growing religious tourists base.

Figure 8: Vision 2030 objectives

Raise our ranking on the E-Government Survey Index from our current position of 36 to be among the top five nations

Increase the private sector’s contribution from 40 to 65% of GDP

Increase women’s participation in the workforce from 22 to 30%.

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Move from our current position as the 19th largest economy in the world into one of the top 15 positions

Lower the rate of unemployment from 11.6 to 7%.

Increase SME contribution to GDP from 20 to 35%.

Increase our capacity to welcome Umrah visitors from 8 million to 30 million every year

3.2 Industry overview

Total revenue in the telecommunications sector in Saudi Arabia was USD 17.1 billion in 2020, which accounted for 54% of the GCC market, according to Omdia and telecommunications market revenue is defined as total fixed voice and fixed broadband revenues add total mobile services revenues (data and voice). The sector continues to benefit from Government initiatives aimed at diversifying the economy, and establishing market-leading, next generation digital infrastructure and services. Saudi Arabia’s 5G roll-out will enable increased mobile data usage, technology and digital service adoption in both the consumer and enterprise segments, driving subscription growth and creating new revenue opportunities for telecommunication service providers. Further, the Government’s optical fibre deployment initiative is expected to drive continued fibre subscription growth in the fixed broadband segment, with 5G fixed wireless access providing incremental upside. As a result of these factors, the telecommunications market is forecasted to grow at a CAGR of 2% to USD 18.6 billion by 2025, with the majority of this growth being attributed to the mobile sector and fixed broadband, according to Omdia.

Saudi Arabia has a competitive telecommunications market driven by consumer demand for faster data services at competitive prices. The market is currently characterised and dominated by three players holding unified licenses: Saudi Telecom Company (stc), Mobile Telecommunication Company Saudi Arabia (Zain KSA) and Etihad Etisalat Company (Mobily). The market also hosts other internet service providers, fixed-line service providers, and mobile virtual network operators (“MVNOs”).

3.2.1 Saudi Arabia’s telecommunications market

3.2.1.1 Saudi Arabia’s mobile market

3.2.1.1.1 Introduction

According to Omdia, the mobile telecommunications sector is one of the largest components of Saudi Arabia’s telecommunications industry, contributing around 63% to overall telecommunications sector revenue, which is defined as total fixed voice and fixed broadband revenues add total mobile services revenues (data and voice). Mobile service revenues amounted to USD 10.8 billion in 2020 and have been growing at a CAGR of 3% since 2018.

Figure 9: Mobile service revenue, 2018A–2021E (USD billion)

Source: Omdia

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The number of mobile subscribers moderately declined in 2020 from 41.3 million in 2018, to 40.9 million, representing a CAGR of -1%. Subscriber numbers are expected to recover in 2021, a portion of which can be attributed to the particular conditions caused by the pandemic, wherein during periods of restricted travel, people were obliged to work and school from home. In addition, the Government has been actively encouraging the population to engage with digital payment systems which has resulted in greater awareness and usage of mobile payments, which, in turn, is encouraging the use of mobile devices. These developments, along with a widening reach of 5G networks, are expected to support further subscription growth over the coming years.

It is worth noting that Saudi Arabia’s market has a mobile penetration of 119%, below the GCC weighted average penetration (based on population size) of 135% as of 2020, according to Omdia. Mobile penetration is defined as number of mobile subscriptions divided by total population. The number of mobile subscribers is greater than the population due to users having multiple connected devices, such as SIM connected tablets and dedicated mobile broadband dongles.

Figure 10: Number of mobile subscribers and penetration, 2018A – 2021E (million)

Source: Omdia

The number of post-paid subscribers has been growing at a CAGR of 1% in the years 2018 to 2020, reaching 13.3 million as at 2020, according to Omdia. Incumbent telecommunication service providers continue to provide pre-paid services, but are focused on expanding their post-paid subscriber base to benefit from improved ARPU and better profit margins. This is expected to drive further growth in the segment in the future, with 2021E post-paid subscribers forecasted to grow 4% as compared to 2020.

Figure 11: Pre-paid versus post-paid subscriptions, 2018A – 2021E (million)

Source: Omdia

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3.2.1.1.2 5G development

GCC nations have made significant progress in adopting 5G technology but they are still trailing some of the more advanced markets. According to GSMA, the adoption rate of 5G technology in GCC nations is expected to reach 16% by 2025, with the MENA adoption rate of 5G technology standing at 6% This is comparatively lower as compared to market-leaders South Korea and the US, whose 5G connections will form 59% and 50% of total connections in 2025, respectively.

Figure 12: 5G connections as proportion of total by 2025 (%)

Source: GSMA

Given the significant investment from fibre operators and 5G coverage throughout Saudi Arabia, Omdia forecasts that half of mobile subscriptions in Saudi Arabia will be on 5G by the end of 2025, materially above the predicted average coverage across the GCC of 16% as per figure “5G connections as proportion of total by 2025” above. Indeed, in May 2020, stc announced its plan to decommission its 3G network by the end of 2022 to make way for more advanced technologies, including 4G and 5G. Subscriber migration should pick up pace as 5G smartphones become commonplace and telecommunication service providers decommission legacy networks to achieve efficiencies.

Figure 13: Mobile subscriptions by technology, 2018 – 2025 (million)

Source: Omdia, operator reports

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3.2.1.1.3 Mobile data

Saudi Arabia has experienced significant growth in mobile data consumption in recent years, with mobile data traffic reaching 3.9 million terabytes in 2020, up 57% year-on-year. Mobile data traffic has been driven by high growth in the number of smartphone users (including in rural areas), increases in average data usage per smartphone during the COVID-19 pandemic in 2020, and affordable unlimited mobile internet data packages.

Figure 14: Mobile data download volume in Saudi Arabia (million terabytes)

Source: Omdia

According to CITC, 93% of the population in Saudi Arabia has access to the internet, as compared to the global average of 53% The number of internet users is expected to further grow as the proportion of the population using smartphones increases, and as operators improve their service quality through investment in technology and infrastructure. In addition, Saudi Arabia’s demographic structure provides further support for the growth in demand for ICT services, with almost 69% of the population aged below 40 (for further details, see figure 6 “Saudi Arabia population distribution by age group, H1 2020 (%)” of this Prospectus).

3.2.1.1.4 Mobile ARPU

Mobile ARPU is expected to reach USD 22.5 in 2021E compared to USD 20.2 in 2018, representing a CAGR of 4% ARPU increases in the period have been stimulated by operators’ successful migration of subscribers to 4G, data services and value-added services, as well as the positive impact of the discounting of inactive SIMs. Whilst there is expected to be some downward pressure from increased competition from MVNOs, telecommunications service providers focus on high-value services and 5G deployment is expected to drive ARPU increases in the medium-term.

Figure 15: Mobile ARPU (USD)

Source: Omdia

There are three mobile network operators (“MNOs”) in Saudi Arabia providing nationwide coverage: stc, Zain KSA and Mobily. The following chart shows the market shares in terms of revenues of the three largest telecommunications providers in the Kingdom. Based on total revenue, stc held the largest

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market share at 73% in 2020. MNOs have reported sustained growth in revenues in the period due to increased demand for connectivity as a result of the COVID-19 pandemic.

Figure 16: Saudi Arabia telecommunication service providers mobile service by mobile revenue, 2020 (%)

Source: Omdia

3.2.1.2 Saudi Arabia’s fixed market

3.2.1.2.1 Introduction

Saudi Arabia’s fixed telecommunications market revenue amounted to approximately USD 6.3 billion in 2020, according to Omdia and includes total fixed broadband (revenues generated by fixed broadband access and value added services delivered to residential and enterprise customers by communications service providers, excluding revenues from fixed voice and TV services) and total fixed voice (revenues generated by fixed voice services provided directly by communications service providers to residential and enterprise customers). According to Omdia, fixed broadband services constitute 94% of end-user spending while fixed voice services account for 6% of end-user spending.

Figure 17: Development of the number of fixed broadband and voice subscriptions, 2018 – 2021E (million)

Source: Omdia

3.2.1.2.2 Fixed voice

In recent years, the number of fixed voice subscriptions in Saudi Arabia has been steadily decreasing. As at the end of 2020, there were 2.9 million fixed voice subscriptions, declining at a CAGR of -3% since 2018. Fixed voice penetration in Saudi Arabia is relatively low as compared to other countries in the GCC, and this penetration rate has been declining as an increasing number of Saudi Arabian citizens and residents have found it more convenient to use a mobile device as their principal means of telecommunication.

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Figure 18: Comparison of fixed voice household penetration, 2020 (%)

Source: Omdia

Since its partial privatisation and separation from the Ministry of Post, Telegraph and Telephone in 1998, stc has remained the dominant player in the fixed voice market with a 97% market share as at 2020. Go Saudi Arabia (trading name of Etihad Atheeb Telecom) holds the remainder of the market, with a 3% share.

Figure 19: Fixed line voice market shares, 2020 (Service revenues as a% of total)

Source: Omdia

3.2.1.2.3 Fixed broadband

In the fixed broadband segment, Saudi Arabia had 2.6 million fixed broadband subscriptions and a household broadband penetration of 51.2% as at 2020. While Saudi Arabia’s fixed broadband (Optical fibre) penetration remains relatively low compared to other GCC economies, there has been a concentration of fibre infrastructure and operators have significantly increased investments in the expansion of their fibre-optic networks (FTTx). This has resulted in a high level of growth in the fixed broadband (Optical fibre) subscriber base in recent years, with subscribers increasing at a CAGR of 16% between 2018 and 2020.

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Figure 20: Comparison of fixed broadband household penetration, 2020 (%)

Source: Omdia

The largest fixed broadband (Optical fibre) service operators are stc and Mobily. At the end of 2020, stc was the clear market leader with 66% share, followed by Mobily with 19%.

Figure 21: Fixed broadband (Optical fibre) market shares, 2020 (Service revenues as a% of

total)

Source: Omdia

3.2.2 Saudi Arabia’s ICT market

3.2.2.1 A large and fast-growing domestic ICT market

stc operates in the business to business (“B2B”) ICT market in Saudi Arabia through solutions by stc. The B2B ICT market was valued at SAR 33.8 billion in 2018 and is projected to grow at a CAGR of 6.7% to reach SAR 53.1 billion in 2025. The market is subdivided into IT services (59% in 2018) and B2B telecommunications and data (41% in 2018). In more developed markets, IT services represent a larger portion of up to 75 to 85% of B2B ICT services.

The IT services sector is expected to be the main driver of market growth with an expected CAGR of 10% from 2018 to 2025, while the B2B telecommunications and data sector is expected to grow by 1.4% per annum over the same period. It is expected that IT services will represent an increasing portion of the total B2B ICT services market in Saudi Arabia in the future, and will reach a level similar to that

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observed in the more developed markets. The growth in IT services is further driven by Vision 2030 to transition nationally to digitalisation and increase spending on information technology.

Figure 22: Saudi Arabia’s B2B ICT services market size by category, 2018 – 2025 (SAR

billion)

SAR *Adjusted for the effects of the COVID-19 pandemic.

Source: The Company and the Market Study Consultant derived this data from the market data of the IDC from 2018.

The largest segments within IT services include the (i) public sector – defined by demand for large-scale, end-to-end IT and system integration projects, (ii) financial services – driven by enterprise connectivity and IT services, mobile point-of-service and IoT solutions and (iii) media and telecommunications – characterised by strong dependence for IT integration services for networks, systems and infrastructure integration.

The fastest growing sectors in IT services include (i) manufacturing – driven by industrial IoT use cases, related cloud solutions and managed networks, (ii) transportation – driven by increased demand for IoT and applications, (iii) retail – driven by e-commerce and digital transformation resulting in increasing demand for cloud and application services and (iv) healthcare – increasing digitalisation needs, emerging remote care and unified electronic medical record initiatives.

Figure 23: Industry verticals CAGR, 2018 – 2025

Source: The Company and Market Study Consultant derived this data from the market data of the IDC from 2018

The COVID-19 pandemic is expected to have a minimal short-term impact on the overall B2B ICT services market. Short-term effects stemming from the COVID-19 pandemic include a greater focus

Utilities

Prof. Services

Personal Services

Construction

Education

Oil &Gas

TransportationRetail

Healthcare

Manufacturing

Financial Services

Media &Telecom

Public

5

10

15

20

25

0 1 2 3 4 5

IT Services Spend (2018)

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and targeted spending on areas for business resilience and business continuity measures. Furthermore, demand for IT services is expected to increase from the acceleration of the digital transformation, a trend that should continue in the long term.

Despite the economic effect during the COVID-19 crisis, overall spending related to the field of information technology has remained resilient and at the forefront of corporates priorities across all sectors (with the exception of retail, one of the hardest hit industries during the crisis). As companies have reshaped their priorities and increased their focus towards faster digital transformation, this has resulted in placing investments in information technology as a top priority for companies.

Figure 24: Top investment priorities expectations for H2 2020

(%)

Source: AlphaWise WFH CIOs Survey, May 2020

3.2.2.2 Underrepresentation of Saudi Arabia’s IT market within GDP compared to more developed economies

According to market data from the international Data Centre (CTBTO) market data for 2019, spending on IT services stood at SAR 19.8 billion, which represents only 0.7% of GDP and 1.3% less than developed markets, indicating that the market in Saudi Arabia still has growth potential until spending on IT services reaches to the level seen in developed markets, which, if achieved, could lead to an increase of approximately 88% in spending on corporate IT services.

Saudi Arabia’s market is also less mature compared to the US and European markets and thus offers significant advantages compared to those markets. For example, Saudi Arabia’s market is not overburdened with service providers offering outdated work packages in terms of time and materials, and there is more scope for offering modern technology and infrastructure.

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Figure 25: B2B IT services spend as a share of GDP and market size, 2018 (as % of GDP)

Source: The Company and the Market Study Consultant derived this data from the market data of the IDC from 2018

3.2.2.3 The largest ICT market in the GCC countries and a digital hub for the region

stc operates in the biggest and fastest growing ICT services market in the GCC region. Saudi Arabia’s B2B ICT services market is the largest market in the GCC region with a size of SAR 33.8 billion as at 2018, making it four to eight times larger than some of its peers in more fragmented markets (Oman, Kuwait, Bahrain). The UAE market is significantly smaller than Saudi Arabia’s market, but represents the closest comparable IT services market to Saudi Arabia due to its similar level of market maturity.

Saudi Arabia is expected to be the fastest growing market in the region, with a growth rate of around 7.0% compared to around 2.0 to 4.0% of its peers Bahrain, Oman and Kuwait. These fragmented markets are still in their embryonic phases and therefore currently present limited potential.

stc operates in an attractive market in terms of both size and growth potential that can be further increased. Saudi Arabia is well on its way to becoming the digital hub of the GCC. The Saudi Data and Artificial Intelligence Authority (“SDAIA”) was established pursuant to Royal decree 471/A dated 29/12/1440H (corresponding to 30/08/2019). SDAIA is responsible for overseeing the strategies for national data and AI. The goal of SDAIA is to establish Saudi Arabia as a global leader in the digital world and to realise Vision 2030 aspirations of the region.

Figure 26: B2B IT services market*, 2019 – 2025 (%)

* Defined as B2B connectivity and IT Services, including. digital and cloud services, excluding software and hardware. Source: Derived from IDC market data from 2018

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3.2.3 Saudi Arabia’s digital payments market

Saudi Arabia has lagged behind some other nations in developing Digital Financial Services ecosystem. However, Vision 2030 and the COVID-19 pandemic has increased the Government’s focus on diversification and accelerated the shift towards digital services, including digital payments.

3.2.3.1 Low debit / credit card penetration levels and high reliance on cash

Saudi Arabia has low credit card penetration relative to other countries, with an average of 1.4 debit and credit card per adult in 2020 compared to 4.3 in the United States. Cash payments still represent a large proportion of total payments in Saudi Arabia implying a substantial opportunity for digital payment providers as the move from cash to digital payments continues.

Figure 27: Debit and credit cards per adult, 2020

Source: World Bank

Figure 28: Digital payments penetration – share of non-cash transactions, 2020

(as% of Total Consumer and Commercial Payment Transactions, in volume)

Source: World Bank, Edgar Dunn & Company

3.2.3.2 A positive outlook for digital payments adoption

Cash payments currently represent the vast majority of transactions in Saudi Arabia. The share of digital payments is continually increasing as consumers adopt card-based payment methods, as they gain access to bank accounts supported by improving infrastructure. Additionally, rapid technology changes such as the use of robotics and automation and other technological advancements, allows for lower cost to access consumers, increasing stores of value and increased flexibility of payment methods. In addition, more advanced consumers are increasingly engaging with new technologies and adopting digital payment solutions.

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Vision 2030 and the COVID-19 pandemic have also increased the Government’s focus on diversification and accelerated the shift towards digital services, including Digital Payments. In this context, the Financial Sector Development Program (FSDP) targets a 70% share for non-cash transactions by 2030.

This trend has already started materialising in Saudi Arabia, and more Fintech companies are trying to capture the growth opportunity in the digital payments sector in Saudi Arabia. According to Fintech Saudi, the number of active Fintech start-ups in the country stood at 60 in 2020, compared to 10 in 2018. In April 2020, monthly smartphone payment transactions jumped 352% year-on-year, to 19.7 million. The value of Fintech transactions grew at a CAGR of 18% over 2017 and 2019, to exceed USD 20 billion in 2019 (source: Statista). The value of Fintech transactions is expected to surpass USD 33 billion by 2023 (Fintech Saudi Annual Report 2019-20). Payments accounted for two-thirds of total segment revenue and almost 98% of the total user base.

3.2.4 Saudi Arabia’s digital remittance market

The global remittance market is a large and fast-growing market, with total volumes of USD 685 billion in 2020. The industry has experienced an extended period of growth which is expected to continue, with total consumer cross-border payments volumes expected to grow at a CAGR of 5.2% globally and 8.0% in the MENA region from 2020 to 2026, according to Allied Market Research analysis.

Saudi Arabia has the third largest expatriates population globally. As a result of its large and growing expatriates population, Saudi Arabia is the third largest outward remittances market with an annual volume of USD 35 billion in 2020 and grew by 10.9% compared to 2019. The outward remittance market is expected to grow to more than USD 79 billion by 2026, representing a CAGR of 14.8%. stc is well positioned to benefit from this underlying growth via its stc pay product proposition which includes the ability to transfer money internationally at competitive prices.

Figure 29: Immigrant/ expatriates population by country, 2021 (million)

Source: United Nations

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Figure 30: Saudi Arabia outward remittance volume (USD billion)

Source: World Bank (2021), Allied Market Research (2020), Remittance Market, from EMIS Professional Database

Figure 31: Largest outward remittance markets and GDP contribution, 2020 (USD billion)

Source: World Bank 2021

3.2.5 Saudi Arabia’s towers infrastructure market

Saudi Arabia is the second largest MENA market in numbers of towers after Iran, with more than 37 thousand communication towers.

Infrastructure sharing in Saudi Arabia has to date been very limited, with around 2% of sites holding more than one tenant. There has been some infrastructure sharing as part of MNO densification plans in some of Saudi Arabia’s major cities in order to meet growing data usage, whilst in some of the country’s holy sites (where access to land is limited), infrastructure sharing has arisen out of necessity. These sharing arrangements have typically only covered passive equipment.

Limited infrastructure sharing in Saudi Arabia has resulted in a high degree of parallel infrastructure development across MNOs; 95% of Zain and Mobily’s sites are reported to overlap and as such, the Government is keen to promote infrastructure sharing. Various passive infrastructure strategies have been explored by each of Saudi Arabia’s MNOs in recent years.

Saudi Arabia is home to several smart cities projects and infrastructure megaprojects, each of which promises strong potential demand for communications infrastructure.

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Figure 32: Tower counts across MENA markets, 2020

Source: TowerXchange

Figure 33: Saudi Arabia estimated tower count, 2020 (as% of total)

Source: TowerXchange

3.3 Other markets

3.3.1 Saudi Arabia’s video gaming and eSports market

The global gaming market was estimated to be worth USD 174 billion in 2020 and is projected to grow at a CAGR of 10% from 2021 until 2026, according to Mordor Global Gaming Market Report (2021-2026). The market can be segmented into four categories, comprising console (Video Game Console), tablet, smartphone and PC, with the smartphone segment accounting for the biggest share at approximately 42% of the total market. In terms of geographic segmentation, the Asia-Pacific region accounts for the largest share of the market, whereas the Middle East and Africa region is expected to show the fastest growth at approximately 10% CAGR between 2021 and 2026, according to Mordor Global Gaming Market Report (2021-2026).

Market expansion is supported by a number of growth drivers, including improvements in network quality and the adoption of 5G, which is allowing users to stream games on portable devices at high resolutions, in real-time, without significant latency. Online gaming has seen strong growth in recent years and is expected to continue to do so going forward in light of increasing internet penetration and smartphone ownership. eSports is another major trend shaping the global gaming market with millennials representing most of the fast-growing but still nascent audience. Since competitions can be

Qatar 5,000

Jordan 6,853

Afghanista

n 6,917

Tunisia 7,955

Oman 9,236

UAE 13,000

Iraq 14,769

Algeria 19,350

Morocco 21,042

Egypt 24,989

Pakistan 37,000

Kingdom of

Saudi Arabia 37,032

Iran 41,106

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streamed worldwide, eSports not only presents a huge opportunity for game publishers but also for digital advertisers and eSports associations looking to attract a broad and engaged viewership.

Video gaming represents a large and fast-growing market opportunity in Saudi Arabia, with total gaming market revenue exceeding USD 500 million in 2020. The market is projected to reach a value of USD 813 million by 2025, registering a CAGR of 10%, according to Statista – Video Games, Saudi Arabia. Growth in the sector will continue to be supported by Vision 2030 initiative focused on diversifying the economy away from oil, creating a digital-first economy.

In terms of segmentation, mobile gaming represents the largest portion of the Saudi Arabian market given the high level of smartphone penetration in the region, representing 60% of total gaming revenues as at 2020, according to Statista – Video Games, Saudi Arabia. As smartphone penetration increases it is expected that mobile gaming will continue to gain momentum. In contrast, console (Video Game Console) and PC gaming operates at a much smaller scale, with downloads for gaming consoles (Video Game Console) and PCs accounting for only 29% of total gaming revenues.

Saudi Arabia’s eSports market is still relatively nascent, however, government support and improving infrastructure is helping to drive future growth.

3.3.2 Saudi Arabia’s media market

Saudi Arabia’s media and entertainment market is the largest in the Middle East, at over USD 5 billion in 2020, representing 17% of the total market in 2020. Significant growth in the penetration of devices supporting digital media and over-the-top (“OTT”) platforms such as Netflix and Amazon, combined with improving internet access speed has allowed subscribers to consume media when and how they want. These factors, in conjunction with favourable demographic trends, namely the proportion of the population under 40, are expected to drive further growth in the region, with a 7% CAGR forecast to 2026, according to the Mordor Intelligence Middle East Media and Entertainment Market Report (2020-2025).

Figure 34: Media and entertainment market in revenue share (%)

Source: Mordor Intelligence

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Figure 35: Media and entertainment revenue in Saudi Arabia, 2019-2026

(USD million)

Source: Mordor Intelligence

According to GSMA, the region’s mobile social media penetration has doubled in the last five years, now standing at 44%. Facebook in Saudi Arabia now has more than 10 million active users which is equivalent to 38% of the population (according to Mordor Intelligence Middle East Media and Entertainment Market Report (2020-2025)), demonstrating the prevalence of social media usage. In terms of digital entertainment, there are a number of digital media products available in the market, including Jawwy TV and Dawri Plus. These products offer distinctive digital content and a user-friendly experience available across a range of channels, catering to the consumption preferences of millennial users.

Growth in Saudi Arabia’s media and entertainment sector, particularly across digital, is a major pillar of the Vision 2030 plan and hence is likely to receive ongoing support from the Government.

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4. Overview of the Group and the Nature of its Business

4.1 Company Overview

stc is a Saudi joint stock company (listed on Tadawul) incorporated pursuant to Royal Decree No. M/35, dated 24/12/1418H (corresponding to 21/04/1988G) and Council of Ministers Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G). stc is registered in Riyadh under Commercial Registration number 1010150269 issued on 04/03/1419H (corresponding to 29/06/1998G). Its registered address is: P.O. Box 87912, Riyadh, 11652, Kingdom of Saudi Arabia.

Pursuant to the Council of Ministers’ Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), the Government sold 30% of the Company's shares through a public offering. As a result, Saudi natural citizens were allocated at least 20% of the Company's shares, and the Retirement Pension Department and GOSI shall have up to 10% distributed equally between them. The public offering process was completed on 03/11/1423H (corresponding to 01/06/2003G). In its capacity as the Company’s Extraordinary General Assembly, the Council of Ministers agreed, pursuant to Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), to increase the Company’s share capital from twelve billion Saudi Riyals (SAR 12,000,000,000) to fifteen billion Saudi Riyals (SAR 15,000,000,000) by capitalizing the retained earnings. On 13/03/1427H (corresponding to 04/11/2006G), the Company’s Extraordinary General Assembly agreed to increase the Company’s share capital from fifteen billion Saudi Riyals (SAR 15,000,000,000) to twenty billion Saudi Riyals (SAR 20,000,000,000) by capitalizing the retained earnings and issuing one bonus share for every three (3) existing shares.

The current share capital of the Company is twenty billion Saudi Arabian Riyals (SAR 20,000,000,000) divided into two billion (2,000,000,000) ordinary shares with a fully paid nominal value of ten Saudi Riyals (SAR 10) per Share.

As at the date of this Prospectus, the Substantial Shareholders in the Company are government agencies, namely PIF, which owns 70% of the Company’s share capital, and the General Organization for Social Insurance, which owns 6.16% of the Company’s share capital, while the public (i.e all Shareholders except the Substantial Shareholders in the Company) owns 23.84% of the Company's Shares.

As at 30 June 2021, the Company has 20 subsidiaries, seven of which are incorporated outside the Kingdom. It should be noted that the term “subsidiary” referenced above is based on the Glossary of Defined Terms Used in the Regulations and Rules of the CMA (as explained in the section 1 “Definitions and Terminology” of this Prospectus) as opposed to IFRS-KSA. Therefore, the determination based on IFRS-KSA would be different, as indicated in the Company’s Financial Statements. The Group’s most important subsidiaries and other institutions and major investment funds are set forth under the ownership structure below (the Company and its subsidiaries are hereinafter referred to as the “Group”). The Group also participates in numerous investments in the telecommunications sector through non-controlling shares. In this case, the Group’s share of the profit and loss is recorded in the profit and loss statement as “Net share in results of investments in associates and joint ventures”. (For further information, please refer to the Financial Statements set out in Section 16 “Financial Statements and Auditor’s Reports” of this Prospectus)

Within Saudi Arabia, the Group’s services include mobile telecommunications services, fixed line and broadband access products (Optical fibre), wholesale telecommunications services, data centre hosting, solutions for office and home environments, cybersecurity and other ICT and related solutions. The Group also provides mobile telecommunications services in Bahrain and Kuwait. (For more details regarding the activities of the Company, please refer to Section 4-7 “General Description of the Saudi Arabian business operations, infrastructure and Regulatory environment” of this Prospectus.)

The Group is the leading telecommunications operator in the Kingdom. As at 30 June 2021, the Company held 72.9% of the estimated market share based on aggregate revenue generated by the three main telecommunications providers in Saudi Arabia (stc, Mobily, and Zain Saudi Arabia).As at 30 September 2021, stc was the fourth largest listed company in Saudi Arabia in terms of market

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capitalisation. The Group also has a leading position in the MENA region and was ranked as the strongest telecommunications company in the Middle East region and among the top 44 digital companies in the world by Forbes in May 2021. According to Brand Finance 2021, the Group represents the most valuable telecommunications brand in the MENA region. The Group’s consolidated revenues were SAR 59.0 billion and SAR 31.6 billion for the year ended 31 December 2020 and the six months ended 30 June 2021, respectively. The Group’s net profit was SAR 11.2 billion and SAR 5.9 billion for the year ended 31 December 2020 and the six months ended 30 June 2021, respectively. The Group’s total assets were SAR 122.0 billion as at 31 December 2020 and SAR 119.3 billion as at 30 June 2021. The Group’s market capitalisation was SAR 254 billion as at 30 September 2021.

The bulk of the Group’s revenues and profits are generated from the Company’s business operations and its local subsidiaries, including solutions by stc, channels by stc and Tawal. solutions by stc is the “number one” IT company and the market leader in Saudi Arabia. channels by stc, the Group’s distribution subsidiary through which the Group’s sales and marketing is conducted, had over 57,000 traditional trade and mobile shops in Saudi Arabia, Bahrain and Oman, and focuses on sales and marketing of the Group’s products to retail and SME customers as at 31 December 2020. Tawal is the first and largest independent tower company in the MENA region by virtue of over 15,000 towers that it owns and operates as at 30 June 2021.

The following table sets out the main subsidiaries inside and outside Saudi Arabia, as at 30 September 2021:

Table 13: The Group’s most important subsidiaries inside and outside the Kingdom as at 30

September 2021

Its activity Logo Headq

uarters

Direct and

Indirect

ownership

(%)

Commercial

Register Company’s name

Most important subsidiaries inside the Kingdom

Mobile retail outlets, e-

commerce and mobile

telecommunications

services.

Retail of mobile devices

and its accessories.

Repair and maintenance of mobile

devices.

Riyadh 100% 1010242577

Channels by stc (One

Person Company)

(“channels by stc”)

1.

Digital payments: Online Wholesale. Online Retail.

Technology in financial

services.

Riyadh 85% 1010901344

stc Bank (mixed closed joint stock

company) (“stc

pay”)

2.

Telecommunications wiring

extension, internet networks,

PC and communications

extension. Security devices

installation and maintenance, providing senior

administrative consultancies

services.

Riyadh 79% 1010183482

Arabian Internet and

Communication

Services Company

(“solutions by stc”)

3.

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Providing VAST services,

communication and internet

services on airplanes. Riyadh 100% 1010173838

stc (One Person

Company)

(“specialized by

stc”)

4.

To establish, construct and

repair wired, wireless and

radio towers, and providing

leasing telecommunications

facilities services

Riyadh 100% 1010933182

Telecommunications

Towers Company

Ltd (One Person

Company)

(“Tawal”)

5.

Call centre services.

Riyadh 49% 1010299715 Contact Center

Company 6.

Property-related activities:

Public constructions,

facilities operation,

maintenance and

administration services for buildings. Administration

and leasing of residential and

non-residential properties.

Riyadh 100% 1010368733

Aqalat limited

company

(One Person

Company)

("AQALAT")

7.

Constructing, leasing, managing and operating

submarine cables for

telecommunications services

between the Kingdom of

Saudi Arabia and other

countries.

Riyadh 50% 1010180954

Arab Submarine

Cables Company

(" Arab Submarine

Cables Company")

8.

Wholesale of TV receivers.

Video and programmes

production activities.

Providing SMS services

Riyadh 100% 101017502

Gulf Digital Media

Holding Company

(“Intigral”)

9.

Providing cybersecurity

services.

Riyadh 100% 1010665501

Advanced

Technology and

Cybersecurity

Company (One

Person Company)

(“sirar by stc“)

10.

Real estate activities in

owned or leased property,

construction of buildings and

integrated activities to

support facilities.

- Riyadh 100% 1010595280

Smart Zone Real

Estate Co

(One Person

Company) (“ Smart

Zone Real Estate “)

11.

Most important subsidiaries and main investments outside the Kingdom

Mobile telecom services, importing, exporting and

selling mobile telecom

devices, providing products

and services for

telecommunications, backup

Bahrain 99% 71117-1

stc Bahrain (BSC

Closed) (“stc

Bahrain”)

12.

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Source: The Company. It should be noted that the term “subsidiary” referenced above is based on the Glossary of Defined Terms Used in the Regulations and Rules of the CMA (as explained in the section 1 “Definitions and Terminology” of this Prospectus) as opposed to IFRS-KSA.

The following figure shows the Group’s key subsidiaries and other major institutions and investment funds as at the date of this Prospectus.

services, international

telecommunications services,

its facilities, activity of the

internet provider, value

added services, paging services, terminal stations

services and PAMR services.

Providing all mobile

telecommunications services and paging services without

prejudice to provisions of

Islamic Sharia and the

requirements set by Kuwait

Ministry of Transport.

Kuwait 51.8% 329673

Kuwait

Telecommunications

(“stc Kuwait”)

13.

Constructing projects of

benefits, trade and sale of telecommunications

equipment and spare parts.

- Bahrain 99.9% 145260-1

stc Gulf Cable

Systems Company

L.L.C (“stc Gulf Cable Systems

Company”)

14.

BGSM is a Malaysian

registered investment holding group that owns 62% of

Maxis Holdings Malaysia

("Maxis").

- Malaysi

a 25% 264292-W

Binariang GSM Sdn.

Bhd. ("GSM") 15.

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Figure 36: Ownership structure of the Group’s most important subsidiaries and other major

institutions and investment funds

4.2 A brief summary of the most important historical developments of the Group

Below is a brief summary about the most important historical developments of the Group:

Table 14: The most important historical developments of the Group

General Important developments

1998 The Company was incorporated as a Saudi joint stock company pursuant to Royal Decree No. M/35, dated 24/12/1418H (corresponding to 21 April 1998), whiche authorised the transfer of the telegraph and telephone division of the Ministry of Post, Telegraph and Telephone to stc. According to Resolution No. 213, dated 23/12/1418H (corresponding to 04/20/1998G) of the Council of Ministers of Saudi Arabia, the company's articles of association has been approved (Articles of Association). At the time, the Company was wholly owned by the Government.

2002 Pursuant to the Council of Ministers’ Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), the Government sold 30% of the Company's shares through a public offering. As a result, Saudi natural citizens were allocated at least 20% of the share capital, and the Retirement Pension Department and GOSI were allocated up to 10% of the Company’s share capital, to be distributed equally between them. The public offering process was completed on 03/11/1423H (corresponding to 01/06/2003G). In its capacity as the Company’s Extraordinary General Assembly, the Council of Ministers agreed, pursuant to Resolution No. 171 dated 02/07/1423H (corresponding to 09/09/2002G), to increase the Company’s share capital from twelve billion Saudi Riyals (SAR 12,000,000,000) to fifteen billion Saudi Riyals (SAR 15,000,000,000) by capitalizing the retained earnings.

2006 On 13/03/1427H (corresponding to 4/11/2006G), the Company’s Extraordinary General Assembly agreed to increase the Company’s share capital from fifteen billion Saudi Riyals (SAR

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15,000,000,000) to twenty billion Saudi Riyals (SAR 20,000,000,000) by capitalizing the retained earnings and issuing one bonus share for every three (3) existing shares.

2007 The Group’s international expansion commenced when the Group co-founded stc Kuwait Company (formerly known as VIVA Kuwait) where the Group’s ownership was 26% of stc Kuwait Company. It should be noted that stc Kuwait Company had been awarded the third Kuwaiti mobile license in the same year when possession operation occurred.

The Group acquired 100 % of the share capital of solutions by stc in December 2007. It should be noted that solutions by stc was incorporated in 2002G and is engaged in providing internet services, operation of communication projects and transmission and processing of information in the Saudi market.

The Group acquired 25% of the share capital of BGSM, which is a Malaysian-registered Company that owns 62% of Maxis Holdings. Maxis Holdings is one of the leading companies in the telecom services sector in Malaysia. Through the Group’s ownership shares in BGSM, the Group indirectly owns 15.58% of Maxis.

2009 stc Bahrain Company (Known as VIVA Bahrain) was incorporated by the Group. stc Bahrain Company acquired the third Bahraini mobile license in a competitive auction and commenced operations in March 2010G.

The Group also co-founded Intigral Holding Company (previously known as Gulf Digital Media Holding Company), which provides content and digital media services in Gulf countries. In April 2017G, the Group purchased the shares owned by other shareholders in Intigral, representing the remaining 29% of Intigral.

2010 The Group, in partnership with Aegis Company, established Contact Centers Company in Saudi Arabia to provide call centre services and answer directory queries with a share capital of SAR 4.5 million. Upon incorporation, ownership of each of the Group and Aegis Company in Contact Centers Company was 50% of CCC’s share capital. During the fourth quarter of 2015G, the Group sold 1% of CCC’s share capital, following which the Group’s ownership was 49%.

2011 The Group acquired 60% of the share capital of Channels by stc. In 2017G, the Group acquired the remaining 40%, following which Channels by stc became a wholly owned subsidiary of the Company. Channels by stc was established in Saudi Arabia in January 2008 and operates the Group’s retail outlets in Saudi Arabia providing wholesale and retail trade of recharge card services, telecommunication equipment and devices, computer services, sale and re-sale of the Group’s fixed and mobile telecommunication services, and commercial centers' maintenance and operation. Channels by stc businesses focus mainly on the Saudi market, Bahrain and Oman through its subsidiaries.

2014 The Group acquired 100% of specialized by stc (formerly known as Public Telecommunications Company “Bravo”). Specialized by stc operates in the electrical and communication networks industries and provides wholesale and retail trade of fixed telecommunications equipment, electrical appliances and installation and maintenance of fixed and mobile telecommunications and information technology devices.

2016 The Group purchased additional shares in stc Kuwait and currently owns 51.8% of its shares. Since then, stc Kuwait’s Financial Statements have been consolidated with the Group.

2017 The Group established stc pay.

The Group established stc Ventures Fund to invest through equity investments in emerging markets and SMEs and establishment and development of leading information technology, telecommunications, and digital media and entertainment companies.

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The Group acquired 40% of channels by stc and thus it became a subsidiary that is fully owned by the Company.

2018 The Group established TAWAL, a specialised telecom infrastructure company that owns, constructs, operates, leases and commercializes telecommunications towers in the Kingdom. The Group obtained the necessary operating license for TAWAL from the CITC in 2019G.

2020 The Group established sirar by stc in 2020G. sirar by stc provides cybersecurity services with the aim to empower organisations to take control of their cyber capabilities and digital environments. sirar by stc offers a comprehensive range of solutions to help its customers to operate online safely, securely and efficiently.

2021 The Group sold 20% of its shares in solutions by stc in an initial public offering on Tadawul to public shareholders in September 2021G.

stc pay was transformed into an integrated digital bank by the Council of Ministers.

The Group established stc Gulf Cable Systems, a wholly owned limited liability company in Bahrain, to invest in a fund aimed to drive innovation in the communications and information technology sector in Bahrain and other GCC countries.

Source: THE COMPANY

4.3 Competitive strengths

4.3.1 Competitive strengths

The Group believes that it has a number of key strengths, including:

4.3.1.1 Leading telecommunications operator in the MENA region, benefiting from robust macro and market fundamentals and attractive sector tailwinds

The Group operates predominantly in Saudi Arabia, which is the most populous country in the GCC (accounting for 59% of the total GCC population) with a large and stable captive market of 32.9 million people as of 2020. The economy of Saudi Arabia is projected to grow at a CAGR of 1.2% between 2020 to 2025, adding an incremental population of 1.9 million people by 2025, according to Euromonitor. The population base is further complemented by international pilgrim visitors, given Makkah’s status as the centre of the Islamic world, with religious tourism expected to attract an incremental 30 million visitors per year. Demographically, Saudi Arabia benefits from a young and thriving population, with 62% of the population between the age of 15 and 49 as of 2020, according to GASTAT, and one of the highest affluence levels with a GDP per capita of USD 20,000 as of 2020; the twelfth highest amongst G20 countries, according to Oxford Economics. Saudi Arabia is expected to witness a strong growth in GDP with a CAGR of 2.9% between 2020-2025, particularly fuelled by growth in manufacturing and transport, storage and communications and expected growth resulting from the Vision 2030, according to GASTAT, Oxford Economics and the IMF.

As of 31 December 2020 and 30 June 2021, the Group held 72.9% of the estimated market share based on aggregate revenue generated by the three main telecommunications providers in Saudi Arabia (stc, Mobily, and Zain Saudi Arabia) and has consistently held a stable market share of more than 72% over the last five years, based on public company filings, owing to its strong service proposition and superior technological capabilities. As of 30 September 2021, the Group held 88% of the estimated market share based on the aggregate market capitalisation of the three main telecommunications providers in Saudi Arabia (stc, Mobily, and Zain Saudi Arabia), according to S&P Global Market Intelligence. In addition, stc is the leading provider of mobile and fixed broadband, postpaid and prepaid mobile and fixed telephony based on the number of subscriber in Saudi Arabia. Further, stc’s network ranked number one in Saudi Arabia for download speeds during all months of 2020, according to an Ookla report, and also ranked number one in Saudi Arabia with respect to 4G coverage, 4G download / upload throughput

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and video experience, according to Open Signal. Through the adoption of tailored programmes, stc increased mobile download speeds, exceeding annual targets by 47% (80.78 Mbps compared to 55 Mbps), as well as fixed broadband (optical fibre) speeds, realising speeds of 92.44 Mbps compared to annual targets of 80 Mbps (exceeding targets by a ratio of 15% or 12.44 Mbps).

Customers in Saudi Arabia use ICT services habitually, with more than 96% of the total population actively using the internet and mobile subscriptions and the penetration rate standing at 119% of the total population as of 2020, according to Omdia. stc is a first mover in the telecommunications sector in successfully offering a multi-faceted service offering outside of traditional telecommunications and distribution, including: IT solutions, cybersecurity, financial services, media, e-gaming, amongst others, and is well-positioned to further capture market share in ICT market generally as the telecommunications sector continues to transition towards the bundling of products and services, providing mobile and fixed telecommunication services and IT and IoT solutions, as part of one contract. The overall B2B ICT market in Saudi Arabia is expected to grow at a CAGR of 6.7% over 2018 to 2025 to reach SAR 53.1 billion by 2025, according to IDC, with IT services expected to be the main contributor to the growth of the sector generally. In particular, growth is expected to be underpinned by the following trending technologies:

AI and big data analytics : this market is projected to grow at a CAGR of 22.2% between 2021 to 2024 to reach SAR 367.6 million by 2024, according to IDC, driven primarily by the expected adoption of AI to facilitate enhanced growth across all Industry 4.0 technologies.

IoT: this market is projected to reach a market size of SAR 7.7 billion in 2021, according to IDC, led by emerging use cases to streamline cost reduction and improve productivity in manufacturing, healthcare and transportation, analytics, application platforms and security.

Cybersecurity: cybersecurity spending is projected to grow at a CAGR of 7% between 2021 to 2024 to reach SAR 2.3 billion by 2024, according to IDC, driven mainly by managed services (security, disaster recovery, among others) and capture market share from project-based services (including hardware and software), which account for a significant majority of the market segment today.

Data centres and cloud computing: public cloud spending in Saudi Arabia is projected to grow at a CAGR of 26.3% between 2021 to 2023, and public cloud spending is projected to reach SAR 1.9 billion in 2021, according to IDC; one of the fastest growing segments in IT services. Further, an anticipated increase in adoption of multi-cloud technologies and an increase in security spending amidst ever-increasing cybersecurity risks, are expected to be a key driver for growth within this sector.

4.3.1.2 Strategic partner to the Government and service provider of choice for delivering Vision 2030

Telecom and ICT are an integral enabler to the realisation of Vision 2030’s key objectives, including growing Saudi Arabia’s economy to become amongst the top 15 largest economies globally (currently 19th largest) and supporting the growth of the private sector’s contribution to GDP from 40% to 65% by 2030. This blueprint for economic growth is further guided by the Government’s strategic digitisation initiatives for boosting economic growth, including the Government’s commitment to:

provide broadband services to all Saudi Arabian regions by stimulating investment in infrastructure and regulatory frameworks;

support e-commerce;

bridge the digital gap in the skills of ICT users;

increase the IT industry’s contribution to the non-oil GDP;

rehabilitation of specialised Saudi human capital and employment in the ICT sector; and

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develop and activate smart government transactions based on a common infrastructure.

The Group is a significant beneficiary of the operational growth arising from the close alignment of the Group’s strategy with the objectives of Vision 2030. The Government embraces the Group as its partner of choice for leading the market in the provision of digital services and creative solutions, and the Government is, and will continue to remain after this Offering, a long-term strategic shareholder through its indirect ownership of 76.16% of stc’s share capital through PIF and GOSI as at the date of this Prospectus. The Group plays an instrumental role in leading and supporting telecommunication technologies necessary to facilitate the industrialisation and technological development of Saudi Arabia’s economy. In August 2020, the Group started developing infrastructure and providing the latest technology for the NEOM area.

The Group is one of the major contributors to Saudi Arabia’s economic and social development with a workforce of 24,967 people (91% of whom are Saudi nationals) as 30 June 2021, as well as a significant contributor to Saudi Arabia’s non-oil GDP (SAR 4.85 billion paid in 2020 for Zakat and Government charges and SAR 10.0 billion paid in dividends over the same year).

4.3.1.3 Well-invested and distinguished infrastructure technology providing the best coverage and communications service quality in Saudi Arabia

Over the last decade, the Group has invested in expanding and upgrading its infrastructure and today owns and operates some of the most sophisticated and important telecommunications infrastructure in the GCC region, including mobile infrastructure, fixed (including optical fibre) infrastructure, data centres, tower infrastructure, sub-sea cabling and WiFi hotspots that are crucial to facilitate the digital transformation of Saudi Arabia and of other regional economies.

Through Tawal, the Group owns a portfolio of more than 15,000 telecommunications towers, strategically located across Saudi Arabia, which represents approximately 45% of the total telecommunications towers in Saudi Arabia. stc was the first telecommunications company to launch 5G technology in Saudi Arabia, Kuwait and Bahrain, and provides 49% of the coverage in the main cities of Saudi Arabia, which has been enabled by the deployment of over 6,000 5G sites in 75 cities. The next phase of the 5G expansion in Saudi Arabia is expected to drive an increase of the network by 2,300 towers to reach over 71 new cities across Saudi Arabia, leading to not only enhanced operational efficiencies and user experiences, but also additional revenue opportunities through 5G enabled IoT.

The Group has invested heavily in the improvement/ development of internet connectivity across Saudi Arabia. In particular, the Group has been a leader in FTTH deployment and through its National Broadband project, the Group has already achieved one million internet connections and it aims to serve 1,153,000 households with FTTH connectivity. Through its Mobile Broadband project, the Group managed to serve 447,000 households with wireless broadband connectivity in 2020, including through fixed wireless access, providing 10 Mbps throughput, benefiting a population of 2.6 million across more than approximately 3,000 locations Saudi Arabia-wide. In 2020, the Group also deployed the largest public WiFi network in Saudi Arabia, with a total of 38,000 access points providing an average speed of 115 Mbps distributed across 49 cities and serving 644 public locations across Saudi Arabia.

In 2020, as part of ongoing expansion plans, the Group built three new data centres in Riyadh, Madinah and Jeddah, with a shell capacity of 2,400 racks and electro-mechanical capacity for 1,350 racks, which can be expanded to 2,400 racks at short notice. The Group intends to build two additional data centres by the end of 2021 and six additional data centres by the end of 2022, which expected to drive an increased availability of high-speed offerings and digital solutions for the Group’s customers. The Group is also currently in active discussions with potential partners to achieve growth in the data centres space.

The Group owns and operates large sub-sea cable infrastructure and is one of the initiators and founders of the fourth continental submarine cable, which is 20,000 kilometres long, has a speed of 4,000 GB per second and connects 14 countries between Singapore and France. The Group is also a founding member of the IMEWE marine cable project linking India, Middle East and Western Europe, and

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launched the EIG Europe India Gateway project, which connects the UK, Portugal, Gibraltar, Monaco, France, Libya, Egypt, Saudi Arabia, Djibouti, Oman, United Arab Emirates, and India. The group entered into an international alliance with more than 14 international communication companies with the objective of becoming a logistics and connectivity hub in the region, and is preparing to engage in a new project (the Africa-1 cable), with capacity of 36 terabytes per second connecting more than 12 countries in Africa and Europe through Saudi Arabia.

4.3.1.4 Dynamism, devotion and drive enabling multiple levers for future growth through multi-faceted product offerings

The Group has evolved significantly from being a Government-run division to becoming a listed company in and growing in every segment of the ICT sector. Despite being Saudi Arabia’s leading telecommunications operator, the Group continues to capitalise on major growth opportunities throughout Saudi Arabia’s digital strategic development and is well positioned to capitalise on digitalisation, given its leadership in the space, long-established relationship with the public sector, and management’s increased willingness to efficiently develop and streamline its operations. In addition to the traditional telecommunications, telecommunications infrastructure and telecommunications distribution, which the Group carries out, its activities/business also include other information and communications technology services including financial services, business process outsourcing, IT services, passive infrastructure, real estate, and media which has witnessed a rapid growth in overall contribution to 14% of the Group’s revenue and 11% of the Group’s EBITDA in 2020.

In this regard, solutions by stc has been Saudi Arabia’s leading provider of IT solutions for/throughout the last five years, serving over 24,000 clients across 35 cities in Saudi Arabia by offering end-to-end solutions and managed services across computing, storage, network, software and hardware. solutions by stc has been supporting the government and private sectors by using ICT services to optimise costs and enhance business efficiencies while also driving human-led digitisation through the entire IT value chain, providing system integration and connectivity services, managing business outsourcing processes and assisting clients with IoT and cloud-centric solutions and cybersecurity integration services. The Group is also currently in active discussions with potential partners to achieve growth in the technology and IoT space.

In addition, the Group has been at the forefront of the development of ancillary digital services and has witnessed significant success in the payment solutions space through its subsidiary, stc pay, in which the Company owns 85% of the capital as at the date of this Prospectus. On 05/06/1441H (corresponding to 30/01/2020G), stc pay obtained a license from SAMA to operate and provide digital payment services via the electronic wallet application. On 22/11/1442H (corresponding to 22/05/2021G), The Council of Ministries issued its decision of authorizing his Excellency, the Minister of Finance to issue the necessary license for stc pay Furthermore, Western Union’s recent investment in stc pay was a strong vote of confidence in the business model potential despite stc pay’s short history. Western Union bought 15% of the Group's shares in stc pay for SAR 750 million (equivalent to USD 200 million). stc pay aims to become a pioneer in its field by providing innovative, digital technologies that empower customers and businesses to take full control of their finances with the highest levels of security, speed and ease of user experience. As of 30 September 2021,stc pay had over 6 million registered users.

In 2018, the Group carved out its tower business into a new subsidiary, Tawal, to establish itself as the leading player in the Saudi telecommunications tower infrastructure market, extending its services and coverage across the region. Tawal now owns a portfolio of more than 15,000 telecommunications towers in Saudi Arabia which represents approximately 45% of the total telecommunications towers across Saudi Arabia. Tawal aspires to extend its services and coverage across the MENA region and become the leading ICT infrastructure service provider by enabling its clients to enrich their communication needs through the accelerated roll-out of future technologies (e.g., 5G and IoT) and by being the leading provider of essential passive infrastructure for operators. Tawal is the first and largest independent tower company in the MENA region by virtue of over 15,000 towers that it owns and operates. Through STVLP Fund and other stc Funds, the Group invests around the world in high-growth pioneer private technology companies as well as emerging, small and medium-sized enterprises

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operating in the field of ICT in Saudi Arabia and other global markets. STVLP Fund has commitments of USD 500 million and investments in some of the region’s most successful companies, including Vezeeta, Trukker, among others.

4.3.1.5 Total financial return champion underpinned by strong growth and robust cash generation

stc benefits from resilient top line growth, stable profitability margins and high cash flow ratio, which enables the realisation of attractive shareholder returns.

Resilient top line growth: the Group has consistently demonstrated strong and resilient growth, including during challenging times impacted by the COVID-19 pandemic. Revenue grew organically at a CAGR of 6.5% between 2018-2020 and by 9.5% during the first half of 2021 compared to the first half of 2020. The Group’s performance in the first half of 2021 was the highest quarterly and semi-annual revenue in its history, and growth was witnessed across all three segments: (i) Consumer Business Unit (“CBU”) by more than 3.4%, (ii) Enterprise Business Unit (“EBU”) by more than 29.3% and (iii) Wholesale Business Unit (“WBU”) by more than 5.5% The key driver behind the growth stemmed from the Group’s ability to provide innovative products and services that meet the needs of the public and private sector, as well as a realisation of the Group’s infrastructure investments, which started to positively reflect on the overall business. During this period, the fixed wireless subscribers increased by 6.1% and an increase in demand for fibre-optic services led to the subscriber base growing by 20.8%.

Stable EBITDA growth with strong margins : the Group has consistently grown its EBITDA at a CAGR of 5.5% between 2018-2020 and maintained a consistent EBITDA margin of over 37% over the same period, despite changing revenue mix and market pricing pressures.

Positive cash flow: the Group has expanded its operations and market penetration over the last few years, whilst maintaining effective capital deployment and Capex policies, translating into Positive Cash Flow generation. Between 2018 and 2020, the Group spent approximately 18 to 21% of revenue on Capex. The Group’s Free Cash Flow grew from approximately SAR 9.4 billion in 2018 to approximately SAR 17.5 billion in 2020.

Track-record in distributing profitable dividends to shareholders : Over the last five years (2016-2020), stc has distributed ordinary and special dividends to shareholders worth SAR 50 billion representing a total payout ratio of over 70% (excluding special dividend distributions). In the fourth quarter of 2018, stc approved its three-year dividend policy of maintaining a minimum quarterly dividend of SAR 1 per Share, with the potential to pay additional dividends subject to Board approval post assessment of the Company’s financial situation, outlook and capital expenditure requirements. stc distributed a total of SAR 30 billion in dividends over the last 3 years (2018-2020), with an annual dividend yield of ranging between approximately 4 to 7%, of which SAR 6 billion was distributed as special dividends on the back of a strong and stable performance and healthy cash flows.

Robust balance sheet and effective financial policies to support future growth: the Group is one of the lowest leveraged telecommunications companies worldwide (LTM Debt / LTM EBITDA of 0.38x) with a superior credit rating profile (rated A- by S&P, A1 by Moody’s and AAA Tassnief) providing significant financial flexibility. The Group manages its capital to ensure that (i) it will be able to regularly operate; (ii) it efficiently finances its working capital and strategic investment requirements at optimal terms; (iii) it provides a long-term dividend policy and maintains a stable dividend payout; (iv) it maximises the total return to shareholders; and (v) maintains an appropriate mix of debt and equity capital. The Group reviews its capital structure in light of strategic investment decisions, changing economic environment, and assesses the impact of these changes on its cost of capital and risks associated with its investments. The Company is not subject to any externally imposed capital requirements and reviews its capital structure on an annual basis. As of 2020, the Group has the following target ratios: (i) Total Debt to EBITDA level of 150% or below,

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which was 38% as of 30 June 2021; and (ii) Total Debt to (Debt + Equity) level of 50% or below, which was 12% as of 30 June 2021.

Over the last three years, the Group consistently delivered Return on Assets of 10.1% in 2018 and 9.2% in both 2019 and 2020 and Return on Equity of 16.5% in 2018, 17.3% in 2019 and 17.2% in 2020.

4.3.1.6 Best-in-class corporate governance framework and experienced management team with decades of experience in the telecommunications sector

The Group benefits from highly experienced senior management with a track record of success in the telecommunications industry and the support of the Government as a long-term strategic shareholder.

The Group’s management has a strong track record of driving growth, including through introducing adjacent products and services, and implementing best-in-class corporate governance standards and practices in order to reduce risks and liabilities to shareholders, the board and executives. The Group has built its corporate governance model based on the following:

Accountability: ensuring that management is accountable to the board and ensuring that the board is accountable to the shareholders;

Fairness: protecting shareholder rights, treating all shareholders, including minority, equitably and providing effective redress for violations;

Transparency: ensuring timely and accurate disclosure on all material matters, including financial situation performance, ownership and corporate governance; and

Independence: implementing procedures and structures (i.e., independent board members) to minimise or completely avoid conflicts of interest.

4.3.1.7 Deeply ingrained culture of social responsibility and sustainability

The Group is an early adopter of socially responsible practices and follows a clearly defined sustainability framework, which is anchored upon seven key pillars and in line with the Group’s DARE 2.0 strategy, Saudi Arabia’s Vision 2030 and the United Nations Sustainable Development Goals:

Doing business with integrity: stc was one of the first companies in Saudi Arabia to implement corporate governance standards throughout the management structure as early as 2004 and joined the World Economic Forum’s Partnering Against Corruption initiative. Furthermore, all of the Group’s employees participate in mandatory Code of Ethics and Business Conduct online training courses.

Enriching lives and experiences: the Group invests heavily in the community, for example, having made SAR 2.5 billion since inception to 2019 in direct contributions as well as introduced various initiatives, including the Impact-U Project, which seeks to enhance the contribution of the community to create sustainable development solutions and establish a culture of social innovation for a societal, economic, or environmental impact. In 2020, the Group continued its specialised volunteering programmes, which were supported by 1,194 volunteers and focus on empowering non-profit entities and building their capabilities in order to achieve and maximise impact. The non-profit housing sector was also supported via the “Employee Jood” initiative, with the objective of finding sustainable housing solutions, and contribute to improving the quality of life of families in the community by meeting the developmental needs of the beneficiaries. Through this initiative, the Group provided seven families in need with sustainable housing, with donations amounting to SAR 1.7 million, as well as a commitment to provide free internet and landline phone service for a period of 12 months.

Enhancing economic impacts: the Group supports local enterprises and SMEs through its Rawafed programme, as well as focusing on local procurement (50% of spending in 2019 was with locally registered suppliers).

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Expanding access to technology and connectivity: the Group has the largest broadband network in Saudi Arabia, complemented by an extensive fibre optic and 5G network, with an average download speed of 81.79 Mbps in Saudi Arabia, which exceeded the committed target of 55 Mbps. Furthermore, the Group launched the New Era Infrastructure Data Center programme and Artificial Intelligence Chair project in partnership with King Saud University, with the objective of promoting innovation and digital solutions in vital areas such as sustainability, data analysis and cybersecurity.

Advancing digital opportunities: Through InspireU, the Group has supported 28 start-ups that support ICT/digital innovation with a total investment of SAR 60 million. The Group also transitioned to provide 93% of customer support services digitally and was the first operator in Saudi Arabia to launch 5G commercial services.

Empowering people: the Group believes in and invests heavily in its human capital, and has a low employee turnover rate of 2.5% as of 31 December 2020. The Group, in partnership with Princess Noura bint Abdulrahman University, established a leadership programme seeking to empower women leaders by providing them with the necessary tools and skills to advance against challenges. This system for women empowerment includes the Center of Excellence for the development of women leaders, which is involved in qualifying Saudi women leaders from different fields, and connecting them to a network of professional women to enhance their role in the labour market. The number of women within the Group’s workforce has increased from zero in 2015 to 15% of the workforce as at 30 June 2021. Additionally, the Group has provided 298,458 hours of employee training and hosted 36 leadership events, which were attended by more than 5,700 trainees in 2020.

Caring for the environment: the Group has joined the global movement of leading companies in aligning their business with the Paris Agreement with the aim to reach net zero emissions by 2050, and has committed to adopting science-based targets to reducing energy consumption in the Group’s buildings and fleet, as well as reducing paper consumption

4.3.2 Strategy

4.3.2.1 Overview of the Group’s strategy

The Group’s vision is to be the leading digital services provider regionally and lead the growth of a diverse and digital economy in Saudi Arabia and the MENA region. The Group’s DARE 2.0 strategy, set out in 2019, is the blueprint to achieve this vision by focusing on the following pillars:

Digitise stc: The Group plans to digitally transform its operational capabilities. Part of this drive is to digitise stc’s internal processes to improve customer experience, enhance performance and drive efficiencies. In particular, the Group is seeking to leverage the customer data that it holds to enhance the customer experience as well as anticipate customer needs for both retail and enterprise customers by digitising sales channels and adopting agile ways of working with these customers. In addition, the Group also intends to digitise its corporate functions by digitising internal architecture to future-proof its business systems and support delivery of efficiencies, as well as migrating to modular micro-services platform-driven architecture and enhancing analytics and the cybersecurity capability of the Group’s technology and operations. The Group also plans to build and scale up the next-generation capabilities of its employees and instil a digital mind-set in its corporate culture.

Accelerate performance : The Group plans to extract more value from its core assets and traditional segments, as well as to grow non-core revenues. As the leading telecommunications company in Saudi Arabia, the Group already has an extensive existing network, which it can leverage as it seeks to lead the MENA telecommunications market in digital services. By continuing to grow its existing customer base, the Group aims to gain even more market knowledge on its customers, which will allow it to increase its service offering as it seeks to grow its business-to-government, B2B and SME segments. The Group is also looking at ways to extract value from its underutilised assets, including its telecommunication assets (e.g., international cables and mobile towers through shared services) and real estate assets by driving operational efficiencies and asset monetisation to become

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a leader in sustainability. In addition, the Group aims to optimise its infrastructure investments, advance next-generation technologies, such as 5G and artificial intelligence, and deliver operational excellence. In line with the Group’s focus on instilling a digital mind-set in the Group’s corporate culture, the Group expects to achieve best-in-class productivity by leading a Company-wide cultural change and cultivating next-generation capabilities and skills of its employees.

Reinvent experience: The Group aims to reinvent its customer experience through personalisation of every customer interaction and by unlocking the power of data analytics so that the Group can lead in network quality of experience. The Group believes that offering best-in-class customer service reduces churn, which allows the Group to expand its service offering to its existing customers. The Group aims to achieve this by simplifying customer interactions through the use of new technology and personalising the customer relationship through utilising the Group’s access to customer data. The Group also aims to enhance the engagement of its employees and enable a collaborative culture through remote working.

Expand scale and scope: The Group intends to pursue concrete opportunities for growth in three key areas: (i) platforms, connectivity and infrastructure, (ii) adjacent services and applications, and (iii) industry-specific solutions. The growth in these three areas is expected to come through a combination of internal development and acquisitions of new services in both Saudi Arabia and the MENA region, as well as the acquisition of other telecommunications operators in the MENA region. The Group aims to continue to develop and expand its telecommunications networks in Saudi Arabia, Kuwait and Bahrain. The Group intends to build out its connectivity and infrastructure by building leading pan-Arab connectivity, becoming the leading tower company in the region and being the premier regional hub for global carrier services, as well as being at the forefront of the network buildout of 5G services in Saudi Arabia, Kuwait and Bahrain. For example, the Group already provides 49% coverage in the main cities of Saudi Arabia as of 30 June 2021, which is enabled by a deployment of over 6,000 5G sites in 75 cities. Growth opportunities in adjacent services and applications include OTT and ICT services, such as the Group’s cybersecurity offering (sirar by stc). The Group aims to become the provider of choice for strategic platforms and services, such as cloud services and data analytics. As part of the industry-specific solutions, the Group aims to provide services directed at industries, such as finance and healthcare, through solutions such as stc pay in the digital banking sector.

The Group’s strategy includes a balanced approach towards driving strategic priorities within existing businesses and increasing focus on key growth areas.

Wider IT services market: the Group is focused on building a very strong and integrated services portfolio of Cloud services (IaaS, PaaS, SaaS), IT professional services (consulting, system integration) and cybersecurity services. These will further support the needs of the Group’s Government and enterprise customers, as they continue their digitalisation journey.

IoT market: the Group focuses on vertical and horizontal solutions and use cases enabled by IoT. Building on existing capabilities, the Group will further develop use cases for smart city applications, industrial automation, smart logistics, public services, and smart home applications.

Digital financial services (FinTech): Building on the success of stc pay, the Group will aim to take its capabilities to the next level within the digital financial services (FinTech) space. The Group will achieve this aim by providing services beyond payments, money transfers and international remittances, to a diverse and strong customer base, built on proven technology platform, leveraging the partnership with Western Union and the Group’s advanced digital analytics capabilities.

MENA hub data centre and connectivity market: the Group continues to contribute to developing the MENA region as a strong regional hub for international connectivity and related colocation space in data centres for global and local enterprises, government entities, hyperscalers,

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OTT players and content providers. The Group’s asset base, geographical location and regional presence are expected to be key drivers of this strategy.

OTT services content and market: Building on the success of Jawwy TV, the Group aims to continue developing its capabilities and scale in the media space, with a clear and comprehensive strategy that will allow consumers across the MENA region to benefit from a simple interface, rich content catalogue and developed personalisation. The service offering will continue expanding to address the growing space for gaming with international and local options. In addition to these specific growth areas, the Group also expects to be active if there are opportunities for value accretive geographical expansion in the telecommunications space, as the Group aims to affirm its regional ambitions.

In addition to these specific growth areas, the Group also aims to opportunistically evaluate value accretive geographical expansion in the telecommunications space, should strategic opportunities arise, as the Group affirms its regional ambitions. The Group believes its strategy embodies a holistic focus on technology infrastructure, digital growth services, accelerated value extraction from core assets and new capability build-up.

4.3.2.2 Aligning the Group’s strategy with vision 2030

The Group is determined to play its role as a national champion to support Saudi Arabia’s Vision 2030 plan.

The Group’s efforts in the wider ICT industry are one of the pillars behind Saudi Arabia’s substantial improvement in its Global Competitiveness Index (GCI) ranking.

The Group aims to deliver a digitally transformed thriving society, as envisioned by Vision 2030 and other regional national strategies, and has identified a number of strategic objectives to help achieve its objectives, including:

leading the market in digital services and creative solutions;

driving efficiencies through digital transformation;

digitalising processes, internal operations, delivery engine and commercial approach;

instilling culture change;

growing B2B and SME segments; and

leading technological advancement and providing a best-in-class connectivity platform.

4.4 Ownership Structure of the Company Pre and Post Offering

Ownership Structure of the Company Pre and Post Offering

The current share capital of the Company is twenty billion Saudi Arabian Riyals (SAR 20,000,000,000) divided into two billion (2,000,000,000) ordinary Shares with a fully paid nominal value of ten Saudi Riyals (SAR 10) per Share. The following table sets out the ownership structure of the Company Pre and Post Offering.

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Table 15: Ownership Structure of the Company Pre and Post Offering

Shareholders Pre- Offer Post-Offer

Number of

Shares Total Nominal Value (SAR)

Percentage Number of

Shares Total Nominal Value (SAR)

Percentage

PIF

1,400,000,000 14,000,000,000 ٪70 1,299,800,000 12,998,000,000

64.99%

GOSI

123,400,000 1,234,000,000 6.16% 123,400,000 1,234,000,000 6.16%

The Public *

475,600,000 4,766,000,000 23.84% 576,800,000 5,768,000,000 28,85%

Total 2,000,000,000 20,000,000,000 100% 2,000,000,000 20,000,000,000 100%

*Public refers to all Shareholders except the Substantial Shareholders in the Company (PIF and GOSI).

Source: The Company

4.5 Overview of the Company’s Substantial shareholders

As at the date of this Prospectus, the Company's Substantial Shareholders are represented by government agencies, namely PIF, which owns 70% of the Company’s share capital, and the General Organization for Social Insurance, which owns 6.16% of the Company’s share capital. Below is an overview of the Group's Substantial Shareholders.

4.5.1 PIF

PIF was established in 1971 under Royal Decree No. M/24, and it had a major role in the establishment of companies of foundational importance to the Saudi economy, including many “national champions”. In March 2015, Saudi Arabia’s Council of Ministers issued Resolution 270, which linked PIF with Council of Economic and Development Affairs (CEDA), headed by the Chairman of the Council of Economic and Development Affairs. This gave PIF greater autonomy and better-defined national strategic responsibilities.

4.5.2 GOSI

GOSI was established to implement the provisions of the Social Insurance Law and follow-up the process of achieving the compulsory insurance coverage, collecting contributions from employers and paying benefits for the eligible contributors or their family members. GOSI is administratively and financially independent, and it is supervised by a 14-member Board of Directors.

4.6 The Group’s relationship with the Government

4.6.1 Government as shareholder

As stated above, the government agencies, namely PIF and GOSI, indirectly owns the majority of the Company’s shares. Seven of the 11 members of stc’s Board of Directors are nominated by, and represent, the two key Government shareholders (For further information, please refer to Section 4-3-1-2 “—Strengths—Strategic partner of the Government and service provider of choice for delivering Vision 2030” above and Section 5 “Organisational structure and corporate governance” of this Prospectus).

4.6.2 Government as customer

The Group provides a range of telecommunications services to different Government-related entities, including voice and mobile, data transfer and other services. The Group’s revenues from these entities amounted to SAR 9,646 million in 2020 and SAR 5,625 million in the six months ended 30 June 2021,

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equal to 16.4% and 17.8%, respectively, of its total revenue. As at 30 June 2021, the Group had SAR 20,349 million in accounts receivable from different d Government-related entities.

4.6.3 Government as regulator

The Government, through CITC and the Ministry of Communications and Information Technology (the “MCIT”), acts as the Group’s regulator in Saudi Arabia (For more details, please refer to Section 4-7 “General Description of the Saudi Arabian business operations, infrastructure and Regulatory environment” of this Prospectus).

4.6.4 Government as partner

In March 2021, the Government announced the launch of the new cooperative Shareek programme, designed to reinforce the private sector by providing it with support through various means, including financial, monetary, operational and regulatory cooperation and asset investment. The aim of the programme is to support the growth and diversification of the Saudi economy by providing new job opportunities, developing various sectors and strengthening the cooperation between the public and the private sector. As part of this initiative, the Group will be expected to support the Shareek programmes and invest, on an arms-length basis, in certain ICT programmes in Saudi Arabia. The Government is expected to make a detailed announcement regarding the list of projects under the Shareek programme in January 2022.

4.6.5 Market Section Information on ordinary shares

The Ordinary Shares have been traded on the Exchange under the symbol “7010” since 22/11/1423H (corresponding to 25/01/2003G). The table below sets forth, for the periods indicated, certain information regarding closing prices and the average daily volume of trading activity on the Exchange for the Ordinary Shares.

The annual high and low closing prices, period average, period end and average daily trading volume of the Ordinary Shares on the Exchange for the three most recent financial years are shown below, expressed in SAR.

Table 16: The closing prices for the years 2018, 2019 and 2020

Year

Highest

price

Lowest

price

Period

average

Period

end

Average daily

trading volume

2018 ............................................................................... 92.70 67.07 82.31 91.80 315,126

2019 ............................................................................... 117.00 91.40 103.40 101.80 958,858

2020 ............................................................................... 108.20 75.90 96.55 106.00 998,307

Source: Tadawul

The monthly high and low closing prices, period average, period end and average daily trading volume of the Ordinary Shares on the Exchange for the nine most recent months are shown below, expressed in SAR.

Table 17: The closing prices for the nine months period ended 30 September 2021

Month

Highest

price

Lowest

price

Period

average Period end

Average daily

trading volume

January 2021 ............................................................... 116.20 106.00 110.55 112.80 562,017

February 2021 ............................................................. 120.00 110.80 115.29 117.40 512,625

March 2021................................................................. 126.80 114.40 117.42 126.80 610,367

April 2021 .................................................................. 127.60 119.8 124.45 127.00 546,381

May 2021 ................................................................... 125.80 120.40 122.25 124.60 585,764

June 2021 ................................................................... 139.20 128.80 132.65 131.60 856,216

July 2021 .................................................................... 134.00 126.20 128.8 134.00 542,982

August 2021................................................................ 138.00 128.60 134.22 135.00 529,009

September 2021........................................................... 136.00 123.80 131.75 127.00 1,119,542

Source: Tadawul

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4.7 General Description of the Saudi Arabian business operations, infrastructure and Regulatory

environment

4.7.1 Business segments inside Saudi Arabia

The Group’s operations in Saudi Arabia divided into three different business units focusing on the Group’s principal customer segments: Consumer Business Unit (“CBU”), the Enterprise Business Unit (“EBU”) and the Wholesale Business Unit (“WBU”). The Group has common departments that work to support some or all of the aforementioned business units such as IT, finance, legal and regulatory. In addition, the Group has certain businesses as standalone subsidiaries which allows the subsidiaries to focus on their specialised business operations while allowing the Company to manage its business in a holistic manner. For example, channels by stc acts as the Group’s distribution subsidiary delivering services to both the CBU and EBU customers (SMEs only). solutions by stc acts as the Group’s ICT subsidiary delivering services to business and Government customers, including a combination of network, hardware and software solutions together with support services to help customers achieve specific objectives.

4.7.1.1 CBU

The CBU is the Group’s retail-facing business unit. It focuses on delivering telecommunication products and services to all retail consumers.

4.7.1.2 EBU

The EBU is focused on delivering telecommunication products and services to businesses. This includes government, large corporates and SMEs. The EBU includes business development, sales and marketing teams.

4.7.1.3 WBU

The WBU is focused on providing wholesale telecommunications services to other telecommunications operators.

4.7.2 Products and services

The Group is the leading telecommunications services provider in Saudi Arabia, serving both the corporate and consumer markets primarily through the delivery of mobile, fixed line (landline), internet/broadband, ICT and data services. The Group offers end-to-end telecommunications solutions for its residential, business and government customers in Saudi Arabia through NGN, all IP fixed and 3G, 3.5G, 4G and 5G wireless networks, MPLS-based regional data solutions and global system for mobile communications (“GSM”) mobile and broadband services.

4.7.2.1 Mobile

Most of the Group’s mobile revenues in Saudi Arabia are principally generated from service package rentals, data plans, voice services (including local, national, international and roaming), sale of devices and mobile value-added services (“VAS”) (being content such as mobile broadband, short message service (“SMS”), multimedia messaging service (“MMS”), general packet radio service (“GPRS”), premium SMS and other data-related services that are provided over the mobile network).

The Group offers a wide range of packages for both its postpaid and prepaid customers, depending on their needs. Most packages include voice minutes, SMS, MMS and data thresholds. The Group’s main postpaid mobile plans are as follows:

Bundled packages, which are targeted to smart phone users from both the consumer and enterprise segments and include VAS services. Handsets are only provided for certain segments of the market;

Flexible packages, which allow customers to shape their packages according to their requirements; and

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Data only packages, which complement customers’ bundled packages by offering a range of data packages for their devices. The Group offers usage-based, pay as you go, time-based and unlimited data packages.

The Group also provides prepaid packages, ranging from starter packs to customised packages according to the needs of different customer segments.

4.7.2.2 Fixed line (landline)

The Group’s fixed line services encompass the provision of national and international calling services through international direct dial, carrier pre-selection or prepaid calling cards. The Group offers a variety of VAS services such as conference calls, voicemail and caller identification in addition to bundled packages of inclusive on-net minutes for a fixed monthly fee.

The Group’s fixed line revenues in Saudi Arabia have decreased in recent years, and the Group expects them to decrease further before stabilising. This trend is principally due to declining tariffs, lower fixed line usage as a result of the shift to mobile and VoIP competition, and a trend for customers to use bundled packages.

4.7.2.3 Internet/broadband

The Group provides internet/broadband services through ADSL, leased lines, 3G, 3.5G, 4G/LTE and 5G services. The Group was the first operator to introduce internet services in Saudi Arabia (in 2000) and was the first mobile operator in the MENA region to adopt both 4G technology (in 2010) and the more advanced 4G LTE technology (in 2011). The Group also was the first in Saudi Arabia and the region (Kuwait and Bahrain) to introduce 5G services commercially. The Group believes that it is well-positioned in both the fixed and mobile broadband (Optical fibre) markets through its leading technology platforms and extensive geographic coverage.

In general, the Group believes that the fixed broadband (Optical fibre) market in Saudi Arabia is under-penetrated and has begun to take advantage of this following the construction of NGN infrastructure using GPON technology (which is an enhanced standard for data transmission over fibre optic networks) and its FTTH network to provide higher broadband speeds and high-definition video. GPON technology also enables the Group to offer a wider range of further/ other services such as internet protocol television (“IPTV”) through which digital television services can be delivered through the same network infrastructure as that used for internet access. In addition to increasing penetration rates, the Group also expects services such as IPTV to increase the revenue generated per subscriber and reduce churn in its fixed line and internet subscriber base.

Furthermore, in 2017, the Group announced the conclusion of an agreement with the MCIT to implement deployment incentives of fibre optic broadband services in urban areas. The aim of this large project is to encourage investment in fibre optic broadband services in order to enhance the digital infrastructure in Saudi Arabia, provide high-speed fibre optic broadband services in line with the objectives of the 2020 National Transformation Program and contribute to the accomplishment of Vision 2030. The Group has deployed fibre optic which has reached more than three million homes as at 31 December 2020 (For more details, please refer to Section 4-7-4 “Network infrastructure—Fixed” of this Prospectus).

4.7.2.4 Data services

The Group’s data services include all data communications services, including SMS, MMS, 3G, 4G and 5G data packages and other value-added services for mobile customers including, among others, call barring, voicemail, conference calls, call forwarding and push to talk and ISDN PRI/BRI services for fixed line subscribers. In addition, the Group provides ICT services to business customers.

The Group’s data services offerings in Saudi Arabia focus on mobile broadband offerings over its 3G, 4G, 4G LTE and 5G networks. The customer can use mobile broadband either on a prepaid basis or

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under a mobile data postpaid subscription package. The Group also provides a range of WiFi product offerings, on either a prepaid or a postpaid subscription basis.

The Group provides ICT services to business and Government customers. ICT services involve the combination of network, hardware, software and service solutions together with support functions to achieve a customer’s business objectives or provide a particular business solution. These services include project management, hosting of internet service providers, training, technical documentation, support organisations and consultancy in the areas of networks, systems, security and compliance. ICT services also include product offerings designed to address customer concerns regarding cybersecurity, big data, data warehousing and the Cloud.

4.7.2.5 Other non-core services

The Group’s non-core telecommunications services include leasing submarine cables, call centre services and directory enquiries services and satellite services. These non-core services are provided through the companies in which the Group holds shares directly or indirectly.

solutions by stc has been Saudi Arabia’s leading provider of IT solutions for the last five years, serving over 24,000 clients across 35 cities in Saudi Arabia by offering end-to-end solutions and managed services across computing, storage, network, software and hardware. solutions by stc has been supporting the government and private sectors by spreading the benefits of ICT services to optimise costs and enhance business efficiencies while also driving human-led digitisation through the entire IT value chain, providing system integration and connectivity services, managing business outsourcing processes and assisting clients with IoT and cloud-centric solutions and cybersecurity integration services.

channels by stc is one of the largest ICT distribution companies in the MENA region operating in Saudi Arabia, Bahrain and Oman. channels by stc was established to be the partner of choice for ICT companies enabling them to connect with their customers anywhere and anytime.

specialized by stc was established to provide necessary services relating to telecommunications equipment, electrical appliances and installation and maintenance of fixed and mobile telecommunications and information technology devices.

Through, stc pay, the Group has been at the forefront of the development of ancillary digital services and has witnessed significant success in the payment solutions space. On 05/06/1441H (corresponding to 30/01/2020G), stc pay obtained a license from SAMA to operate and provide digital payment services via the electronic wallet application. On 22/11/1442H (corresponding to 22/05/2021G), the Council of Ministries issued its decision authorizing his Excellency, the Minister of Finance to issue the necessary license for stc pay Furthermore, Western Union’s recent investment in stc pay was a strong vote of confidence in the business potential despite stc pay’s short history. Western Union bought 15% of the Group's shares in stc pay for SAR 750 million (equivalent to USD 200 million). stc pay aims to become a pioneer in its field by providing innovative, digital technologies that empower customers and businesses to take full control of their finances with the highest levels of security, speed and ease of user experience As of 30 September 2021, stc pay had over 6 million registered users.

In 2018, the Group carved out its tower business into a new subsidiary, Tawal, to establish itself as the leading player in the Saudi telecommunications tower infrastructure market, extending its services and coverage across the region. Tawal now owns a portfolio of more than 15,000 telecommunications towers spread across Saudi Arabia, which represents approximately 45% of the total telecommunications towers across Saudi Arabia. Tawal aspires to extend its services and coverage across the MENA region and become the leading ICT infrastructure service provider, by enabling its clients to enrich their communication needs through the accelerated roll-out of future technologies (e.g., 5G and IoT) and by being the leading provider of essential passive infrastructure for operators. Tawal is the first and largest independent tower company in the MENA region by virtue of over 15,000 towers that it owns and operates.

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sirar by stc is a cybersecurity provider that empowers organisations to take control of their cyber capabilities and digital environments. As experts in business security and privacy, sirar by stc offers a comprehensive range of solutions that help operate online safely, securely and efficiently. The tools sirar by stc provides help organisations detect and prevent cybersecurity attacks to safeguard their digital future and provide secure digital environments.

Intigral is a leading provider of IP video products and billing services in the MENA region, which delivers fully customisable digital entertainment and eSports solutions. Intigral’s products are built on a cloud-based delivery platform using the latest technology to provide high-quality streaming services, APIs for simple integration, payment modules, social integration and high value tracking and analytics. Intigral offers a full suite of services, including consultancy and business planning, technical development and integration, content acquisition, video operations and delivery, marketing and ongoing after-sales support.

stc Gulf Cable Systems Company was established in the second quarter of 2021 to invest in a fund aimed to drive innovation in the communications and information technology sector in Bahrain and other GCC countries.

4.7.3 Marketing and distribution

A key element of the Group’s DARE 2.0 strategy is to reinvent the customer experience to achieve world class standards, which the Group seeks to achieve by focusing on the needs of each specific customer segment. The Group has three main customer segments: (1) retail/consumer customers are covered by the CBU, (2) commercial/enterprise customers are covered by the EBU and (3) carriers and other licenced operators are covered by the WBU. The CBU and the EBU account for the significant majority of the Group’s focus and operating revenues. The Group seeks to achieve its DARE 2.0 strategy through undertaking various marketing and distribution activities which include amongst others: (1) adopting a digital focus on marketing and communications, (2) personalising the customer relationship and (3) reinventing the sales channels.

4.7.3.1 Marketing

The Group uses a combination of traditional above-the-line channels (such as television commercials, print, radio and other outdoor media) and below-the-line channels (such as flyers, direct mailers and targeted messages and emails) coupled with an increased focus on digital channels (such as digital platforms, social media networks, influencers and viral marketing) to reach retail customers. The Group’s retail customers are managed by the CBU which aims to deliver a bolder data-driven approach aimed at improving the effectiveness of its marketing and communication campaigns. Based on customer feedback and subscription levels, the Group believes that its in-house promotional activities and campaigns, segment-specific direct marketing events and roadshows, have been successful in promoting its products and services in Saudi Arabia and intends to continue to use them to shape its marketing strategy. For example, the Group launched its first digital product, Jawwy, aimed at the Saudi youth segment, whereby customers are able to use the Group’s services through a dedicated application which allows them to purchase and design their own plans and purchase additional digital services (such as social media, transportation, gaming and music) to meet not only their communication needs but also their broader information and technology requirements. Jawwy is the first gaming platform launched in Saudi Arabia.

The Group has also implemented multi-dimensional segmentation of its enterprise market, in which consideration is given to high-value customers as well as large, medium and small business customers. The Group’s approach towards this segment is to develop new products and services to help enhance the ICT services it offers to its enterprise customers. The Group’s business customers are managed by a team of dedicated account managers in its EBU, which enables the Group to identify customer requirements and develop tailored solutions to meet such requirements. The Group has also established a network of business centres across Saudi Arabia which provides a direct sales channel for the provision of a full range of products and services to business customers.

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On personalising the different customer interactions, the Group has also implemented loyalty programmes providing differentiated services and rewards to its customers such as the “tamayouz” loyalty programme and the “qitaf” rewards programme. The “tamayouz” loyalty programme is designed to offer enhanced services to customers and valuable benefits in the form of free services and products from the Group or from the programme’s partners. Through the “qitaf” rewards programme, which customers can subscribe to free of charge, participating customers can collect points through their usage of stc services. The points collected under the “qitaf” rewards programme can then be redeemed by customers to purchase stc’s mobile and internet services or vouchers that offer customers the chance to win prizes and receive discounts on stc’s services. In addition, points earned through the rewards programme can be used by the Group’s customers at a wide variety of retail outlets with which the Group has partnered. The Group has also expanded its loyalty scheme to enable partners to purchase loyalty points directly through the Group and in turn offer them directly to their customers. Further, the Group adopts a number of customer value management activities (such as analysing individual and household behaviour, life style, value and spend, and social network segmentation) to better understand customer behaviour to allow the Group to further improve the manner in which it personalises the experience when interacting with its customers. Such interactions are increasingly being conducted through digital channels (such as the mystc application, e-Care, and self-service machines) to better reflect the individual customers’ preferences and needs which subsequently enables the Group to better personalise and improve the overall service experience.

4.7.3.2 Distribution

By reinventing its sales channels, the Group is moving from primarily offering and selling its products and services through direct and indirect physical retail sales channels, to online digital channels. Sales to business customers continue to be predominantly made only through direct sales channels, whereas sales to retail consumers are progressively moving from being made through either direct (such as retail outlets (comprising of 226 stores across Saudi Arabia), outbound telesales and door-to-door activities) and indirect sales channels (such as utilising third party partners who may have presence in locations where the Group may not be present), to digital channels (such as the mystc application and self-service machines). The Group also owns a 100% shareholding in channels by stc (formerly Sale for Distribution and Communication Co.), which provides exclusive distribution and reselling services for stc’s products and services in Saudi Arabia and Bahrain.

The digital sales channels were key to helping the Group maintain a strong performance in 2020 despite closures and restrictions related to the COVID-19 pandemic. For example, at the beginning of 2020, the Group’s stores, mobile shops and in-mall stores were subject to curfews that inhibited sales, recharges and other interactions with customers. However, the Group quickly adjusted its strategy and took the following measures: (1) shifted focus to digital channels through digital awareness campaigns, online events and increased menu of digital transactions, (2) adjusted incentives/commissions to stimulate digital sales, (3) introduced additional incentives to delivery, retail and distribution employees to accommodate business needs promptly, (4) launched aggressive products and promotions/campaigns to push existing and new products and add-ons, promote media streaming and 5G, push recharge promotions and offer upgrades incentives and (5) external communications boost through Kingdom-wide stay-at-home campaigns, promotions of eSports tournaments, emphasis on safe delivery, and engagement of influencers to push uptake.

In addition to the direct physical and digital sales channels described above, the Group uses card agents and prepaid resellers and electronic voucher distributors, through which indirect sales can be made to consumers. These indirect sales channels consist of key third-party retailers and distribution channel dealers and sub-dealers that purchase the Group’s products, such as mobile SIM cards or recharge cards, in bulk and distribute them across Saudi Arabia to small businesses, such as groceries and petrol stations. The Group also has partnerships with supermarkets and bookstores to distribute the Group’s products, such as recharge cards, internet subscriptions and mobile devices.

Consumers subscribe for fixed line and mobile line services through direct sales channels only, whereas data services can be subscribed for through direct or indirect channels.

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The Group’s direct and indirect sales channels include a large number of outlets, ensuring that its products are easily and efficiently made available to its customers across Saudi Arabia.

4.7.4 The Group’s Network infrastructure

The Group aims to provide best-in-class services to its customers. The Group’s integrated network infrastructure in Saudi Arabia provides extensive coverage throughout the country which enables them to provide wireless and fixed line services to its customers. The Group uses a variety of suppliers for its infrastructure. The Group also has many communications engineers experienced in the installation, commissioning and maintenance of the Group’s network infrastructure.

Reflecting its expanding fixed and mobile networks and digital domains and services, the Group plans to increase its international connectivity and expand its internet coverage. In addition, the Group aims to become the datacentre and cloud computing hub in the MENA region (“MENA hub”) to attract hyperscalers, enable new product offerings, while leveraging and expanding the Group’s existing assets. The planned MENA hub aligns Vision 2030’s plan to become a hub that connects Europe, Asia and Africa. As part of this initiative, the Group has already built three additional “new era” datacentres (reaching a total of six datacentres). The Group intends to build two additional datacentres by the end of 2021 and six additional datacentres by the end of 2022, which the Group expects will help guarantee an increased availability of high-speed offerings and digital solutions for the Group’s customers.

In addition, the Group has an extensive LDN/metro OSP network covering all of Saudi Arabia as well as all border crossings for international terrestrial connectivity. Furthermore, a state-of-the-art next-generation reconfigurable optical add/drop multiplexers transmission network is being deployed using 200G/400G (and planned for more than 600G) infrastructure in the transport layer, along with optical transport network technology, with an auto-restoration feature, which the Group expects will guarantee more resilience for the transmission network. The Group also plans to introduce a software-defined network to its network in 2022.

In line with Vision 2030 and in addition to the Group’s various joint submarine cables that connect to Europe, Africa and Asia, the Group recently announced its first submarine cable system (Saudi Vision Cable), which the Group expects will enrich its infrastructure with a unique and low-latency route beyond Saudi Arabia’s borders through four landing stations in Jeddah, Yanbu, Dubaa and Haql. The Group expects that the Saudi Vision Cable will provide up to 18 Tbps/fibre pair with total of 16 fibre pairs.

4.7.4.1 Mobile network

The Group’s mobile network is designed and built in a way that allows it to benefit from t new technologies in a cost-efficient way, invest in new 5G infrastructure and develop next-generation technology with an aim to expand services, provide best-in-class offerings and promote economic and social well-being. The Group has already built over 6,000 5G sites across 75 cities in Saudi Arabia. The Group has deployed a cost-efficient radio access network, which aims to minimise the impact on the environment by conserving energy through automatic hardware shut down during periods of low mobile traffic and using solar power solutions where feasible.

In line with Vision 2030 to drive Saudi Arabia’s digital transformation, the Group is implementing the Aspiration programme, pursuant to which over 13,000 sites of the mobile network infrastructure have been modernised with LTE advanced technology, supporting Saudi Arabia’s digital transformation and contributing to strengthening the response of the Government and public/private sectors during the COVID-19 pandemic by supporting business continuity and e-learning throughout Saudi Arabia.

In 2020, the Group also launched the largest public WiFi network in Saudi Arabia with a total of 38,000 access points, distributed in 49 cities and serving 644 public locations across Saudi Arabia. In addition, the Group commenced developing the infrastructure and providing the latest technology for the NEOM area, a mega-project being developed pursuant to Vision 2030, which is envisaged to be a global centre for trade, innovation and knowledge.

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Ookla (the global leader in mobile network, internet and data testing and analysis, and provider of accurate and reliable reports on performance and coverage of global networks) named the Group as the Speedtest Award Winner for mobile network speed during the first and second quarters of 2021, achieving a speed score of 111.74 Mbps. The Group was also named the KSA Speedtest Award Winner for the best coverage among the mobile operators in Saudi Arabia, achieving a coverage score of 842 Mbps. These results are based on Ookla’s speed and coverage metrics, after comparing 3.33 million tests on iOS and Android mobile applications across the local mobile operators. When analysing operators, Ookla solely considers top operators selected in 3% or more of total testing samples across the market for the entire award period. Ookla also uses Speedtest to measure mobile network and internet performance and quality, providing data and insights into country trends and an analysis on drivers of market developments.

4.7.4.2 Fixed network

The Group continues to develop its infrastructure by eliminating the presence of multiple networks, where both copper cabinets and FTTH technology co-exist, to serve customers on a single access network with an enhanced customer experience. As of 30 September 2021, the Group has targeted 149 legacy nodes to be dismantled and replaced over 300 copper cabinets with alternate access technologies. Further, as part of the national broadband programme, the Group has deployed FTTH services that have reached over three million households in Saudi Arabia, which has had a particularly positive impact given the recent large portion of the population working remotely during (and after) the COVID-19 pandemic.

4.7.5 An overview of the Group’s work organisational environment in Saudi Arabia

4.7.5.1 Overview

Driven by the Government’s objectives under Vision 2030 to progress to a knowledge-based digital society, the MCIT and CITC are focused on organizing the ICT sector in a manner consistent with Saudi Arabia’s policies and that are, transparent, and more collaborative with stakeholders, including telecom/ICT market players. In order to evolve to an effective digital services ecosystem, the regulatory environment must be strengthened in order to foster innovation and facilitate the ecosystem development, while also balancing against the requirements to promote and safeguard healthy competition and investments within the ICT sector.

As the national ICT champion, stc is well positioned in the Saudi Arabian marketplace and is playing a key leadership role and is collaborating with MCIT and CITC towards enabling an effective ICT ecosystem within Saudi Arabia.

stc is subject to all laws and regulations of Saudi Arabia and, in particular, the regulations organizing the ICT sector. The key regulatory framework for this sector consists of:

the Telecom Act issued by Royal Decree No. M/12 dated 12/03/1422H (corresponding to 04/06/2001G) (the “Telecom Act”) (as amended), and its Executive Regulations, which were issued by Resolution No. 11 dated 17/05/1423H (corresponding to 27/07/2002G) (the “Telecom

By-Laws”) (as amended); and

the ordinance of CITC issued by Council of Ministers Resolution No. 74 dated 05/03/1422H (corresponding to 27/05/2001G), as amended (the “CITC Ordinance”)In addition, there are other regulatory instruments issued by the Council of Ministers, the MCIT and the CITC.

The National Cybersecurity Authority (the “NCA”) was also established in October 2017 and is a Government security entity which focuses primarily on computer security in Saudi Arabia. On 23 July 2018, Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud issued a royal decree providing that all Government agencies should upgrade their cybersecurity to protect their networks, systems and electronic data, and abide by policies, frameworks, standards and guidelines issued by NCA. In October 2018, NCA issued essential cybersecurity controls (ECC) to be applied in various

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national agencies to reduce the risk of cyber threats, and issued in 2019, the Critical Systems Cybersecurity Controls, and in 2020, the Cloud Cybersecurity Controls that was developed as an extension to the ECC, as well as the National Cryptographic Standards to prescribe the minimum acceptable cryptographic requirements for civilian and commercial purposes to protect national data, systems and networks.

In addition, in 2012, the General Commission for Audiovisual Media (the “GCAM”) was created. The GCAM is an independent body that benefits from financial and administrative autonomy. Pursuant to GCAM regulations issued by the Council of Ministers Resolution No. (332) dated 16/10/1433H (corresponding to 14/09/2021G), the GCAM is chaired by the Minister Information The purpose of the body is to oversee all aspects of traditional and new media including licensing processes for these businesses, the media bandwidth spectrum, compliance with regulations and conditions of licenses, investigation of complaints, supporting research and studies related to audio-visual media, and the development of dispute resolution mechanisms.

Pursuant to the Telecom Act, the ICT sector is regulated in order to achieve the following objectives:

providing advanced and adequate telecommunications services at affordable prices;

ensuring the provision of access to the public telecommunications networks;

providing equipment and services at affordable prices;

ensuring creation of a favourable atmosphere to promote and encourage fair competition in all fields of telecommunications;

ensuring the effective and interference-free usage of frequencies;

ensuring effective use of the National Numbering Plan;

ensuring clarity and transparency of procedures;

ensuring principles of equality and non-discrimination;

safeguarding the public interest and the users’ interests as well as maintaining the confidentiality and security of telecommunications information; and

ensuring transfer and migration of telecommunications technology to keep up to date with its development.

The Telecom Act and the Telecommunications By-Laws set out many of the key rights and obligations of telecommunications service providers in Saudi Arabia. The Telecommunications By-Laws govern several matters including competition between service providers, interconnection, disputes between service providers, tariffs, relations between service providers and users, universal access and universal service policy, frequency, access to property by telecommunications service providers, numbering and telecommunications equipment regulation network intrusions and violations of the Telecommunications Regulations.

The CITC Ordinances establish the CITC and set out responsibilities assigned to the CITC both in the telecommunication sector and the information technology sector.

4.7.5.2 Regulatory authorities

The telecommunications sector is regulated by the CITC. The MCIT has oversight of the CITC:

MCIT: according to the Telecom Act, the MCIT is responsible for preparing general strategic policies, plans and development programmes for the telecommunications sector, submitting licence applications to the Council of Ministers, and coordinating with concerned parties in respect of services provided to Government agencies.

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CITC: CITC is responsible for the regulation of the telecommunications sector in Saudi Arabia. CITC has the responsibility and power, among other things, to establish necessary procedures, provide protection to users and operators, regulate and manage the use of the frequency spectrum, determine the licensing procedures, issue licences, determine the fees related to number assignment, set the criteria for determining service fees, establish a regulatory framework for interconnection and resolve interconnection and access disputes. CITC is allowed to consult the public and stakeholders’ opinion in its decision-making process. Since October 2006, CITC has overseen the operations of (XX.sa), Saudi Arabia’s main internet domain, and has been responsible for censorship of internet content.

4.7.5.3 Frequencies

The frequency spectrum is a state-owned natural resource. CITC is responsible for regulating and managing frequencies and sets Saudi Arabia’s national frequency plan. In 2021, the CITC issued the Spectrum Outlook for Commercial and Innovative Use 2021-2023 and a recent national frequency allocations table (NFAT). CITC also ensures that frequencies are used in conformity with this plan.

Under the Telecommunications Regulations, the CITC determines the fees to be applied for using frequencies and indicates the spectrum award mechanism, and refers the determination to the MCIT. The MCIT liaises with the Minister of Finance and National Economy and then submits the determination to the Council of Ministers for final approval. CITC may revise or adjust the fees to reflect developments in the telecommunications and frequencies markets. The use of the frequency spectrum is only permitted after obtaining relevant allocations and licences from CITC and paying fees pursuant to the Telecom Act. In the event of non-compliant use of frequencies, CITC is entitled to suspend or withdraw the relevant service operator’s licence, and/or to direct the disconnection or confiscation of the equipment used in the violation.

4.7.5.4 Numbering and number portability

In accordance with the Telecom Act, CITC is required to prepare, publish and manage a national numbering plan and assign numbers, codes and number ranges to service providers in accordance with that plan. The numbering scheme in the plan may be modified by CITC, provided that operators and users are given adequate notice of any modification. Neither service providers nor end-users have property rights to numbers. The recent updates to the National Numbering Plan reflect the inclusion of new emerging technologies such as M2M and IoT. In 2021, CITC issued the third edition of the National Numbering Plan.

Under the Telecom Act, operators must allow number transfer according to user needs (known as number portability). Shortly after the licensing the second mobile operator in 2005, the impacted operators including stc deployed mobile number portability with the capability to deliver calls from their respective network to ported numbers in the network anywhere in Saudi Arabia. During 2018, CITC issued a public Consultation for fixed number portability, followed by CITC decree also applying number portability for fixed networks.

4.7.5.5 Licensing

A telecommunications licence from CITC is required before a telecommunications service can be provided to the customers or before telecommunications networks can be operated for the purposes of providing telecommunications service to the public. Operators are required to adhere to the conditions of their licence.

CITC is required to obtain the approval of the Council of Ministers before issuing licences for the provision of mobile telephone services. The term of the individual licences cannot exceed 25 years, although they may be renewed as set out below.

stc is licensed to carry out a number of telecommunications activities, including setting up fixed and mobile networks for the purpose of providing telecommunications services. Telecommunications

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services that stc is allowed to provide include fixed telephone services, mobile phone services, data and internet services.

The Telecommunications By-Laws allow the enforcement of terms and conditions on individual licences, including, without limitation, the scope of services to be offered, quality of service parameters, network or service roll-out requirements, additional service obligations and specific tariff conditions.

The CITC Board may renew a licence in accordance with the Telecommunications Regulations. The CITC Board has the right to deny renewal, to amend, suspend or revoke licences (subject to Ministerial approval in the case of an individual licence for mobile telephone services). The grounds for such non-renewal, amendment, suspension or revocation include, without limitation:

repeated violation of any of the licensing conditions;

failure to pay licensing or other fees required by CITC;

repeated failure to comply with CITC decisions;

failure to operate within one year from the date of the license;

carrying out businesses in conflict with to the public interest;

bankruptcy, dissolution or liquidation of the licensee; and

re-assignment of the license without CITC approval.

In 2018 the Government changed the structure of the fees imposed on telecommunication services. Pursuant to the Council of Ministers’ resolution No. (196) dated 04/04/1440H (corresponding to 11/12/2018G), the percentage of fees collected by the Government and CITC amounted to a uniform annual fee of 10% of net telecommunications revenues effective 14/04/1439H (corresponding to 01/01/2018G) instead of the previously applicable fee which was 15% of r net mobile service revenues, 10% of net fixed line revenues and 8% of net revenues from data services.

4.7.5.6 Interconnection

According to the Telecom Act, each operator has the right to negotiate in order to reach an agreement with other operators on the terms related to their communications network and services. In the event of failure to reach an interconnection agreement, they have the right to submit a request for CITC to settle the dispute, with CITC’s decision being binding upon all parties. The Group has a CITC approved Reference Interconnection Offer on the basis of which commercial agreements are made with other operators.

4.7.5.7 Fair competition and dominant service providers

According to The Telecom Act, an operator in control of a particular field of telecommunications or part thereof is not permitted to engage in an activity or any procedure which constitutes an abuse of his status. Under the Telecommunications Regulations, a dominant service provider is not permitted to abuse its dominant status and must provide interconnection services and access to its network if requested to do so.

For markets in which it is designated as a dominant service provider, stc is subject to additional regulatory requirements, including:

submission of related services tariffs for prior approval by CITC, applicable to all dominant operators. Subsequent to the Market Definition, Designation and Dominance Report in October 2017, there were some changes to the tariff approval procedures, where all operators – both dominant and non-dominant, were required to submit tariffs for CITC approval. Since stc is designated as a dominant service provider in the retail fixed market, CITC does not approve any price below the resulted cost from the accounting separation model.

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offering related access and interconnection services to any licensed service provider through an interconnection agreement. stc is required to meet all reasonable requests for access and interconnection services by other service providers without discrimination.

not carrying out any activity that would be deemed to be abusive of its dominant position. Examples of such activities include discrimination in the provision of access, interconnection or other services or facilities to other service providers and failing to comply with interconnection obligations.

4.7.5.8 Mobile communications virtual network operators (MVNO)

CITC announced on 12/05/1435H (corresponding to 13/03/2014G) the grant of MVNO licence to Virgin Mobile Saudi Consortium, hosted on stc’s network, where the second mobile operator hosting another MVNO while the third mobile operator hosts none. CITC issued on 16/05/1440H (corresponding to 19/06/2019G) a decision to approve MVNO and IoT licenses, which also included the rules and conditions to provide those services relating to the MVNOs and IoT virtual network operators.

4.7.5.9 Access to properties

According to The Telecom Act, service providers may enter public places for the purposes related to the construction, maintenance and operation of transmission systems including drilling and other services. They are allowed to remain in such places as long as required by the nature of their work and as long as they do not impede the general use of these place. The Telecom Act also requires service providers owning telecommunications or financial facilities to allow other service providers to use such facilities in order to install their own transmission systems if this proves to be economically feasible and does not require additional substantial construction work at their sites. The party requesting co-location in telecommunications or financial facilities must, however, compensate the provider of such service with a fee to be agreed by the two parties or, where the parties are unable to reach such agreement, to be determined by CITC. In 2021, CITC issued an amended version of “Access to Physical Facilities” rules However, stc has an automatically renewed exemption issued by CITC and is in force until mid-2022.

4.7.5.10Universal access, universal services and universal service fund

The Universal Access and Universal Service Policy Document dated 21/05/1427H (corresponding to 17/06/2006G) sets out the basis, principles and conditions relating to the universal services. One of the objectives set out in the policy is to achieve universal access to voice services within a period of no more than three years and achieve universal access to internet services within a period of and no more than five years from the date that the Universal Service Fund (the “USF”) became operational. The USF became operational in 2010.

The USF focuses exclusively on financing new networks and/or services to provide universal service and universal access rights to geographic areas that are in commercially unprofitable and underserved zones. The USF uses/has a competitive process for the award of specific universal access or universal service projects, funded by the USF. The USF was a separate division within CITC reporting to the CITC Board, however this division was subsequently dissolved and the related activities were moved to MCIT in 2017. While the Telecom Act and the USP specifies that USF is financed from 1% of the net revenues of CITC designated service providers, this was never applied, and funding was provided directly by Ministry of Finance.

In 2010, CITC issued Resolution No. 256/143 dated 6/04/1431H (corresponding to 22/03/2010G), cancelling the previous designation of stc as a universal service provider. CITC has succeeded to cover most localities with voice and internet services with 512 Kbps through 11 projects subsided from the USF.

MCIT is responsible for the rural area’s coverage through Broadband mobile services. Three projects have been awarded to Zain and stc with internet speed of 10 Mbps.

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4.7.5.11Quality of service

In December 2003, CITC established a set of quality-of-service indicators that defined the quality-of-service targets for end-user services provided by stc, which have since been updated. The CITC then, in 2009, launched a “Quality of Service Scheme” that applies to all service providers. This scheme applies to a range of end-user services, wholesale services and interconnect services, and contains quality of service indicators (for example, installation time, fault repair time, dropped call rate, fault rate and voice quality standard) for each type of service. CITC may specify additional quality of service requirements for licence holders beyond the scope of the quality-of-service scheme. Such quality-of-service indicators are updated periodically.

4.7.5.12Tariffs

Under the Telecommunications Regulations, universal service providers and dominant service providers must file with, and obtain the approval of, CITC for the tariffs related to their universal services or telecommunications services in the market in which they are dominant, unless otherwise decided by CITC. In addition, CITC has determined that submitting tariff requests for approval is a regulatory requirement that will apply whether there is dominance or not, and whether in competitive markets or dominated markets. Currently, any tariff imposed by a service provider must be approved by CITC.

CITC may also adopt any approach to tariff regulation that is consistent with the Telecommunications Regulations, including price cap regulation.

4.7.5.13Terms of service

All mobile, fixed line, data and internet service providers are required to ensure their service contracts are in compliance with terms of service issued by CITC. Such terms of service are updated periodically by the CITC.

4.7.5.14Restrictions on content dissemination

Internet users in Saudi Arabia are restricted from disseminating or using materials that, among other things, are offensive to the religion of Islam or Islamic laws (Shari’a law), are offensive to public morals, are in violation of the applicable law or promote destructive ideologies.

Service providers are required to maintain records of the time that a user spends on each session, the websites that such user visits or attempts to visit, and the type and size of the files that such user opens.

4.7.5.15Penalties

The Telecom Act provides that certain violations of the provisions of the aforementioned Act shall be subject to a penalty not exceeding SAR 25 million. Penalties are imposed by the violations committee (the members of which are appointed by the CITC Board), which is required to make its decisions in accordance with the rules and procedures established by the implementing rules of the Telecommunications Act. The decisions of the violations committee can be appealed before the Saudi Arabian Board of Grievances.

4.8 Overview of the Group’s businesses outside Saudi Arabia

The Group has interests in companies which operate telecommunications networks mainly in three countries (outside of Saudi Arabia which are Bahrain, Kuwait and Malaysia) in addition to its business inside Saudi Arabia. In addition, the Group has investments in equity accounted investees, which operate telecommunications networks in Jordan and Lebanon.

4.8.1 Subsidiaries located outside Saudi Arabia

4.8.1.1 stc Kuwait

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The Group owns 51.8% of stc Kuwait. stc Kuwait obtained the third license for mobile services and began operations 2008 As at 31 December 2020, stc Kuwait had a market share of approximately 27% in terms of subscriber numbers and approximately 38% based on revenue, according to the published reports of the operators in Kuwait.

Since its launch in 2008 and as part of its growth strategy, stc Kuwait has remained committed to customer satisfaction through the delivery of the latest products and services in the market. stc Kuwait seeks to provide high quality yet competitively priced telecommunications services and products, such as personal mobile and fibre packages, smartphone devices, electronic devices, and entertainment devices, business mobile and broadband packages, systems integration, managed services, business solution, cloud and cybersecurity services.

stc Kuwait’s network provides 100% coverage of residential and populated areas in Kuwait and its services include 2G (GPRS), 3G, 3.5G (HSDPA), 3.5G (HSPA+), 3.5G (DC-HSPA+), 4G LTE, 4G LTE-Advanced and 5G. In an increasingly competitive market, stc Kuwait continues to be Kuwait’s fastest growing telecommunications service provider, enhancing its services with 4G LTE and achieving nationwide coverage in record time. In 2020, stc Kuwait won 134 business projects with total value exceeding KD 2.1 million, including Ministry of Interior and Cisco App Dynamics projects.

4.8.1.2 stc Bahrain

stc Bahrain is 100% owned by the Group. stc Bahrain operates in the field of all mobile telecommunication services, international telecommunications, broadband and other related services in the Bahraini market, and commenced its commercial operation on 17/03/1431H (corresponding to 03/03/2021G). stc Bahrain has grown rapidly since its launch.

After achieving market leadership in both mobile voice and broadband in 2011 in terms of subscriber numbers, stc Bahrain has focused on consolidating and strengthening its position by bringing the latest technology to the Bahraini market while at the same time aiming to fulfil its promise of offering the best value to customers. stc Bahrain has also focused extensively on comprehensive B2B ICT services, including managed services, business solutions and cybersecurity.

As at 31 December 2020, stc Bahrain continued to be the market leader in Bahrain, with a market share of approximately 36% in subscriber numbers and approximately 41.2% based on revenue, according to the published reports of the operators and the Telecommunications Regulatory Authority in Bahrain.

In terms of technology, stc Bahrain has completed multiple network expansions and it continues to offer high quality and reliable mobile voice and broadband services in the country which helped to earn it multiple accolades and awards, such as the ”Most Innovative Digital Solutions Brand” at the Global Brands Magazine Awards in 2019, “Best Consumer Security Solutions” award at the International Finance Awards in 2021, “Best Digital Transformation Provider” award at the World Economic Magazine Awards in 2021 and “Best Digital Infrastructure Development” at the International Business Magazine Awards in 2021. stc Bahrain has rolled out LTE across its 4G network, and it provides 2G and 3G services and has enhanced its distribution capabilities through expanding its retail shop network. In June 2018, stc Bahrain became the first operator in Bahrain to enable 5G service and it completed the second phase of the 5G roll-out in 2020, with 148 tower sites on-air.

During the first quarter of 2018, stc Bahrain fully acquired “MENA Telecom Company Limited” in Bahrain The main activity of the new subsidiary is to provide internet services. In addition, in 2020 stc Bahrain partnered with China Telecom Global for global connectivity services, to provide ICT services in the MENA region.

4.8.1.3 Intigral

In 2009 the Group acquired a 71% stake in Intigral Holding Company (“Intigral”). Intigral is a holding company which owns shares in companies operating in the field of content services and digital media in Gulf countries. In April 2017, the Group purchased the remaining 29% stake in Intigral, a leading provider of IP video products and billing services in the MENA region, which delivers fully

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customisable digital entertainment and eSports solutions. Intigral’s products are built on a cloud-based delivery platform using the latest technology to provide high-quality streaming services, APIs for simple integration, payment modules, social integration and high value tracking and analytics. Intigral offers a full suite of services, including consultancy and business planning, technical development and integration, content acquisition, video operations and delivery, marketing and ongoing after-sales support.

4.8.2 Equity accounted investments

As at 30 June 2021, the Group had seven material equity accounted investments, including BGSM and OTL (discussed below), which are holding companies with investments in companies which provide telecommunications services; Arab Submarine Cables Company Limited, which is a joint venture, 50% owned by each of stc and Sudan Telecommunications Co., which leases a submarine cable connecting Saudi Arabia, Sudan and certain countries in Europe and Asia; Arabsat, which is a satellite services provider; and CCC, which provides call centre and directory enquiries services in Saudi Arabia.

4.8.2.1 BGSM

In September 2007, the Group acquired 25% of the shares of BGSM, a company registered in Malaysia that owns a 62% interest in Maxis, one of the most important companies in the telecom services sector in Malaysia, and through the Group-owned interests in BGSM, the Group indirectly owns 15.58% of Maxis.

4.8.2.2 Oger Telecom Limited

In April 2008, the Group acquired a 35% share in Oger, a holding company registered in the United Arab Emirates, with telecommunications operations in Turkey.

In 2018, OTL started to liquidate and restructure its main subsidiaries and restructure its investments in Turkey and South Africa in order to meet the financial obligations of the lenders. Liquidation of OTAS (a subsidiary of OTL in Turkey) commenced in 2019 while the liquidation of OTL commenced in 2020, and as of the date of this Prospectus, it is being finalised.

4.8.3 Investment funds

In 2011, the Group launched stc Ventures Fund with an investment commitment of USD 50 million. The fund is an independently managed venture capital fund whose anchor investor is stc. stc Ventures Fund focuses on equity investments in emerging, small and medium-sized companies operating in the field of communications and IT in Saudi Arabia and other global markets. One of the key objectives of stc Ventures Fund is to support the development of innovative technology companies in the MENA region and Turkey, in addition to funding globally-minded international companies seeking capital and access to the MENA region. stc Ventures Fund’s investments include shares in Vezeeta and Trukker, among others. The fund allows stc to explore new technologies, acts as a form of research and development and gives stc the opportunity to diversify its business.

In addition, during 2017, the Group established a venture capital investment fund for the purpose of investing in the digital and technology sectors with a total value of USD 500 million (equivalent to SAR 1,875 million) to be injected in the future in five equal instalments of USD 100 million (equivalent to SAR 375 million). By the end of 2018, this venture capital investment fund had received over USD 200 million in funding for the Group to further invest in branching out into new service offerings within the digital and technology sectors such as cybersecurity, financial services and television rights. During 2020, it received a further USD 100 million in funding and its investment units were valued at SAR 973 million as at 30 June 2021.

4.9 Information technology

The technology infrastructure of the Company and the Group has evolved significantly to meet strategic goals of enhancing the agility and efficiency of the Group’s information technology (“IT”) systems.

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Each operating company of the Group maintains its own IT systems, while ensuring and continuously enhancing alignment, optimisation of opportunities and synergies across the Group. The Group’s IT systems are comparable to those typically used by other telecommunications service providers, and comprise operational support systems (which support the Group’s telecommunications network and include processes, such as maintaining network inventory, provisioning services, configuring network components and managing faults) and business support systems (which support processes related to the Group’s customers, such as taking customer management, order management, processing bills and revenue management, collecting payments, customer relationship management, mobile apps and hardware and software operation support). With the Group’s strategy to expand beyond the telecommunications sector though its diversified subsidiaries operating in the fields of Fintech, real state, IT services, ICT services and IoT and digital services domains, top niche technologies have been adopted by the Group’s subsidiaries to accommodate the specific need of their respective industries to ensure competitiveness and allow a swift response to changes in the market.

In addition, as part of the Group’s strategy to digitise its business, the Group has implemented several agile practices to help make the IT systems and IT organisations fit-for-purpose with this digital expansion, to enable the continuous development and integrations between systems and to implement the SevOps and SecOps systems in the Group’s organisations to better serve the Group’s customer base and in a faster manner while maintaining customers’ privacy and security. In 2018, the Group rolled out the underlying hardware transformation and BSS digital transformation projects that are intended to help the Group roll out additional software enhancement capabilities over the next three years. As of the date of this Prospectus, the Group has implemented approximately 70 planned digital capabilities and platforms, including a digital journey re-imagination and special related digital projects. The Group believes that its existing IT systems are adequate for the purposes of its existing business and future expansion plans.

Each operating company of the Group maintains its own disaster recovery systems in order to ensure the recovery and continuation of its technology infrastructure following potential disruptive events, such as natural disasters or terrorism. Each operating company of the Group has policies and procedures in place to either back up critical data on-site or automatically copy this backed-up data to off-site storage, or to back up and replicate critical data directly to off-site storage.

4.10 Environment

The Group is subject to a wide range of environmental laws and regulations. The general trend in the majority of the countries in which the Group operates is to impose increasingly stringent environmental obligations in relation to, among other things, radiation emissions, zoning and the protection of employees’ health and safety. The Group could therefore be exposed to environmental costs and liabilities, which could be significant. The Group is also required to obtain various environmental permits, licences and/or authorisations from, and to provide certain prior notifications to, the appropriate authorities in its jurisdictions of operation (For further information, please refer to Section 2-2-10 “See “Risks relating to the telecommunications networks may be adversely affected by natural disasters or other catastrophic events beyond the control of their operators” and Section 2-2-1 “Risk Factors—Risks relating to laws and regulations of the telecommunications industry within which the Company works. New changes in—existing, laws, regulations or governmental policy could adversely affect industry participants” of this Prospectus).

In Saudi Arabia, the Group is required to comply with the Telecommunications Regulations and similar regulations apply in other jurisdictions in which Group companies operate. The Group aims to comply in all material respects with applicable environmental and health control laws, as well as all related permit requirements.

The Group believes that the principal environmental risk arising from its operations relates to the potential for electromagnetic pollution. The Group constantly strives to ensure that its radiation emission ranges are lower than the maximum levels permitted by applicable regulation (For more details, please refer to Section 2-2-4 “Actual or possible health risks or other damages relating to the

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use of mobile phones or transmission towers and its impact to reduce the level of mobile communications services” of this Prospectus).

4.11 Corporate social responsibility (“CSR”)

4.11.1 Strategy and framework

The Group’s social responsibility strategy is based on the concept of sustainable development for all its businesses, in addition to committing to the highest professional and competitive standards in the ICT sector. It seeks digital solutions in partnership with the public and private sectors to comply with the objectives of Vision 2030, as well as reinforcing the Group’s position as a pioneer company in the Middle East. The Group’s CSR strategy concentrates on:

contributing to the adoption of initiatives and programmes that support social responsibility in sustainable development and the achievement of development goals. For example, the Group has supported the Young Female Investor event, which was affiliated with the Ministry of Labour and Social Development, in order to empower families and children and youth to produce, invest, and display their products. Further, the Group’s local procurement spending amounted to SAR 18.4 billion in 2020; and

the empowerment of the voluntary and community organisations through social investment in partnership with donor establishments. This includes the National Entrepreneurship Institute, which is a non-profit national centre specialising in helping people interested in self-employment and owners of SMEs. The Group has also cooperated with the Ministry of Health, establishing 22 medical centres across Saudi Arabia. In addition, the Group has supported the “King Salman Science Oasis” project with a contribution of SAR 50 million. The project aims to provide scientific programmes to the youth and children and empower them to take an interest in the sciences and technical applications. The Group has also contributed SAR 6 million to establish “Saafah Foundation for Transparency and Integrity” that aims at spreading and enhancing the values of transparency, integrity and justice.

CSR is an integral part of the Group’s core business strategy. In 2020, the Group established the sustainability management committee, which acts as an important vehicle for informing the Board on sustainability issues and helping demonstrate the Group’s corporate commitment to sustainability at the highest levels. The committee monitors the environmental, social and governance (“ESG”) risks and opportunities of the Group and oversees its conduct as a responsible business, sustainability and corporate reputation. The committee is chaired by the Chief Executive Officer with seven members, including the Chief Corporate Affairs Officer, Chief Financial Officer, Chief Technology Officer, Chief People Officer, Procurement and Support Services VP, Chief Legal Officer and General Council and sustainability programme general manager.

As part of the Group’s sustainability efforts, it has identified 17 sustainable development goals (“SDGs”) and it recognises that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability and there must be methods to govern this balance. In 2020, the Group implemented a deeper alignment of its business strategy with the SDGs by identifying the global indicators that are the highest priority to the Group and the ways it can help achieve them in line with wider Global Reporting Initiative guidance. As a result, the Group has identified nine priority SDGs that are globally aligned yet locally relevant to its core operations and geographies and reflect its business strategy, including:

good health and wellbeing (SDG 3): ensuring that the staff, customers and local communities are healthy helps drive the Group’s business forward by reducing costs and risks;

quality education (SDG 4): supporting quality, inclusive education and skills development; the Group contributing to a greater pool of talent for its own workforce and for the economy in general;

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decent work and economic growth (SDG 8): providing decent economic growth, skills development and job creation is embedded in the Group’s business strategy to find dynamic and innovative digital solutions for its customers;

industry, innovation and infrastructure (SDG 9): this SDG is critical in addressing socio-economic challenges. The Group has strong infrastructure expertise and drives forward innovation and communication technologies;

reduced inequalities (SDG 10): the Group has a role to play in reducing inequality internally through empowerment and in the community through accessibility and development schemes;

sustainable cities and communities (SDG 11): the Group delivers digital product and service solutions that helps build sustainable cities and promote resilient communities;

responsible production and consumption (SDG 12): the Group has a duty to its customers to produce goods and services that ensure their safety and wellbeing while reducing environmental impacts;

climate action (SDG 13): the greatest impact the Group can have on climate change is through its business contributions to SDG 4, SDG 9, SDG 11 and SDG 12; and

partnership for the goals (SDG 17): the Group regularly engages with a range of stakeholders on topics relating to the relevance of ESG issues for its business. The Group participates and collaborates actively in multiple industry-led bodies.

4.11.2 SDG initiatives

Data privacy, security and protection

The Group’s commitment to privacy and security is a fundamental part of its code of conduct. In 2020, the Group published a new privacy notice to comply with CITC regulations and notified all customers of the change via its corporate website, “mystc” app and “mystc” portal. In 2020, the Group was selected to become a member of the GSMA data privacy working group.

Responsible customer relations

The Group uses ISO-standards, such as ISO 9001 and ISO 10002, to help it monitor and improve customer engagement. The Group’s customers are key stakeholders and its success and business growth depend on their satisfaction with the services the Group provides. The Group monitors customer satisfaction as an important performance indicator. In 2020, the Group recorded an overall 83% customer satisfaction rate. The Group also uses a systematic complaints resolution process to effectively solve each customer complaint. In 2020, the Group launched an online complaints resolution system which resulted in a 20% improvement in the complaints resolution rate. The Group also actively analyses customer data on a regular basis. In 2020, the Group recorded a significant reduction in the volumes of complaints received at its call centres. Overall, the Group saw an 8% decrease in the total number of customer complaints from 2019 to 2020.

Responsible use of products and services

The Group’s sales agents working on customer-facing channels receive extensive training to make sure they are fully aware of customers’ needs and requirements before recommending suitable products and services. The Group also verifies that the products it sells to customers meet health and safety legislation. The Group aims for its solutions to protect customers from external threats when using their phones for calls, text messaging and internet browsing by providing a secured network and by implementing data privacy and security protocols.

Community development

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The Group’s aim is to provide the best possible support to communities across Saudi Arabia . The Group has traditionally given financial support to hundreds of local community initiatives, in addition to providing them with digital solutions that meet community needs. The focus areas for the Group’s community programmes are chosen on based on social impact assessments. The Group carried out two impact assessments in 2020 to assess the impact of its proposed initiatives and future plans. The Group also developed a social investment tool to help assess investments and filter those with a greater impact and which align with the Group’s ambitions. In 2020, the Group invested SAR 12.2 million in community initiatives, excluding COVID-19 response for the community described under Part 4-11-4 “Response to the COVID-19 pandemic” below, and sponsored 292 projects addressing environmental and social issues.

Accessibility and digital inclusion

The Group is committed to providing a modern and sophisticated network that serves Saudi Arabia. The Group focuses its efforts on providing maximum accessibility and digital inclusion in both urban and remote areas. The Group uses mobile broadband to serve rural and desert areas and fixed and mobile broadband to cover urban areas. The Group’s strategy is to work with partners in the private sector to share infrastructure and service development across Saudi Arabia. The Group’s mobile broadband project is a three-year flagship initiative of the MCIT. In 2020, the Group achieved its wireless broadband project targets by serving nearly 450,000 households with wireless broadband connectivity at 10 Mbps throughout. Approximately 2.6 million people benefit from the Group’s coverage in approximately 3,000 locations across Saudi Arabia.

5G

The Group’s principal investment in new infrastructure is aimed at the adoption of 5G infrastructure, and a next-generation infrastructure datacentre program. By adopting next-generation technology, the Group aims to expand existing services, provide best-in-class offerings and identify new business opportunities. The Group intends to do so while delivering high efficiency and performance. The Group has the fastest growing 5G network in Saudi Arabia, with over 6,000 5G sites across 75 cities in Saudi Arabia. The Group has reached more than 49% of the populated area of Saudi Arabia since it is mainly targeting five cities. In 2020, the Group’s 5G data volume increased by 8.4% compared to 2019. The Group’s 5G infrastructure also provides more than 60% coverage in the main cities of Saudi Arabia.

Infrastructure and resilience

Developing reliable and resilient infrastructure is vital in the expansion of access to technology and connectivity. The Group has worked to evolve its network, capitalising on the introduction of leading-edge technology. The Group has adopted key performance indicators for network resilience, which underpin its commitment to deliver excellence and an uninterrupted user experience. The Group has partnerships with ICT companies across Saudi Arabia for infrastructure sharing. Network sharing reduces operating costs and results in potential increase in coverage, which the Group believes opens possibilities for additional infrastructure capacity in congested areas, where space for sites and towers is limited. In 2020, the Group received an award at the World Summit on the Information Society Forum for its digital empowerment in remote areas project, as part of the infrastructure initiatives category. The award recognised the efforts the Group has made to provide connectivity in remote and marginalised areas at national and regional levels.

Digital innovation and transformation

Developments in digital technology are enabling many sectors to be transformed, creating new sectors with new economic activities. stc is actively rolling out these technologies to enable these transformations. The Group’s 5G rollout is creating new opportunities that support and draw on IoT, artificial intelligence, robotics and other emerging fields. For example, in the healthcare and transportation sectors, organisations are able to automate their systems through the Group’s 5G network, enabling them to draw on wider pools of human expertise and to adopt new technologies

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that the Group expects will improve outcomes for customers. The Group also aims to develop innovative initiatives, new programmes and solutions and applications that it expects will further develop the digital world.

4.11.2.1Employee diversity, equality and inclusiveness

The Group aims to provide an equal and inclusive work environment and also seeks to help address youth unemployment by building a pool of talented young Saudi professionals through the following initiatives:

Women empowerment

The Group believes that empowering and enabling women, particularly in management positions, is vital to providing diverse value to its customers. As at 30 June 2021, women represented 15% of the Group’s workforce, with a total of 3,702 female employees.

Saudi nationals

In 2020, the Group recorded 92.6% Saudi nationals in senior positions, and 90.7% among the total workforce, including Saudi women.

Employees with special needs

In 2020, the Group received the Mowaamah programme’s gold certificate, which indicates that it fulfiled 70% or more of the Mowaamah programme. The Mowaamah programme was launched by the Ministry of Human Resources and Social Development as part of the Government’s strategy to improve opportunities and provide a suitable working environment for persons with special needs. In 2020, the Group employed 68 people with special needs across its workforce.

Employee training and development

The Group aims to train and develop its employees to give them the skills that enable them to fulfil their potential. Through the stc Academy, the Group seeks to enhance employees’ capabilities. In 2020, the Group provided 298,458 training hours to its employees. The Group also has a range of targeted talent programmes to develop model employees, assist employees achieve their full potential, reduce turnover and align people to the Group’s business strategy. The Group’s three development programmes support succession planning by implementing career development plans.

Protecting the health safety and wellbeing of employees

The Group seeks to keep all of its employees safe and healthy and to ensure the wellbeing of its employees and their families. The Group aims to give the highest priority to occupational health and safety for its employees, contractors and visitors at all times. In 2020, the Group did not have any fatalities, had zero heat stress incidents and three recordable injuries. In 2020, the Group worked with a third party to review its health and safety performance and commenced the development of a corporate safety strategy with the aim of establishing the Group as a leader with respect to safety and security.

4.11.3 Research and Development

As at the date of this Prospectus, the Company and its subsidiaries have not adopted a policy on research and development. However, the Group is developing innovative programmes, taking customer opinions and conducting studies and research in order to improve and develop its products and services.

4.11.4 Response to the COVID-19 pandemic

In response to the COVID-19 pandemic, the Group also implemented a variety of measures focused on its operations, employees and customers, which allowed the Group to progress digital transformation initiatives, including:

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providing 40,000 prepaid internet SIM cards for free, in cooperation with the Digital Giving Initiative “Atta”, to enable disadvantaged groups’ access to the Internet and educational platforms;

raising network capacity by managing and distributing internet traffic to ensure the continuity of all daily life activities for all the Group’s customers, and enabling free access to some health platforms, such as the “Sehha” app and the Immunity Forum “Manaah”;

enhancing the Group’s digital channels by adding greater capabilities to provide all services and maintain service reachability to homes;

supporting SMEs by promoting their services through stc’s digital platforms;

eliminating temporary service suspension fees for SMEs;

extending payment deadlines for customers;

collaborating with the Ministry of Health on a number of health campaigns by sending more than 1.5 billion awareness messages to all of the Group’s customers in multiple languages (a service valued at SAR 40 million);

providing free Internet and communication services to citizens and residents currently in quarantine;

giving free access to the public WiFi network covering 129 health facilities around Saudi Arabia as a part of the support provided to health facilities during the COVID-19 pandemic;

enhancing the operational efficiency and the role of public awareness for 22 health centres established by stc across Saudi Arabia;

providing customer service free of charge to support responding to individual inquiries through the application of “Tawakkalna”, supporting seven million application users;

collaborating with “Bunyan Charity” to distribute 735 food baskets to the beneficiaries who were most impacted and unable to reach the stores;

launching a “virtual visits” initiative, targeting inpatients and their companions to enable them to contact their relatives and friends on Eid al-Adha through visual communication by providing free iPad devices equipped with data cards, which benefited 733 people from four hospitals; and

donating 2,273 devices to the “Ertiqa” charity, in order to fulfil the Group’s objective of protecting the environment and its social responsibility through supporting the community.

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5. Organisational Structure and Corporate Governance

5.1 Management of the Company

The Board of Directors shall carry on the general supervision and control on the businesses of the Company. The CEO shall be responsible for the management of the general daily affairs of the Company according to the powers invested in him.

5.2 Organisational structure of the Company

Figure 37: Organisational structure of the Company

Table 18: Structure of pre-offering and post-offering ownership

Shareholders Pre-Offering* Post-Offering

Number of

shares

Nominal value

(SAR)

Ratio Number of

shares

Nominal value

(SAR)

Ratio

PIF 1,400,000,000 14,000,000,000 70% 1,299,800,000 12,998,000,000 64.99%

GOSI 123,400,000 1,234,000,000 6.16%

123,400,000

1,234,000,000

6.16%

The Public* 476.600,000 4,766,000,000 23.84% 576,800,000 5,768,000,000 28.85%

Total 2,000,000,000 20,000,000,000 100% 2,000,000,000 20,000,000,000 100%

*Public refers to all Shareholders except the Substantial Shareholders in the Company (PIF and GOSI).

Source: The Company

5.3 The Board of Directors

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The Board of Directors is responsible for the management of the Company and is accountable for managing its affairs. The Board is accountable for the proper conduct of the business and for ensuring the effectiveness of and reporting on stc’s corporate governance framework that will be submitted to shareholders. The Board consists of 11 directors (including the chairman and vice-chairman) pursuant to the Company’s Articles of Association, all of them are non-executive directors, including four independent members. The PIF and General Organization for Social Insurance nominates seven of the eleven members of the Board, and oversees the Company’s decision-making with respect to the strategy of the Company. In the year ended 31 December 2020, the Board met five times, and in the six months ended 30 June 2021, the Board met three times.

The CEO has responsibility for implementing the decisions issued by the Board and carrying out the tasks of managing daily affairs of the Group. Olayan Alwetaid has been serving in that role since March 2021.

The business address of each of the members of the Board is King Abdulaziz Complex Imam Mohammed Bin Saud Street, Al Mursalat District, P.O. Box 87912, Riyadh 11652, Saudi Arabia. New members of the Board are appointed by the Company’s shareholders from among candidates proposed by the existing Board on the recommendation of the Nomination and Remuneration Committee (as described below in more detail). Board membership expires after the lapse of the three years period. Then, the relevant board director may be re-elected. There is no limit to the number of times a member of the Board may be re-elected.

A director’s membership may be terminated if such director is in breach of applicable laws and/or the requirements of Company’s Articles of Association.

The Company’s current Board members were appointed and elected at the Company shareholders’ General Assembly on 14/09/1442H (corresponding to 26/04/2021G) for a three-year term. It should be noted that His Royal Highness Prince Mohammed K. Al-Faisal, His Excellency Mohammed Talal Al-Nahas, Mr. Sanjay Kapoor and Mr. Ahmed Mohammed Alomran were existing members of the Board, and were re-elected for a further three-year term. As for other directors who were elected by and nominated by the General Assembly, they are new directors in the Board of the Company.

Tenure of membership of the current Board is due to expire 18/10/1445H (corresponding to 27/04/2021G). The following table shows the names of the Board directors as at the date of this Prospectus:

Table 19: Current Board Directors of the Company

Name Position Nationality Member

Title

Direct ownership

(%)*

Indirect ownership

(%)*

Appointment

Date**

Pre-

Offering

Post-

Offering

Pre-

Offering

Post-

Offering

1 HRH Prince Mohammed

K. A. Al-

Faisal

Chairman of the

Board Saudi

Non-

executive

Independent

0.00005 0.00005 - - 4/28/2021

2

Mr. Yazid

Bin Abdulrahman

Al-Hamid

Vice

Chairman of the

Board

Saudi Non-

executive

Non-

independent

0.0004674 0.0004674 - - 4/28/2021

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Name Position Nationality Member

Title

Direct ownership

(%)*

Indirect ownership

(%)*

Appointment

Date**

Pre-

Offering

Post-

Offering

Pre-

Offering

Post-

Offering

3 HE

Dr. Khaled

H. Biyari

Board

Director Saudi

Non-

executive

Non-

independent 0.0001 0.0001 - - 4/28/2021

4 HE Mr.

Mohamed

Bin Talal Al-

Nahas

Board

Director Saudi

Non-

executive

Non-

independent - - - - 4/28/2021

5 Mr. Sanji

Kabour

Board

Director Indian

Non-

executive

Non-

independent - - - - 4/28/2021

6 Mr. Ahmed

Bin

Mohammed

Alomran

Board

Director Saudi

Non-

executive

Non-

independent - - - - 4/28/2021

7 Ms. Rania

Mahmoud

Nashar

Board

Director Saudi

Non-

executive

Non-

independent - - - - 4/28/2021

8 Mr. Ardent

Rawtnberq

Board

Director German

Non-

executive

Non-

independent - - - - 4/28/2021

9 Ms. Sarah

Jamaz

Alsihimi

Board

Director Saudi

Non-

executive

Independent

- - - - 4/28/2021

10 Mr. Jameel

A.

AlMulhem

Board

Director Saudi

Non-

executive

Independent - - - - 4/28/2021

11 Mr. Waleed

Bin Ibrahim

Shukri

Board

Director Saudi

Non-

executive

Independent

- - - - 4/28/2021

* Ownership approximate percentage.

** Dates provided in this table are the starting dates for the appointment of Directors for the current period of Board of Directors.

Source: The Company

5.4 Biographies of the Directors and the Secretary

Following is a summary of the biographies of all of the Directors and the Secretary:

Brief biographies of all of the directors are set out below.

5.4.1 His Royal Highness Prince Mohammed K. A. Al-Faisal (Chairman)

HRH Prince Mohammed K. A. Al-Faisal was appointed as Chairman of the Board in 2018. He also serves as President of Al Faisaliah Group Holding, a leading Saudi-based investment company. Additionally, HRH Prince Mohammed currently serves as Chairman of the Board of J.P. Morgan Saudi Arabia and as a member of the board of Al Khozama Management Company. In the past, HRH Prince Mohammed worked as an Assistant General Manager and Manager at the Saudi American Bank, and earlier at Citibank in New York and in Geneva. HRH Prince Mohammed received his Bachelor’s degree

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from the King Fahd University of Petroleum and Minerals, and his Master’s degree from Harvard Business School.

5.4.2 Mr. Yazeed A. AlHumied (Vice Chairman)

Mr. Yazeed Alhumied was appointed as Vice Chairman of the Board in 2021. Mr. Alhumied also is the Deputy Governor and the Head of MENA Investments at PIF, where his responsibilities include managing two key investment pools: the Saudi Equity Holdings pool and the Saudi Sector Development pool, which are significant pools in terms of assets under management. His responsibilities also include attracting international strategic partners to invest in Saudi Arabia and localising cutting-edge technologies, as well as overseeing PIF’s role as a driver of the economy of Saudi Arabia. Mr. Alhumied is the Chairman of the National Security Services Company, Vice Chairman of the Saudi National Bank and the Saudi Stock Exchange (Tadawul), and a board member of several companies, including Saudi Arabian Airlines, Civil Aviation Holding, Richard Attias & Associates, and Flyadeal. Mr. Alhumied holds a Bachelor’s degree in Accounting from the King Saud University, and is certified by the executive management programmes of several top-tier international academic institutes, including London Business School.

5.4.3 His Excellency Dr. Khaled H. Biyari (Board Member)

HE Dr. Khaled H. Biyari was appointed to the Board in 2018. HE Dr. Biyari previously served as Chief Executive Officer of stc from 08/07/1436H (corresponding to (27/04/2015G) to 10/06/1439H (corresponding to (26/02/2018G); Senior Vice President of Technology and Operations of stc Group from May 2013 to April 2015; and as Chief Operating Officer from January 2015 to April 2015. He also served as the Chairman of stc Advanced Solutions and as Vice Chairman of stc Kuwait and OTL, as a board member of both Türk Telecom and Avea and as Director of Türk Telekomünikasyon A.S. until 2015. In 2016, HE Dr. Biyari was elected as Chairman of the SAMENA Telecom Council. In February 2018, HE Dr. Biyari was appointed to the position of Assistant Minister of Defense for Executive Affairs of Saudi Arabia through Royal Decree. Prior to joining stc, he served as Senior Vice President and General Manager of Advanced Electronics Company. In 2009, HE Dr. Biyari was elected by the Council of Ministers to the Board of the Electricity and Cogeneration Regulatory Authority in Saudi Arabia. From 1990 to 1995, he served as Professor of Communication Systems at the Electrical Engineering Department at King Fahd University of Petroleum and Minerals. He earned his Ph.D. in Electrical Engineering (Communication Systems) from the University of Southern California, Los Angeles in 1990, and his Master’s degree and Bachelor’s degree in Electrical Engineering from King Fahd University of Petroleum and Minerals in 1985 and 1983, respectively.

5.4.4 His Excellency Mohammed Talal Al-Nahas (Board Member)

HE Mohammed Talal Al-Nahas was appointed to the Board in 2017. He also serves on the boards of directors of Saudi Basic Industries Corporation (SABIC), Riyad Bank, International Company for Water and Power Projects, the General Organization for Social Insurance, National Center for Privatization, ASMA Capital, Taiba Holding Company, AlRaidah Investment Company, and was appointed as Chairman of the Board of AlRaidah Investment Company through a decision of the Board of Directors of the Public Pension Agency. After working with the Samba Financial Group as a Production Officer from 1984 until 2008, he joined Alinma Bank and held the position of General Manager for Branch Banking until 2016, at which time he was appointed as Governor of the Public Pension Agency by Royal Decree. He earned his Bachelor’s degree in Science from King Saud University in 1984, and attended the Michigan Business School where he completed the Executive Program in 1998.

5.4.5 Mr. Sanjay Kapoor (Board Member)

Mr. Sanjay Kapoor was appointed to the Board in 2018. He is also a board member of VLCC Healthcare Ltd, iBus Networks and Infrastructure Pvt Ltd, Tech-Connect Retail Pvt. Ltd. and OnMobile Global Ltd. He has previously served on the boards of GSMA (a global forum bringing together nearly 800 global mobile operators), Indus Towers, Bennet, Coleman and Co. Ltd, and PVR Limited. Mr. Kapoor

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is a senior adviser for Boston Consulting Group and Circles.life. He serves as a mentor to Tanla Solutions Ltd and was declared as “Telecom Person of the Year” at the Voice and Data Telecom Leadership Awards 2012. Mr. Kapoor was the CEO of Airtel, India’s largest telecommunications company and, in 2014, was appointed as Chairman of the promoter group of Micromax Informatics Limited. He served as Director of Operations Support for Xerox India for 14 years. Mr. Kapoor earned his Bachelor’s degree in Commerce from Delhi University and his Master of Business Administration degree from Cranfield School of Management. He is also a graduate of the Wharton Advanced Management Program.

5.4.6 Mr. Ahmed Mohammed Alomran (Board Member)

Mr. Ahmed Alomran was appointed to the Board in 2018. He also serves as Vice Chairman for ISSA Technology Committee, and sits on the boards of Saudi Cement Company and TAKAMOL Holdings. He currently serves as Assistant Governor for Information Technology at GOSI and previously as the General Manager for Infrastructure. Mr. Alomran earned a Bachelor’s degree in Information Systems from King Saud University and a Master’s degree in Computer Science from the Florida Institute of Technology in the United States.

5.4.7 Ms. Rania M. Nashar (Board Member)

Ms. Rania M. Nashar was appointed to the Board in 2021. Ms. Nashar also joined PIF as a Senior Advisor to the Governor in February 2021, where she advises His Excellency Yasir Al-Rumayyan, Governor of PIF, in areas of Business and Governance, drawing on more than 20 years of professional experience in the banking industry. In addition, she is the Head of Compliance & Governance at PIF. Prior to joining PIF, Ms. Nashar served as the CEO of Samba Financial Group (“SFG”), making her the first Saudi woman to lead a major banking group in Saudi Arabia. She first joined SFG in 1997 at the start of her banking career, where she served in various positions across different divisions of SFG and played a key role in bringing vital changes and developments to SFG’s business sectors.

Ms. Nashar holds a Bachelor’s degree with Honours in Computer Science and Information Technology from King Saud University.

She has been recognised by Forbes on multiple occasions for her professional achievements, being named among the “Top 100 Powerful Women in the World” in 2018, 2019 and 2020.

5.4.8 Mr. Arndt F. Rautenberg (Board Member)

Mr. Arndt F. Rautenberg was appointed to the Board in 2021. Mr. Rautenberg is the founder and Managing Partner of Rautenberg & Company, where he is head of the Düsseldorf office. He has extensive experience in advising financial investors and their portfolio companies, as well as corporations, with special expertise in strategy development and value creation, corporate finance and M&A.

Mr. Rautenberg started his professional career in 1994 at Boston Consulting Group, after earning a Master of Business Administration degree at WHU – Otto Beisheim School of Management and at Georgetown University. In 2000, he and two partners founded a technology investment and advisory firm which they later successfully sold to Sapient, a NASDAQ-listed technology corporation based in Cambridge, USA. After several years as an executive board member of Sapient, Mr. Rautenberg was appointed Chief Strategy Officer of Deutsche Telekom, where he was responsible for both the group’s strategy development and portfolio management. Since leaving in 2008, Mr. Rautenberg has focused on advising financial sponsors and strategic investors in all phases of a transaction.

5.4.9 Ms. Sarah J. AlSuhaimi (Board Member)

Ms. Sarah J. Al-Suhaimi is the Chairperson of the board of directors of Saudi Tadawul Holding Group, which owns and operates the largest exchange in the Middle East as at the date of this Prospectus. Additionally, she spearheads Tadawul’s efforts to integrate the Saudi capital markets with global peers by way of aligning the platforms operations and governing regulations. Ms. AlSuhaimi is also a member

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of the board of directors of Saudi Arabian Airlines and the Cultural Development Fund. In addition, Ms. AlSuhaimi is a trustee of the International Financial Reporting Standards Foundation and a We-Fi Leadership Champion, served as the Chief Executive Officer of SNB Capital from 2014 to 2021, where she was also a member of the Board of Directors. During her tenure, SNB Capital’s assets under management grew by over four times, its brokerage market share increased by more than 10% and the bank executed multiple large investment banking mandates earning league table status in debt capital markets and M&A.

Ms. AlSuhaimi served a two-year term as Vice-Chairperson of the Advisory Committee of the CMA’s board of directors from 2013 to 2015. Prior to that, she led the asset and wealth management division at Jadwa Investment Company, where she was also the Chief Investment Officer from 2007 to 2014, and a member of the Management Committee.

Ms. AlSuhaimi holds a Bachelor’s degree in Accounting with Honours from King Saud University, and completed the General Management Program at Harvard Business School.

5.4.10 Mr. Jameel Abdullah AlMulhem (Board Member)

Mr. Jameel Abdullah AlMulhem was appointed to the Board in 2021. Mr. AlMulhem worked in various roles at Saudi British Bank (SABB). Mr. AlMulhem subsequently joined stc, where his last role was CEO of stc Saudi Arabia, following which he joined Shaker Group as Managing Director. Currently he is the Managing Director at Takween Group, in addition to sitting as a member of the board and committees in several governmental entities, Saudi publicly-listed companies and privately-held companies. Throughout his more than 25-year career, Mr. AlMulhem has served on the board and committees of several local and international companies, participated as a speaker in variety of forums, and has been involved in multiple public studies and initiatives.

Mr. AlMulhem holds a Bachelor’s degree in Marketing from King Fahd University of Petroleum and Minerals, and has attended a variety of training programmes in leading institutes in the United States and Europe, including INSEAD, London Business School and Harvard Business School.

5.4.11 Mr. Walid I. Shukri (Board Member)

Mr. Waleed I. Shukri was appointed to the Board in 2021. Mr. Shukri worked as a lecturer at King Fahd University of Petroleum and Minerals. Mr. Shukri sat on the board and served as a committee member in several entities such as Bupa Arabia, Saudi Agricultural and Livestock Company, General Authority for Military Industries, Hokair Group Company, MEPCO, KANOO GROUP and Ma’aden Company.

Mr. Shukri holds a Bachelor’s degree in Industrial Management (with major in Accounting) with Honours from King Fahd University of Petroleum and Minerals.

5.5 Committees of the Board of Directors

In order to perform its duties effectively and fulfil the relevant statutory requirements, the General Assembly and the Company’s Board of Directors have various committees in accordance with the needs, circumstances and conditions of the Company.

Following is a summary of the responsibilities of each committee

5.5.1 Executive Committee

The Executive Committee’s primary duties and responsibilities are to review the strategies, as well as domestic and global activities, of the Group in all areas, and grant approval for such strategies and activities in accordance with the authority delegated to them by the Board. The Executive Committee held four meetings in 2020 and two meetings in the six months ended 30 June 2021.

5.5.2 Audit Committee

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The Group’s internal audit function reports to the Audit Committee. The Audit Committee’s primary duties and responsibilities are to review the Group’s financial and administrative policies and procedures, and to compile financial reports. The Audit Committee also reviews the reports and observations of the Group’s internal audit function on a regular basis, and refers recommendations to the Board to appoint, and if necessary terminate the appointment of, the Group’s auditors, determine their fees and verify their independence.

The Audit Committee also reviews the Group’s financial statements before presenting them to the Board. The Audit Committee also reviews the reports produced by the Group’s auditors on the Group’s financial statements and audit plan, and provides relevant feedback. The Audit Committee held 10 meetings in 2020 and six meetings in the six months ended 30 June 2021.

5.5.3 Nomination and Remuneration Committee

The Nomination and Remuneration Committee’s primary duties and responsibilities are, firstly, to recommend new members and, secondly, to approve and endorse salaries by reviewing and approving the indemnity and remuneration policy before referring it to the Board. The Nomination and Remuneration Committee is also entitled to review the structure of the Board, refer recommendations with respect to required changes, verify the independence of independent members of the Board on an annual basis and ensure that no conflicts of interest arise in relation to Board members. The Nomination and Remuneration Committee held five meetings in 2020 and two meetings in the six months ended 30 June 2021.

5.5.4 Investment Committee

The Investment Committee’s primary duty and responsibility is to review any strategic investments made by the Group in accordance with the Group’s overall strategy. The Investment Committee also reviews and considers any strategic investment opportunities, and makes recommendations on suitable investments to the Board. The Investment Committee held six meetings in 2020 and five meetings in the six months ended 30 June 2021.

5.5.5 Risk Committee

The Risk Committee supervises the risk management framework and the implementation of risk management and business continuity policies. In addition, the Risk Committee supervises and recommends the risks faced by the Company’s investees, and ensures the effectiveness of the risk committees formed in the Company’s subsidiaries. The Risk Committee held one meeting in the six months ended 30 June 2021.

5.6 Senior Management/ Executive Management

The Board is supported by the Group’s senior management team. The business address of each member of the senior management team is King Abdulaziz Complex Imam Mohammed Bin Saud Street, Al Mursalat District, P.O. Box 87912, Riyadh 11652, Saudi Arabia.

Brief biographies of each of the members of senior management, and their titles, are set out below.

5.6.1 Olayan M. Alwetaid (stc Group Chief Executive Officer)

Mr. Olayan M. Alwetaid has more than 20 years of experience. He commenced his professional career at Saudi Aramco prior to joining stc on 15/08/1442H (28/03/2021G). Prior to his appointment as Group Chief Executive Officer, his two previous senior executive roles were Senior VP for Consumer sector, and Chief Executive Officer of stc Bahrain. Mr. Alwetaid chaired the Board of Directors of several stc subsidiaries, including channels by stc and Intigral. He is also the Vice Chairman of the Board of Directors of stc pay.

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Mr. Alwetaid earned a Bachelor’s degree in Electrical Engineering from King Fahd University of Petroleum and Minerals and holds various certifications in the fields of ICT, leadership and strategic planning.

5.6.2 Ameen Fahad Alshiddi (Chief Financial Officer)

Mr. Ameen F. Alshiddi is currently serving as the stc Group CFO. He joined stc in 2001 and held various senior management positions before his appointment to the Group Chief Financial Officer in June, 2016.

He led the evolution of a local stand-alone telecom operator to a global ICT entity working hand in hand with the group chief executives and the board of directors. He played an instrumental role in developing a revenue responsible business culture, focusing on business efficiency initiatives, sustainable long-term profitability and an effective risk management regime. Mr. Ameen has rich experience spanning over two decades across all finance and accounting related domains such as Treasury activities locally and internationally, financial risk management, M&A, credit rating, investor relations, accounting, auditing, financial planning and budgeting.

He also worked as a consultant and auditor in one of the leading Saudi Arabia based consultancy firm, where he extensively worked on privatisation of the Saudi Arabia telecom sector and various organisational restructuring transactions for very large sized trading, manufacturing and service companies operating in Saudi Arabia and globally.

Mr. Ameen also serves as the board member in various large reputable organisations both in Saudi Arabia and regionally. He obtained a Master’s degree in Accounting from Southwest Missouri State University and a Bachelor’s degree in Management from King Saud University in Riyadh. He is also a qualified Certified Public Accountant (CPA, USA) and Certified Management Accountant (CMA, USA).

5.6.3 Jose Del Valle (Chief Strategy Officer)

Mr. Jose Del Valle joined stc in September 2020 as the Chief Strategy Officer. He has more than 20 years of industry experience in B2B, B2C, infrastructure and broad executive roles. He also has experience in digital services, strategy and M&A. Prior to joining stc, Mr. Del Valle was a Senior Partner and Global Head of Media, Sports & Entertainment for Delta Partners. Prior to that, he spent 18 years with Telefonica, holding roles including Chief Executive Officer of Media Latam in Peru, Global Director of Marketing & Content, Commercial Director for Europe, Global Director of Strategic Partnerships, and others.

Mr. Del Valle earned his Master of Business Administration degree from IE Business School and a Bachelor’s degree in Business Administration.

5.6.4 Haithem Mohammed Alfaraj (Chief Technology Officer)

Mr. Haithem Mohammed Alfaraj was appointed as Chief Technology Officer in 2018. He has previously held various positions within stc, including Senior Vice President of Technology and Operations, Operations VP, Field Operations and Technical Customer Care Sector VP and VP of IT Operations. At Mobily, Mr. Alfaraj acted as VP of Hosting and Managed Services, Chief Technology Officer and Data Center Director. He also acted as Project Engineer at Lucent Tech and Systems Analyst at Saudi Aramco. Mr. Alfaraj is currently a member of the boards of directors of specialized by stc and stc pay. He is also a member of the Steering Committee at TowerCo. He holds a Bachelor’s degree in Computer Engineering from King Fahd University of Petroleum and Minerals.

5.6.5 Riyadh Saeed Muawad (Chief Business Officer)

Mr. Riyadh Saeed Muawad was appointed as Chief Business Officer in April 2019. He previously served as Senior Vice President of Enterprise Business Unit at stc, Vice President of Key Accounts at stc and held the positions of Senior Regional Manager, Defense and Aviation Sales Manager and

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Account Manager for Public Sector (Defense, Computer Associates and Director) at CISCO. Mr. Muawad currently holds chairman positions in solutions by stc and specialized by stc and was formerly a board member of stc Kuwait. Mr. Muawad holds a Bachelor’s degree in Computer Science from Boston University.

5.6.6 Faisal Alsaber (Chief Commercial Officer)

Mr. Faisal Alsaber was appointed as Chief Commercial Officer in June 2021. Mr. Alsaber has more than 20 years’ experience in various roles at stc and its subsidiaries. Mr. Alsaber has previously held the position of Chief Executive Officer of channels by stc, and was a board member of stc Bahrain. Prior to this, Mr. Alsaber was the Vice President of Sales for the Consumer Business Unit. Mr. Alsaber currently serves on the board of stc Kuwait and chairs the board of directors of channels by stc.

Mr. Alsaber holds a Diploma in Sales & Marketing, a Bachelor’s degree in Chemical Engineering from King Saud University and a Master of Business Administration degree from Prince Sultan University. He also completed executive programmes from Wharton Business School, Harvard Business School, London Business School, INSEAD, the Center for Creative Leadership, and others.

5.6.7 Abdullah Abdulrahman Alkanhal (Chief Corporate Affairs Officer)

Mr. Abdullah Abdulrahman Alkanhal was appointed as Chief Corporate Affairs Officer in September 2019. Mr. Alkanhal is responsible for Corporate Communications, Corporate Relations, Procurement & Shared Services, Regulatory Affairs, Sustainability, Risk Management and Digital Transformation programme. He has over 23 years of experience in the ICT/telecommunications industry, including serving as the former Deputy Minister for Telecom and Digital Transformation in MCIT. Prior to that, Mr. Alkanhal was the Vice President of Consumer Marketing at stc. He is the chairman of the board of directors of Intigral and a member of the board of directors of various other subsidiaries.

Mr. Alkanhl graduated with honours with a Bachelor’s degree in Electrical Engineering from King Fahd University of Petroleum and Minerals and a Master of Business Administration from King Saud University. He has also completed executive programmes from Harvard Business School, MIT Sloan School of Management, Stanford, London Business School and INSEAD.

5.6.8 Ahmad Musfer Alghamdi (Chief People Officer)

Mr. Ahmad Musfer Alghamdi was the VP of People Sectors since 2017 prior to being named the Chief People Officer. He oversees all aspects of the Group’s human resources, including Succession Management, Business Partners, Center of Excellence, People Services and Diversity, Inclusiveness & Well-Being, while leading efforts to place stc among the top five “Employers of Choice” in Saudi Arabia and sustaining stc’s position in the top global quartile in the organisational health index. Prior to joining stc, Mr. Alghamdi provided consultancy services in the Human Capital practice at Mercer Consulting. He is the Chairman of CCC and a member of the board of directors of channels by stc.

Mr. Alghamdi has a BS in Industrial Systems Engineering from King Fahd University of Petroleum and Minerals and an Executive MBA from the University of Hull in the UK. Mr. Alghamdi also completed executive programmes at Harvard Business School, IMD, INSEAD and University of Michigan, Ross School of Business.

5.6.9 Mohammed Abdullah Alabbadi (Chief Wholesales Officer)

Mr. Mohammed Abdullah Alabbadi was appointed as Chief Wholesales Officer in June 2020. He previously served as Vice President of Strategic Projects & Corporate Performance, then Vice President of Strategy Execution & Corporate Affairs. Prior to joining stc in 2016, Mr. Alabbadi spent 16 years at Cisco Systems, including as Country Managing Director. Mr. Alabbadi is the former chairman of the board of directors of stc’s subsidiary Aqalat, and is currently on the boards of directors of specialized by stc and solutions by stc.

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Mr. Alabbadi earned a Bachelor’s degree in Systems Engineering from King Fahd University of Petroleum and Minerals, and his Master of Business Administration degree from IE Business School in Spain. Mr. Alabbadi also completed the Harvard Business School Senior Executive Leadership Program.

5.6.10 Mathad Faisal Alajmi (Chief Legal Officer and General Counsel)

Mr. Mathad Faisal Alajmi was appointed as Chief Legal Officer and General Counsel in August 2019. Prior to joining stc, Mr. Alajmi was the General Manager and Chief Counsel for the Middle East & Africa at SABIC. Mr. Alajmi is on several external boards and is currently a member of the board of directors of solutions by stc and member of the board of directors of Intigral.

Mr. Alajmi received his LL.B from King Saud University and his LL.M from Chicago Kent College of Law at the Illinois Institute of Technology. He also earned his Executive MBA from Georgetown University, McDonough School of Business in Washington, DC.

5.6.11 Abdullah Sail Alanizi (Chief Audit Officer)

Mr. Abdullah Sail Alanizi was appointed as Chief Audit Officer in February 2015. Since joining stc in 2004, he has held positions of increasing scope and scale. He is a member of the audit committee of solutions by stc, specialized by stc and CCC.

Mr. Alanizi graduated with a Bachelor’s degree in Information Systems from King Saud University and an executive Master of Business Administration degree from King Fahd University of Petroleum and Minerals. He has completed leadership programmes from IMD, INSEAD and MCE and holds various professional certifications, including in risk management, internal audit, internal systems audit and is a certified fraud examiner.

5.7 Remuneration and Compensation of Directors and Executive Management

The remuneration for the members of the Board is based on the amount approved at the General Assembly, as recommended by the Board. Any subsequent revisions to the remuneration of members of the Board requires approval from the shareholders of the Company at the next General Assembly.

The Nomination and Remuneration Committee is responsible for determining the remuneration policy for the Group’s executive management, with the objective of offering market-competitive remuneration with the aim of retaining talent within the Group. For the aggregate compensation of the Board and the Group’s executive management (For more information, please refer to Section 6.14 “Related party transactions” and Section 6.15 “Benefits, Remuneration and Compensation of the Members of the Board and Senior Management” of this Prospectus).

5.8 Corporate Governance

The Group is committed to high standards of corporate governance, which are critical to its business integrity and to maintaining investors’ trust in the Group. Pursuant to this commitment, the Group’s corporate governance aims to comprehensively regulate and support shareholder relationships, Board operations and its internal business model by using best local and international corporate governance practices.

In February 2005G, the Company endorsed and began implementation of the CMA’s Corporate Governance Regulations and adopted the Group’s internal governance regulations. The policies and practices set out in the Group’s corporate governance guidelines are intended to provide a framework for the efficient corporate governance of the Group. The policies are implemented by the internal audit function of the Group under the supervision of the Audit Committee. The internal audit function is also responsible for developing and executing the annual audit plan, which is reviewed and approved by the Audit Committee.

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The Group’s corporate governance systems have been designed and equipped to comprehensively regulate and implement the business rules and regulations related to transparency, accountability, fairness and independence in order to fully comply with the Companies Law and the Corporate Governance Regulations in addition to other relevant regulations and legislation in force in Saudi Arabia and the Group’s other operational international geographies.

The Group’s corporate governance systems also aim to effectively regulate external business and interactions by managing the Group’s relationships with Government sectors, customers, suppliers and contractors in order to achieve high operational efficiency and effectiveness in line with the Group’s strategic, financial and operational goals.

The Group aims to ensure appropriate processes and systems are in place to prevent bribery and corruption, and to ensure it conducts business in an ethical manner across its operations. As part of the Group’s ethics and compliance programme, all employees are required to undertake online training on its anti-corruption policies and related best practices. Annual live training is also conducted for all externally-facing employees, to increase their awareness of the risks associated with anti-corruption. In addition, the Group’s suppliers are required to act in accordance with the Group’s supplier code of conduct, which sets ethical standards for its stakeholders.

Furthermore, the Group’s employees are required to sign an annual acknowledgement that they have read, understood and will abide by the Group’s code of ethics. In addition to the mandatory training that all employees must take on the Group’s code of ethics, the Group is also planning to launch a more comprehensive training module on its code of ethics policies that will be assigned to employees based on their job function and exposure. To identify and mitigate compliance risks, the Group also conducts compliance reviews for each of its organisations individually.

5.9 Conflicts of interest

At all times, the members of the Board have a duty to avoid circumstances which may result in a conflict of interest with the Group, unless that conflict is duly approved by the Board.

This includes potential conflicts that may arise when a director takes up a position with another company or when the Group enters into transactions or agreements in respect of which a director has a material interest. Each external appointment of a Board member is considered by the Board on a case-by-case basis, taking into account the expected length of time and potential conflicts of interest.

There are no conflicts of interest between the duties that the members of the Board owe to the Board, and the duties that the members of the executive management (named above) owe to the Board, and any of their respective private interests.

5.10 Cases of Bankruptcy and Insolvency of Members of the Board of Directors and Executive

Management

There are no cases of bankruptcy for members of the Board of Directors, members of the Executive Management or the Secretary of the Board of Directors as on the date of this Prospectus. Further, there are no cases of insolvency in the previous five years for a company in which any of the Board Members, members of the Executive Management or the Secretary of the Board of Directors was appointed by the insolvent company in an administrative or supervisory position.

5.11 Direct and Indirect Interests of Board Members and Executive Management

None of the members of the Board of Directors, the Executive Management, the Secretary of the Board of Directors or any of their relatives has any direct or indirect interest in the shares and debt instruments of the Company, and any interest in any other matter that may affect the business of the Company, except for what is disclosed in Section 5.3 “The Board of Directors” Section 6.14 “Related Party Transactions”, Section 12.2 “Material Agreements” and Section 13 “Book-Building” of this Prospectus.

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Further, none of the members of the Board of Directors, the Executive Management, the Secretary of the Board of Directors or any of their relatives has an interest in any contract or agreement valid or intended to be concluded as on the date of this Prospectus in the business of the Company and its Subsidiaries except for what was disclosed in Section 6.11 “Related Party Transactions", Section 12.2 “Material Agreements” and Section 13 “Book-Building” of this Prospectus.

5.12 Employees

As at 30 June 2021, the Group had 24,678 full-time equivalent employees. In general, the Group’s employees do not participate in any collective bargaining or similar agreements.

In February 2018 the Group launched the stc Academy, with the aim of developing the next generation of digital leaders in Saudi Arabia. Almost 200 students graduated from the academy in 2020. The stc Academy focuses on stc’s internal leadership teams and on external programmes for the general public. From its establishment in 2018 to 31 December 2020, the stc Academy provided an aggregate of 347,830 hours of training (Source: SDG 2020 Report). The stc Academy focuses on strategic initiatives, which aim to develop stc members’ capabilities and deliver values to customers (both internal and external). Such initiatives include:

Learning Path, which focuses on designing development tracks serving different segments of employees.

Knowledge Transfer Program (KTP), which encourages employees to transfer their knowledge and skills to other employees by designing, delivering, evaluating, and providing an on-the-job training experience.

An accredited assessment centre providing both technical, management, and leadership assessment.

Despite restrictions imposed on in-person learning and development programmes during the COVID-19 pandemic, learning and development programmes continued to take place online. Digital learning reached 168,816 hours during 2020, with the following key achievements: (1) successfully launched 18 Technology and Operation programmes with Coursera, (2) delivered six stc webinars, (3) delivered 10 partner webinars (including Gartner, Global Knowledge and Informa), (4) delivered training courses that reached 11,391 employees across Saudi Arabia and (5) activated six platforms with unique learning features(For more information on the Group’s SDG initiatives in connection with its employees, please refer to Section 4-11-2 “—Corporate social responsibility (“CSR”)—SDG initiatives” of this Prospectus).

5.13 Employees long-term incentives program

In April 2020, the Group approved the employees long-term incentives programme (the “ELIP

Programme”), under which the Group can purchase a maximum of 5.5 million Ordinary Shares and an amount not to exceed SAR 300 million to be allocated for the ELIP Programme. The Ordinary Shares purchased under the ELIP Programme do not carry the right to vote in the Company’s General Assemblies and are not entitled to any dividends while such Ordinary Shares are held by the Company’. The ELIP Programme aims to attract, motivate and retain the executive employees responsible for the achievement of the Group’s goals and strategy. The ELIP Programme provides a share-based payment plan for eligible executives participating in the ELIP Programme by granting them Ordinary Shares in the Company upon completing the duration of service and performance requirements and achieving the targets determined by the Group. Total expenses related to the ELIP Programme during the year ended 31 December 2020 amounted to SAR 6.1 million(For further information, please refer to Note 47 to the 2020 Audited Financial Statements).

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6. Management’s Discussion and Analysis of Financial Position and Results of Operations

Part of Management’s Discussion and Analysis of Financial position and results of operations and Results of Operations show the consolidated financial position and operating performance of the Group.

The discussion in this Section is based upon the 2020 Audited Financial Statements and the 2019 Audited Financial Statements, which have been prepared in accordance with IFRS-KSA, and the H1 of 2021 Unaudited Interim Condensed Consolidated Financial Statements, which have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) endorsed in KSA.

The Financial Statements shall be considered integral to this Prospectus and this part shall be read side by side with such financial statements. Such financial statements were included in Part 16 “Financial Statements and the Auditor’s Report” of this Prospectus. Knowing that numbers offered in the tables of this Part are in Saudi Riyals, unless otherwise is provided.

All amounts stipulated in this Part shall be rounded to the nearest one thousand riyals, unless otherwise is provided. Numbers and percentages shall be approximated to the nearest decimal number. Therefore, the sum of such numbers may differ from the one stipulated in the tables. Thus, all percentages, indicators, annual expenditures and compound annual growth rate (CAGR) depend on approximated numbers.

This Part includes forward looking statements relevant to future forecasts of the Group based on correct plans and forecasts of the Board with respect to growth of the Group, results of operations and the financial position. Thus, it may contain risks and doubts. The Group’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors and future events, including those discussed below and elsewhere in this Prospectus particularly under Section 2 “Risk Factors” herein.

6.1 Directors’ declaration for Financial Statements

Please refer to Section 11 “Directors’ Declarations” of this Prospectus.

6.2 Description of principal line items

6.2.1 Revenues

Revenue is recognised from contracts with customers based on a five-step model as set out in IFRS (15) and is measured based on the consideration specified in a contract with a customer and excludes amount collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or services to a customer.

The timing of revenue recognition is either at a point in time or over time depending upon the satisfaction of the performance obligation by transferring control of goods or services to the customer.

When there is a high degree of uncertainty about the possibility of collection, the Group recognises the revenue of services rendered to certain customers upon collection.

The Group principally earns revenue from airtime usage, messaging, data services, interconnect fees, connection fees and device sales. Products and services may be sold separately or in bundled packages.

6.2.2 Cost of revenues

Cost of revenues principally comprises cost of devices sold, network access charges, government charges, employees’ costs, repair and maintenance, cards recharge and printing cost and amortisation and impairment of contract costs.

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6.2.3 Selling and marketing expenses

Selling and marketing expenses principally comprise employees’ costs, impairment loss on trade receivables, sales commissions, advertising and publicity, amortisation and impairment of contract costs, call centre expenses, repairs and maintenance, sport activities sponsorship cost, and impairment on contract assets.

6.2.4 General and administration expenses

General and administration expenses principally comprise employees’ cost, repair and maintenance, consultancy, legal and professional fees, Sadad service fees, utilities expenses and security and safety expenses.

6.2.5 Depreciation and amortisation expenses

Depreciation and amortisation expenses principally represent systematic allocation of the depreciable/amortisable amount of an asset over its useful life and is calculated using the straight line method, over the asset’s estimated useful life.

6.2.6 Cost of early retirement program

Cost of early retirement program principally represents the amount recognised as a provision to be the best estimate of the expenditure required to settle the early retirement obligation at the date of the statement of financial position.

6.2.7 Finance income

Finance income principally comprises income accrued on a time basis with respect to the Group’s sukuk and murabaha arrangements, by reference to the principal outstanding and at the effective profit rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life or shorter period, where appropriate, of the financial asset to that asset’s net carrying amount on initial recognition.

6.2.8 Finance cost

Finance cost principally comprises profit payment and other costs that are incurred in connection with the borrowing of funds by the Group under its sukuk, murabaha and finance lease arrangements, including the unwinding of discounts on provisions and financial liabilities.

6.2.9 Net other expenses

Net other expenses principally comprises the expenses that do not relate to normal business operations, such as supplier penalties and net of sundry expenses (miscellaneous expenses).

6.2.10 Net share in results of investments in associates and joint ventures

Net share in results of investments in associates and joint ventures principally comprises the Group’s share of the profit and loss of the associate or joint venture which are accounted for using the equity method.

6.2.11 Net other (losses) gains

Net other (losses) gains principally comprises gains/losses that are not part of usual business operations, such as gains from financial assets, foreign exchange differences and losses on disposal of property and equipment.

6.2.12 Zakat and income tax

Zakat expense is levied at the higher of adjusted income subject to zakat or the zakat base in accordance with the Regulations of the General Authority of Zakat and Tax in Saudi Arabia. The Group calculates

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and records its zakat by using the zakat base, which makes this a levy not based on income subject to zakat. The zakat provision is charged to the consolidated statement of profit or loss. Adjustments arising from final zakat assessment are recorded in the period in which such assessment is approved by ZATCA.

Income tax expense relates to the tax charges recognised by investee companies outside Saudi Arabia subject to income tax inside and outside Saudi Arabia.

6.3 Principal factors affecting results of operations

The following is a discussion of the principal factors that have affected, or are expected to affect, the Group’s results of operations.

6.3.1 The Group’s principal operating market in terms of revenue, cash flows from operations and

profitability for Saudi Arabia

Saudi Arabia remains the Group’s principal operating market in terms of revenue, cash flows from operations and profitability. Strong revenue generation and a strong cash flow position in its Saudi Arabian operations has allowed the Group to pursue expansion opportunities in other markets. In 2020 and 2019, 91.9% of the Group’s revenue was derived from its Saudi Arabian businesses.

Saudi Arabia, the Group principally derives revenue from the provision of mobile, data services, fixed landline and broadband, ICT and managed services. It also derives revenue from the provision of mobile services in Bahrain and Kuwait.

6.3.2 Impact of the number of active clients and the amounts spent by clients on revenue in

communications services

Revenue from telecommunications services is primarily affected by: (i) the number of the Group’s active customers and customer mix in Saudi Arabia; and (ii) the amount spent by those customers.

Customer growth depends on a number of factors, including competition, pricing, quality of service, availability of new services, population growth, regulatory environment and general economic conditions. ARPU is driven primarily by traffic volume, data services utilisation, interconnection rates and tariffs. Tariffs in turn are mainly driven by the competitive and the regulatory environment. The Group believes that future revenue growth will be primarily driven by growth in data traffic, ICT and creative value-added services utilisation. However, the growth in revenue on overall may be offset to some extent by declining tariffs and interconnection rates. In addition, as penetration increases, the incremental revenue expected from marginal customers may also drop due to a possible drop in ARPU. Despite of all the changes in the information technology space, new regulatory developments, economic slowdown and challenging market conditions due to maturing competition, the Group has been able to maintain its overall mobile subscriber base during the period under review. The mobile subscriber base as at 31 December 2018 was 19.9 million. The pre-paid subscriber base has increased slightly reaching 15.2 million as at 31 December 2018, whereas the post-paid subscriber base has declined to 4.7 million as at 31 December 2018. The Group believes that the reduction in the post-paid subscriber base resulted principally from the decrease in foreign residents in Saudi Arabia and also due to the mobile subscriber identification modules (“SIMs”) registration and legalisation driven by the Government. However, the drop in the post-paid subscriber base slowed down in 2020, and it is expected to grow with the overall mobile subscriber base in 2021. The Group’s revenue during the period under review has increased by 13.5% to SAR 59.0 billion in 2020 as compared to SAR 52.0 billion in 2018. This increase in revenue is similar to the increase of 13.4% in the telecommunications sector revenue in Saudi Arabia (based on the aggregate revenue of the Group, Mobily and Zain) during the period under review. The overall transport, storage and communication sector contribution to GDP has also increased during the period under review from 5.8% in 2018 to 6.6% in 2020.

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6.3.3 Demographic, political and economic impacts

The Group’s revenues are driven by general market demand for mobile telecommunications services in the markets the Group serves, which is in turn directly affected by a number of macroeconomic and other trends. In particular, demand for the Group’s services depends primarily on a number of demographic, political and economic factors, all of which are outside of its control, in particular, population growth and GDP.

The demographic, political and economic dynamics affecting the Group’s business vary between Saudi Arabia, Kuwait and Bahrain. In addition, a number of these dynamics, such as population growth and GDP per capita, can differ significantly between individual countries within a region and this can impact upon the number of customers as well as ARPU that the Group can attain in a particular market. According to the General Authority for Statistics in Saudi Arabia, by the first half of 2020 Saudi Arabia’s population was over 35 million, with 62% of the population between the age of 15 and 49. Management believes that this segment of the population will help maintain a stable growth in revenues in the future.

Saudi Arabia’s economy has in the past been adversely affected by periods of low international oil prices, including in the period from mid-2014 to early 2016. More recently, global oil prices fell sharply in the first four months of 2020, with the price of Brent oil falling below USD 16 per barrel in April 2020. This was primarily due to the impact of the COVID-19 pandemic on the global economy and the increase in supply. The significant decline in oil price, together with the impact of the COVID-19 pandemic in 2020 have negatively affected the economies of Saudi Arabia, Kuwait and Bahrain and have therefore caused a decline in government expenditures in certain areas, as well as the disposable income of many residents of those countries, which has had an adverse impact on the Group’s operations in those countries. These factors can vary significantly from period to period and do vary significantly from country to country and region to region and have historically impacted the Group’s results of operations. Future changes in these demographic and economic factors could have a material effect on the Group’s business, financial condition, results of operations and prospects. (For further information, please refer to section 2-2.7: “Risks relating to the dependence of the economy of the Kingdom and its revenues of the government on oil sector and its adverse impact on oil rates reduction "of this Prospectus.

In 2020, Saudi Arabia implemented a number of temporary precautionary and preventative measures to contain the coronavirus (COVID-19) outbreak, including suspending all international flights, closing all non-essential businesses, prohibiting attendance by employees at most government workplaces, requiring citizens to remain at home and practice social distancing, closing commercial markets and malls other than for pharmacies and food supply activities, imposing curfews in several cities, and banning citizens, residents and visitors from performing the Umrah. In June 2020, the stay-at-home orders were lifted and economic and commercial activities were allowed to resume with preventive protocols in place. Saudi Arabia also implemented strict coronavirus (COVID-19) preventative measures in relation to the Hajj pilgrimage in 2020, including limiting the number of Hajj pilgrims to only a very limited number of individuals of various nationalities residing in the country and meeting certain criteria, as well as imposing self-isolation and social distancing requirements. As a result of the various Government restrictions related to the coronavirus (COVID-19) pandemic, including travel and Umrah restrictions, which impacted the inflow and outflow of immigrants and Saudi nationals, the Group’s sales and international/roaming revenues were significantly impacted. Furthermore, a significant number of foreign residents departed Saudi Arabia in 2020 and 2021, amounting to approximately 0.5 million departures between the third quarters of 2020 and 2021, according to the General Organization for Social Insurance. Coronavirus (COVID-19) and its related restrictions have also had some positive impacts on the ICT sector. In particular, there was increased usage and demand for ICT products. Also, it accelerated the digitisation drive, which is the core of Vision 2030. For example, the digital sales channels and retail sales channels were key to help the Group maintain a strong performance in 2020, as the digital sales channels performance has at least doubled post coronavirus (COVID-19). In 2020, the Group took the following measures to ensure increased sales: (i) continuing to emphasise the focus on digital channels through digital awareness campaigns, online

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events and increased offering of digital transactions, (ii) adjusting incentives/commissions to stimulate digital sales, (iii) introducing additional incentives to delivery, retail and distribution employees to accommodate business needs promptly, (iv) launching aggressive promotions and campaigns to promote existing and new products and add-ons, media streaming and 5G, recharge offers and offer upgrades and incentives and (v) boosting external communications through Kingdom-wide stay-at-home campaigns, promotion of eSports tournaments, emphasis on safe delivery, and engagement of influencers to increase product uptake.

As of 30 June 2021, the Group’s operations and financial results have not been significantly impacted by the coronavirus (COVID-19), taking into consideration the lower impact of the coronavirus (COVID-19) over the operations and activities of companies operating in the telecommunications sector. Although the Group has not experienced a significant financial impact from the coronavirus (COVID-19) at the date of this Prospectus, the Group’s commercial business, mainly new sales, ARPU and the Group’s international/roaming revenues, and its operating environment, have been affected by coronavirus (COVID-19)-related lockdowns. As of the date of this Prospectus, the Group continues to see a recovery in commercial activity, but it is not possible to accurately predict the medium or long-term impact of coronavirus (COVID-19) on the Group’s business. For more details on the impact of the coronavirus (COVID-19) on the Group’s business and Saudi Arabia, please refer to Section 2.2.7 " Risks relating to the dependence of the economy of the Kingdom and its revenues of the government on oil sector and its adverse impact on oil rates reduction” of this Prospectus”.

The impact of the coronavirus (COVID-19) on the Group’s operations and financial results was assessed using some judgements, estimates and assumptions that contain sources that are uncertain as they depends on several future factors and developments that cannot be reliably forecasted. For example, the Group applied judgements and estimates in fair valuation of financial assets and liabilities, and provisions for expected credit losses were also subject to judgements and estimates with respect to forward looking information.

6.3.4 Competition in the markets in which the Group operates

The Group faces increased competition in the markets in which it operates, both from existing competitors and new telecommunications services providers. Competition has also led, in certain markets, including Saudi Arabia, to declines in the prices the Group is able to charge for its services and may lead to further price declines in the future. Competition from companies has historically resulted in a reduction in the Group’s tariffs in those markets due to increased promotional offers and the incurrence of additional marketing costs by the Group to maintain its customer base in and to maintain revenues from those markets.

6.3.5 Network development and maintenance

Growth in the Group’s revenue has been partially driven by expansion of capacity in its existing networks and the increase in data capacity across Saudi Arabia, in addition to improvements in network quality. In particular, the Group increased its capital expenditures (“Capex”) in years 2019 and 2020 as compared to 2018 relating to the built out of its FTTH and the roll out of 5G services in Saudi Arabia, Kuwait and Bahrain. In 2020, the Group’s Capex was SAR 10.8 billion (or 18.4% of the revenues) compared to SAR 11.4 billion in 2019 (or 20.9% of the Group’s revenues). The Group’s Capex for the six-month period ended 30 June 2021 was SAR 2.8 billion (or 9.0% of the Group’s revenues) compared to SAR 3.8 billion for the six-month period ended 30 June 2020 (or 13.3% of the Group’s revenues). However, the Group expects its Capex as a percentage of the Group’s revenues to largely remain stable at the current level in subsequent periods. The increase in Capex was driven by the (i) continued build out of the Group’s FTTH network in Saudi Arabia, where the Group rolled out approximately 1.2 million lines; (ii) deployment of over 6,000 5G sites in 75 cities, providing more than 60% coverage in the main cities of Saudi Arabia, as well as the network buildout of 5G services in Kuwait and Bahrain; and (iii) introduction public WiFi by implementing more than 38,000 access points in Saudi Arabia. When the Group makes decisions with respect to capacity development, it also considers whether the expansion in areas for which coverage is provided will have a significant impact on its ability to attract

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new customers and retain existing customers.)For further information about the Group’s Capex, please refer to section 6-8-9 “of this Prospectus.)

In addition, in response to the coronavirus (COVID-19) and the resulting disruption of some social and economic activities, the Group assessed its impact on its current and future operational activities and took a series of preventive and precautionary measures, including switching to remote working to ensure the safety of its employees and their families, and fully activating the technical solutions required for such remote work by providing digital channels with greater capabilities and facilities to ensure the continuity of services provided to the customers and reach them at their location for their own safety. The lockdowns due to the coronavirus (COVID-19) pandemic resulted in some delays in the Group’s Capex plans in 2020, whereas the Group’s operational expenditures increased mainly due to impairment of trade receivables.

6.3.6 Business Efficiency Program

The Group commenced a business efficiency programme in 2016 and launched a second phase in 2019 (henceforth referred to as the “Business Efficiency Program”), which is focused on increasing efficiency and reducing costs. The programme includes the restructuring of the business units as well as initiatives to optimise the Group’s processes and structures. As part of this programme, the Group launched a review of its processes and identified over 40 strategic initiatives, including bad debt enhancement, early retirement program and optimisations in the following areas: call centres, channels by stc footprint, training, contractors, managed service contracts, IT maintenance and licenses, and facility management. The Business Efficiency Program is primarily focused on reducing the Group’s structural costs by consolidating functions, optimising processes, and creating a leaner and more flexible workforce through flexible work programmes and staff reductions. As a result of the Business Efficiency Program, the Group has been able to keep overall Group costs relatively stable, while investing significantly in its ICT service offering through solutions by stc and channels by stc.

6.4 Alternative performance measures

Set forth below are certain APMs used by the Group’s management to assess the performance of its business. The APMs are unaudited and have not been prepared in accordance with IFRS-KSA or any other applicable accounting standards. These APMs are not defined or recognised under IFRS-KSA, or any other generally acceptable accounting principles. APMs should not be considered as a substitute for measures of performance in accordance with IFRS-KSA.

Table 20: Alternative performance measures

For the six months ended 30 June For the years ended 31 December 2021 2020 2020 2019 2018 (SAR million, except otherwise indicated)

Adjusted EBITDA(1)

11,467.7 10,671.4 22,090.0 21,265.0 19,835.8 Adjusted EBITDA margin (%)

(2) . 36.3 37.0 37.5 39.1 38.2

Capex(3)

2,828.7 3,831.8 10,840.6 11,368.2 9,757.1 Free Cash Flow(4) (1,486.2) 2,004.7 17,484.1 (1,447.5) 9,375.3

Interest Coverage Ratio(%)(5)

39.3 32.2 35.4 27.8 50.2 Total Debt

(6) 11,619.0 12,062.1 11,936.1 12,194.0 4,286.0

Net debt(7)

266,7 3,216.6 (7,502.0) 1,981.6 (13,553.3) Net Debt to Adjusted EBITDA(%)

(8)

0.0 0.3 (0.3) 0.1 (0.7)

Total Debt to Equity(9) 17.8 18.8 18.3 19.3 6.4

Return on Assets%(10)

9.5 9.2 9.2 9.2 10.1

Return on Equity%(11) 17.4 17.0 17.2 17.3 16.5 _______________________________

(1) Adjusted EBITDA is a non-IFRS-KSA performance measure. The Group views Adjusted EBITDA as a useful measure because it is used to analyse the Group’s operating profitability and provides an indication of results before non-cash charges. Set forth below in

Schedule 5 is information regarding the calculation of Adjusted EBITDA for each period:

(2) Adjusted EBITDA margin is a non-IFRS-KSA performance measure and is calculated as Adjusted EBITDA divided by revenue.

(3) Capex is additions to property and equipment plus additions to intangible assets for the period.

(4) Free Cash Flow is a non-IFRS-KSA performance measure and is defined as net cash generated from operating activities less Capex.

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(5) Interest Coverage Ratio is Adjusted EBTIDA divided by finance cost.

(6) Total Debt is the sum of long-term borrowings, short term borrowings, long-term lease liabilit ies and short-term lease liabilities.

(7) Net Debt is the total debt less cash and cash equivalents and short-term murabaha.

(8) Net Debt to Adjusted EBITDA is net debt divided by Adjusted EBITDA.

(9) Total Debt to Equity is total debt divided by total equity.

(10) Return on Assets is net profit divided by total assets. Amounts relating to the periods ended 30 June 2021 and 2020 were calculated

based on the twelve-month periods ended 30 June 2021 and 2020, respectively. The financial information for the twelve-month period ended 30 June 2021 was calculated based on the results of operations for the six-month period ended 30 June 2021 in addition to the difference between the results of operations for the year ended 31 December 2020 and the six months ended 30 June 2020. The f inancial information for the 12-month period ended 30 June 2020 was calculated based on the results of operations for the six -month period

ended 30 June 2020 in addition to the difference between the results of operations for the year ended 31 December 2019 and the six months ended 30 June 2019.

(11) Return on Equity is the net profit attributable to the equity holders of the Company divided by equity attributable to the equity holders of the Company. Amounts relating to the periods ended 30 June 2021 and 2020 were calculated based on the twelve-month periods

ended 30 June 2021 and 2020, respectively. The financial information for the twelve-month period ended 30 June 2021 was calculated based on the results of operations for the six-month period ended 30 June 2021 in addition to the difference between the results of operations for the year ended 31 December 2020 and the six months ended 30 June 2020. The financial information for the 12-month

period ended 30 June 2020 was calculated based on the results of operations for the six-month period ended 30 June 2020 in addition to the difference between the results of operations for the year ended 31 December 2019 and the six months ended 30 June 2019 .

Table 21: Adjusted EBITDA for each period

For the six month periods ended 30 June For the years ended 31 December

2021 2020 2020 2019 2018

(SAR million)

Net Profit ...................................... 5,872.2 5,730.2 11,185.2 10,924.8 11,080.5 Adjusted for:

Zakat and income tax ...................... 574.9 465.7 1,170.5 762.1 747.7 Net other losses/(gains) ................... 30.7 (561.5) (424.6) 41.0 215.5 Net share in results of investments in

associates and joint ventures ......... (61.2) 11.9 (53.0) (49.6) 10.6

Net other expenses/(income) ............ 54.4 24.7 43.0 76.1 (102.9) Finance cost ................................... 291.8 331.2 623.9 765.2 395.4 Finance income ............................. (192.7) (236.1) (413.9) (639.2) (551.5) Cost of early retirement program ...... 161.6 300.0 600.0 600.0 450.0

Depreciation and amortisation ......... 4,735.8 4,605.3 9,358.9 8,784.6 7,590.5

Adjusted EBITDA......................... 11,467.7 10,671.4 22,090.0 21,265.0 19,835.8

6.5 Results of operations for the six-month periods ended 30 June 2021 and 30 June 2020

The table below sets out a comparison of the Group’s results of operations for the six-month periods ended 30 June 2021 and 2020.

Table 22: A comparison of the Group’s results of operations for the six-month periods ended

30 June 2021 and 2021


2021 2020 % change

(SAR ‘000)

Revenues ............................................................................................... 31,594,267 28,855,085 9.5

Cost of revenues .................................................................................... (14,684,968) (12,318,212) 19.2

Gross Profit .......................................................................................... 16,909,299 16,536,873 2.3

Operating Expenses

Selling and marketing ............................................................................ (2,870,088) (2,997,963) (4.3)

General and administration.................................................................... (2,571,504) (2,867,480) (10.3)


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Total Operating Expenses ................................................................... (10,177,406) (10,470,672) (2.8)



Cost of early retirement program........................................................... (161,642) (300,000) (46.1)

Finance income ...................................................................................... 192,668 236,096 (18.4)

Finance cost ........................................................................................... (291,812) (331,214) (11.9)

Net other expenses ................................................................................. (54,404) (24,716) 120.1

Net share in results of investments in associates and joint ventures ..... 61,164 (11,939) (612.3)

Net other (losses) gains.......................................................................... (30,714) 561,535 (105.5)

Total other (Expenses) Income ........................................................... (284,740) 129,762 (319.4)


Zakat and income tax............................................................................. (574,921) (465,734) 23.4

Net Profit .............................................................................................. 5,872,232 5,730,229 2.5

Net profit attributable to: Equity holders of the Company ............................................................. 5,773,303 5,636,960 2.4

Non-controlling interests ....................................................................... 98,929 93,269 6.1

5,872,232 5,730,229 2.5

6.5.1 Revenues

The Group is principally engaged in providing telecommunication services and related products. For the six-month period ended 30 June 2021, 92.5% of the Group’s revenues were from its operations in Saudi Arabia (including stc, channels by stc, solutions by stc and other Saudi subsidiaries), compared to 92.4% for the six-month period ended 30 June 2020. Outside Saudi Arabia, the Group operates through its subsidiaries and associates, primarily in Kuwait and Bahrain.

The Group’s revenues for the six-month period ended 30 June 2021 were SAR 31,594.3 million, an increase of SAR 2,739.2 million, or 9.5%, compared to SAR 28,855.1 million in the six-month period ended 30 June 2020. This was principally due to improved performance of (i) stc KSA, mainly in the EBU, (ii) channels by stc, mainly from sales of devices, and (iii) solutions by stc, mainly from increase in demand for dedicated internet access (“DIA”) and VSAT products against the overall growth in demand for connectivity.


The Group’s cost of revenues for the six-month period ended 30 June 2021 was SAR 14,685.0 million, an increase of SAR 2,366.8 million, or 19.2%, compared to SAR 12,318.2 million in the six-month period ended 30 June 2020. This was principally as a result of an increase in revenues from lower margin products and services, given the strong focus of the Group to expand in the ICT space.

6.5.3 Gross profit

As a result of the factors described above, the Group’s gross profit for the six-month period ended 30 June 2021 was SAR 16,909.3 million, an increase of SAR 372.4 million, or 2.3%, compared to SAR 16,536.9 million in the six-month period ended 30 June 2020.

The Group’s gross profit margin for the six-month period ended 30 June 2021 was 53.5% compared to 57.3% in the six-month period ended 30 June 2020.


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The Group’s selling and marketing expenses for the six-month period ended 30 June 2021 were SAR 2,870.1 million, a decrease of SAR 127.9 million, or 4.3%, compared to SAR 2,998.0 million in the six-month period ended 30 June 2020. This was principally as a result of the positive impact of cost optimisation initiatives under the Business Efficiency Program.


The Group’s general and administration expenses for the six-month period ended 30 June 2021 were SAR 2,571.5 million, a decrease of SAR 296.0 million, or 10.3%, compared to SAR 2,867.5 million in the six-month period ended 30 June 2020. This was principally as a result of the positive impact of cost optimisation initiatives under the Business Efficiency Program.

6.5.6 Depreciation and amortisation

The Group’s depreciation and amortisation expenses for the six-month period ended 30 June 2021 were SAR 4,735.8 million, an increase of SAR 130.6 million, or 2.8%, compared to SAR 4,605.2 million in the six-month period ended 30 June 2020. This was principally as a result of continuous investments in Capex.

6.5.7 Operating profit

As a result of the factors described above, the Group’s operating profit for the six-month period ended 30 June 2021 was SAR 6,731.9 million, an increase of SAR 665.7 million, or 11.0%, compared to SAR 6,066.2 million in the six-month period ended 30 June 2020.


The Group’s cost of early retirement program for the six-month period ended 30 June 2021 was SAR 161.6 million, a decrease of SAR 138.4 million, or 46.1%, compared to SAR 300.0 million in six-month period ended 30 June 2020. This was principally as a result of a decrease in the number of participants in the Group’s voluntary retirement scheme.


The Group’s finance income for the six-month period ended 30 June 2021 was SAR 192.7 million, a decrease of SAR 43.4 million, or 18.4%, compared to SAR 236.1 million in the six-month period ended 30 June 2020. The Group’s finance income was lower due to the lower murabaha income given the significantly lower deposit rates and excessive liquidity in the market.

6.5.10 Finance costs

The Group’s finance costs for the six-month period ended 30 June 2021 were SAR 291.8 million, a decrease of SAR 39.4 million, or 11.9%, compared to SAR 331.2 million in the six-month period ended 30 June 2020. The decrease in financing costs is due to a decrease in total borrowings to SAR 8,718.8 million in the six-month period ended 30 June 2021 compared to SAR 9,065.0 million in the six-month period ended 30 June 2020 and total lease liabilities to SAR 2,900.3 million in the six-month period ended 30 June 2021 compared to SAR 2,997.1 million in the six-month period ended 30 June 2020.


The Group’s net share in results of investments in associates and joint ventures for the six-month period ended 30 June 2021 was SAR 61.2 million, an increase of SAR 73.1 million, or 612.3%, compared to a loss from net share in results of investments in associates and joint ventures, of SAR 11.9 million in the six-month period ended 30 June 2020. The change was primarily due to higher share of profit from investments in certain associates and joint ventures in the six-month period ended 30 June 2021, compared to a loss from the net share of the results of investments in associates and joint ventures in the same period in 2020.


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The Group’s zakat expense for the six-month period ended 30 June 2021 was SAR 574.9 million, an increase of SAR 109.2 million, or 23.4%, compared to SAR 465.7 million in the six-month period ended 30 June 2020 due to the changes in the zakat regulation and changes in the zakat base calculation.

6.5.13 Net profit

As a result of the factors described above, the Group’s net profit for the six-month period ended 30 June 2021 was SAR 5,872.2 million, an increase of SAR 142.0 million, or 2.5%, compared to SAR 5,730.2 million in the six-month period ended 30 June 2020.

The Group’s net profit margin for the six-month period ended 30 June 2021 was 18.6%, compared to 19.9% in the six-month period ended 30 June 2020.

6.6 Results of operations for the years ended 31 December 2020 and 31 December 2019

The table below sets out a comparison of the Group’s results of operations for the years ended 31 December 2020 and 2019.

Table 23: The Group’s results of operations for the years ended 31 December 2020 and 2019.


2020 2019 % change

(SAR ‘000) Revenues ............................................................................................... 58,953,318 54,367,531 8.4

Cost of revenues .................................................................................... (24,998,923) (21,976,306) 13.8

Gross Profit .......................................................................................... 33,954,395 32,391,225 4.8

Operating Expenses

Selling and marketing ............................................................................ (6,053,632) (5,581,969) 8.5 General and administration.................................................................... (5,810,763) (5,544,276) 4.8


Total Operating Expenses ................................................................... (21,223,270) (19,910,832) 6.6


Other Income and Expenses Cost of early retirement program........................................................... (600,000) (600,000) —

Finance income ...................................................................................... 413,873 639,161 (35.3)

Finance cost ........................................................................................... (623,925) (765,154) (18.5)

Net other expenses ................................................................................. (42,995) (76,062) (43.5)

Net share in results of investments in associates and joint ventures ..... 52,953 49,597 6.8 Net other gains (losses).......................................................................... 424,612 (40,960) (1,136.7)

Total Other Expenses .......................................................................... (375,482) (793,418) (52.7)


Zakat and income tax............................................................................. (1,170,446) (762,144) 53.6

Net Profit .............................................................................................. 11,185,197 10,924,831 2.4


Equity holders of the Company ............................................................. 10,994,875 10,664,666 3.1

Non-controlling equity interests ............................................................ 190,322 260,165 (26.8)

11,185,197 10,924,831 2.4

______________

Source: The results of the operations for the year ended 31 December 2019 has been extracted/derived from 2019 comparative amounts in the 2020 Audited Financial Statements. Similarly, the results of the operations for the year ended 31 December 2018 has been extr acted/derived from 2018 comparative amounts in the 2019 Audited Financial St atements

6.6.1 Revenues

The Group’s revenues for the year ended 31 December 2020 were SAR 58,953.3 million, an increase of SAR 4,585.8 million, or 8.4%, compared to SAR 54,367.5 million in the year ended 31 December 2019. This increase was principally as a result of the increase in sale of devices and services provided. For the years ended 31 December 2020 and 2019, 91.9% of the Group’s revenues were from its operations in Saudi Arabia.

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Revenues from solutions by stc were higher in 2020 compared to 2019 primarily due to the increase in demand for DIA and VSAT products against the overall growth in demand for connectivity.

Revenues from channels by stc were higher in 2020 compared with 2019 as a result of an increase in sales of devices due to higher demand and focus on growing its retail revenue.

Revenues from stc Kuwait decreased in 2020 compared to 2019 due to closure of stores as a result of COVID-19 restrictions and the government of Kuwait requirements for all operators to provide customers with one month of free data and voice on-net and off-net services. These factors negatively affected the sale of devices and telecommunications services, in addition to a reduction in roaming revenues due to travel restrictions.

Revenues from stc Bahrain in 2020 were higher than in 2019 primarily due to an increase in sales of devices, as well as increased revenues in wholesale and business units.


The table below shows a breakdown of the Group’s cost of revenues for each of the years ended 31 December 2020 and 31 December 2019.

Table 24: The Group’s cost of revenues for each of the years ended 31 December 2020 and

31 December 2019

For the years ended

31 December

2020 2019

(SAR ‘000)

Cost of devices sold ................................................................................................................. 8,712,228 7,492,197

Network usage charges ............................................................................................................ 4,740,007 4,515,488 Government charges ................................................................................................................ 3,806,823 3,108,508

Employees’ costs ..................................................................................................................... 3,338,050 3,059,466

Repair and maintenance........................................................................................................... 2,568,972 2,112,045

Cards recharge and printing cost ............................................................................................. 955,120 1,302,581

Amortisation and impairment of contract costs....................................................................... 268,352 315,797 Others(1).................................................................................................................................... 609,371 70,224

Cost of revenues ..................................................................................................................... 24,998,923 21,976,306

_________

(1) The “others” category comprises various expenses, most importantly are: rent of property, equipment and vehicles,

telecommunication services, postage, courier, security and safety expenses, premises expenses and consultancy.

The Group’s cost of revenues for the year ended 31 December 2020 was SAR 24,998.9 million, an increase of SAR 3,022.6 million, or 13.8%, compared to SAR 21,976.3 million in the year ended 31 December 2019. The increase was principally as a result of an increase in cost of devices sold and government charges mostly related to commercial service provisioning fees.

6.6.3 Gross profit

As a result of the factors described above, the Group’s gross profit for the year ended 31 December 2020 was SAR 33,954.4 million, an increase of SAR 1,563.2 million, or 4.8%, compared to SAR 32,391.2 million in the year ended 31 December 2019.

The Group’s gross profit margin for the year ended 31 December 2020 was 57.6% compared to 59.6% in the year ended 31 December 2019.


The table below shows a breakdown of the Group’s selling and marketing expenses for each of the years ended 31 December 2020 and 2019.

120

Table 25: The Group’s selling and marketing expenses for each of the years ended 31

December 2020 and 2019.

For the years ended

31 December

2020G 2019

(SAR ‘000)

Employees’ costs ..................................................................................................................... 2,407,936 2,152,253

Impairment loss on trade receivables ...................................................................................... 1,072,959 662,043 Sales commissions ................................................................................................................... 674,488 786,809

Advertising and publicity ........................................................................................................ 653,902 769,601

Amortisation and impairment of contract costs....................................................................... 237,614 88,346

Call centre expenses ................................................................................................................ 194,110 260,898

Repairs and maintenance ......................................................................................................... 189,363 320,765 Sport activities sponsorship cost.............................................................................................. 163,056 83,245

Impairment on contract assets ................................................................................................. 117,686 102,807

Others(1).................................................................................................................................... 342,518 355,202

Selling and marketing expenses............................................................................................ 6,053,632 5,581,969

_________

(1) The “others” category comprises various expenses, most importantly: security and safety, telecommunications and premises management expenses.

The Group’s selling and marketing expenses for the year ended 31 December 2020 were SAR 6,053.6 million, an increase of SAR 471.7 million, or 8.5%, compared to SAR 5,582.0 million in the year ended 31 December 2019. This was principally as a result of an increase in impairment loss on trade receivables and amortisation and impairment of contract costs, partially offset by a reduction in call centre expenses and repairs and maintenance.


The table below shows a breakdown of the Group’s general and administration expenses for each of the years ended 31 December 2020 and 31 December 2019.

Table 26: The Group’s general and administration expenses for each of the years ended 31

December 2020 and 31 December 2019.

For the years ended

31 December

2020 2019

(SAR ‘000)

Employees’ costs ..................................................................................................................... 3,472,104 3,303,365 Repair and maintenance........................................................................................................... 925,692 880,471

Consultancy, legal and professional fees ................................................................................. 322,924 404,776

Sadad service fees .................................................................................................................... 126,839 120,211

Utility expenses ....................................................................................................................... 116,506 99,025

Security and safety expenses ................................................................................................... 101,140 141,181 Others(1).................................................................................................................................... 745,558 595,247

General and administration expenses .................................................................................. 5,810,763 5,544,276

_________________

(1) The “others” category comprises various expenses, most importantly: rent of property, equipment and vehicles, insurance

premiums, office equipment, freight, handling, postage and courier expenses.

The Group’s general and administration expenses for the year ended 31 December 2020 were SAR 5,810.8 million, an increase of SAR 266.5 million, or 4.8%, compared to SAR 5,544.3 million in the year ended 31 December 2019. This was principally as a result of an increase in employee costs and repair and maintenance, as well as the expansion of subsidiaries’ business and activities.

121


The Group’s depreciation and amortisation expenses for the year ended 31 December 2020 were SAR 9,358.9 million, an increase of SAR 574.3 million, or 6.5%, compared to SAR 8,784.6 million in the year ended 31 December 2019. This was principally as a result of continuous investments in Capex.


As a result of the factors described above, the Group’s operating profit for the year ended 31 December 2020 was SAR 12,731.1 million, an increase of SAR 250.7 million, or 2.0%, compared to SAR 12,480.4 million in the year ended 31 December 2019.


The Group’s cost of early retirement program for each of the years ended 31 December 2020 and 2019 was SAR 600.0 million. This was principally given that the number of participants in the Group’s voluntary retirement scheme largely remained unchanged.


The Group’s finance income for the year ended 31 December 2020 was SAR 413.9 million, a decrease of SAR 225.3 million, or 35.3%, compared to SAR 639.2 million in the year ended 31 December 2019. The Group’s finance income depends on market conditions and the liquidity situation. The decrease was mainly due to lower returns on murabaha investments in 2020.


The Group’s finance costs for the year ended 31 December 2020 were SAR 623.9 million, a decrease of SAR 141.2 million, or 18.5%, compared to SAR 765.2 million in the year ended 31 December 2019. This was principally as a result of a decrease in costs of unwinding of discounts on provisions and financial liabilities, as well as decreased financing costs relating to murabaha investments and lease liabilities, partially offset by higher financing costs relating to sukuk investments.


The Group’s gain from net share in results of investments in associates and joint ventures, for the year ended 31 December 2020 was SAR 53.0 million, an increase of SAR 3.4 million, or 6.8%, compared to a gain from net share in results of investments in associates and joint ventures, of SAR 49.6 million in the year ended 31 December 2019, primarily due to higher share of profit from investments in certain associates and joint ventures in comparison to the same period in 2019.


The Group’s zakat expense for the year ended 31 December 2020 was SAR 1,170.4 million, an increase of SAR 408.3 million, or 53.6%, compared to SAR 762.1 million in the year ended 31 December 2019 due to changes in the zakat regulation and changes in the zakat base calculation.

6.6.13 Net profit

As a result of the factors described above, the Group’s net profit for the year ended 31 December 2020 were SAR 11,185.2 million, an increase of SAR 260.4 million, or 2.4%, compared to SAR 10,924.8 million in the year ended 31 December 2019.

The Group’s net profit margin for the year ended 31 December 2020 was 19.0%, compared to 20.1% in the year ended 31 December 2019.

6.7 Results of operations for the years ended 31 December 2019 and 31 December 2018

The table below sets out a comparison of the Group’s results of operations for the years ended 31 December 2019 and 2018.

122

Table 27: The Group’s results of operations for the years ended 31 December 2019 and 2018.


2019 2018 % change

(SAR ‘000)

Revenues ............................................................................................... 54,367,531 51,963,243 4.6

Cost of revenues .................................................................................... (21,976,306) (21,490,161) 2.3

Gross Profit .......................................................................................... 32,391,225 30,473,082 6.3

Operating Expenses

Selling and marketing ............................................................................ (5,581,969) (5,480,288) 1.9

General and administration.................................................................... (5,544,276) (5,157,039) 7.5


Total Operating Expenses ................................................................... (19,910,832) (18,227,857) 9.2



Cost of early retirement program........................................................... (600,000) (450,000) 33.3

Finance income ...................................................................................... 639,161 551,535 15.9

Finance cost........................................................................................... (765,154) (395,440) 93.5 Net other (expenses) income................................................................. (76,062) 102,943 (173.9)

Net share in results of investments in associates and joint ventures..... 49,597 (10,605) (567.7)

Net other (losses) gains ......................................................................... (40,960) (215,493) (81.0)

Total other (Expenses)/Income .......................................................... (793,418) (417,060) 90.2

Net Profit before Zakat and Income Tax.......................................... 11,686,975 11,828,165 (1.2)

Zakat and income tax ............................................................................ (762,144) (747,667) 1.9

Net Profit.............................................................................................. 10,924,831 11,080,498 (1.4)


Equity holders of the Company ............................................................ 10,664,666 10,779,771 (1.1)

Non-controlling interests....................................................................... 260,165 300,727 (13.5)

10,924,831 11,080,498 (1.4)

6.7.1 Revenues

The Group’s revenues for the year ended 31 December 2019 were SAR 54,367.5 million, an increase of SAR 2,404.3 million, or 4.6%, compared to SAR 51,963.2 million in the year ended 31 December 2018. This increase was principally as a result of the growth of the Group’s ICT services, in particular solutions by stc. For the year ended 31 December 2019, 91.9% of the Group’s revenues were from its operations Saudi Arabia, compared to 91.1% for the year ended 31 December 2018.

Revenues from solutions by stc were 30% (before eliminations and adjustments) higher in 2019 compared to 2018, primarily due to the growth across all major product/service lines, specifically system integration, internet and telecommunications services, outsourcing services and cloud services.

Revenues from channels were 3.2% (before eliminations and adjustments) higher in 2019 compared to 2018, primarily due to an increase in sales of high margin products as compared to conventional telecommunications products, such as devices, FTTH and DSL.

Revenues from stc Kuwait were 2.1% (before eliminations and adjustments) higher in 2019 compared to 2018, primarily due to the enhanced quality of services and increase promotions and packages offered across all segments, and its consolidation of its acquisition of Qualitynet.

Revenues in stc Bahrain were 4.3% (before eliminations and adjustments) higher in 2019 compared to 2018, primarily due to growth in the personal segment.


The table below shows a breakdown of the Group’s cost of revenues for each of the years ended 31 December 2019 and 31 December 2018.

Table 28: The Group’s cost of revenues for each of the years ended 31 December 2019 and

31 December 2018

123

For the years ended

31 December(1)

2019 2018

(SAR ‘000)

Cost of devices sold .................................................................................................................... 7,492,197 4,386,167

Network access charges .............................................................................................................. 4,515,488 4,998,609

Government charges ................................................................................................................... 3,108,508 3,565,553 Employees’ costs ........................................................................................................................ 3,059,466 2,969,178

Repair and maintenance.............................................................................................................. 2,112,045 2,346,994

Cards recharge and printing cost ................................................................................................ 1,302,581 1,532,359

Amortisation and impairment of contract costs.......................................................................... 315,797 373,644

Others(2)....................................................................................................................................... 70,224 1,317,657

Cost of revenues ........................................................................................................................ 21,976,306 21,490,161

_______ ____________

(1) Certain figures set out above for the year ended 31 December 2019 have been extracted from the comparative information

presented in the 2020 Audited Financial Statements, as there are reclassifications. As such, certain figures for the year ended

31 December 2019 do not match respective figures in the 2019 Audited Financial Statements.

(2) The “others” category mainly comprises various expenses, mainly related to: rent of property, equipment and vehicles, telecommunication services, postage, courier, security and safety expenses, premises expenses and consultancy.

The Group’s cost of revenues for the year ended 31 December 2019 was SAR 21,976.3 million, an increase of SAR 486.1 million, or 2.3%, compared to SAR 21,490.2 million in the year ended 31 December 2018. The increase was principally as a result of an increase in cost of devices sold, as well as the increase in cost of revenues from solutions by stc and channels by stc, in line with their respective growth in revenues. Further, cost reductions resulting from the Business Efficiency Program assisted in partially offsetting the increase in overall cost of revenues.

6.7.3 Gross profit

As a result of the factors described above, the Group’s gross profit for the year ended 31 December 2019 was SAR 32,391.2 million, an increase of SAR 1,918.1 million, or 6.3%, compared to SAR 30,473.1 million in the year ended 31 December 2018.

The Group’s gross profit margin for the year ended 31 December 2019 was 59.6%, compared to 58.6% in the year ended 31 December 2018.


The table below shows a breakdown of the Group’s selling and marketing expenses for each of the years ended 31 December 2019 and 31 December 2018.

Table 29: The Group’s selling and marketing expenses for each of the years ended 31

December 2019 and 31 December 2018.

For the years ended

31 December

2019 2018

(SAR ‘000)

Employees’ costs ..................................................................................................................... 2,152,253 2,314,684

Impairment loss on trade receivables ...................................................................................... 662,043 706,935 Advertising and publicity ........................................................................................................ 769,601 560,114

Sales commissions ................................................................................................................... 786,809 505,623

Call centre expenses ................................................................................................................ 260,898 268,534

Impairment on contract assets ................................................................................................. 102,807 241,151

Repairs and maintenance ......................................................................................................... 320,765 195,201 Sport activities sponsorship cost.............................................................................................. 83,245 142,414

Amortisation and impairment of contract costs....................................................................... 88,346 42,989

Others(1).................................................................................................................................... 355,202 502,643

Selling and marketing expenses............................................................................................ 5,581,969 5,480,288

_________

124

(1) The “others” category comprises various expenses, most importantly: security and safety, telecommunications and

management of telecommunication premises expenses.

The Group’s selling and marketing expenses for the year ended 31 December 2019 were SAR 5,582.0 million, an increase of SAR 101.7 million, or 1.9%, compared to SAR 5,480.3 million in the year ended 31 December 2018. This was principally as a result of an increase in sales commissions, advertising and publicity costs and repairs and maintenance costs, partially offset by a reduction in employee costs and impairment loss on trade receivables.


The table below shows a breakdown of the Group’s general and administration expenses for each of the years ended 31 December 2019 and 31 December 2018.

Table 30: The Group’s general and administration expenses for each of the years ended 31

December 2019 and 31 December 2018

For the years ended

31 December

2019 2018

(SAR ‘000)

Employees’ costs ..................................................................................................................... 3,303,365 2,617,257

Repair and maintenance........................................................................................................... 880,471 914,609

Consultancy, legal and professional fees ................................................................................. 404,776 247,202

Security and safety expenses ................................................................................................... 141,181 140,311 Sadad service fees .................................................................................................................... 120,211 107,097

Utilities expenses ..................................................................................................................... 99,025 179,683

Operating Lease costs .............................................................................................................. 88,605 359,351

Others(1).................................................................................................................................... 506,642 591,529

General and administration expenses .................................................................................. 5,544,276 5,157,039

_________

(1) The ”others” category comprises various items, most importantly insurance premiums, office equipment, freight, handling,

postage and courier expenses.

The Group’s general and administration expenses for the year ended 31 December 2019 were SAR 5,544.3 million, an increase of SAR 387.2 million, or 7.5%, compared to SAR 5,157.0 million in the year ended 31 December 2018. This was principally as a result of an increase in employee costs, Sadad service fees and consultancy, legal and professional fees, partially offset by a reduction in operating lease costs and utilities expenses.


The Group’s depreciation and amortisation expenses for the year ended 31 December 2019 were SAR 8,784.6 million, an increase of SAR 1,194.1 million, or 15.7%, compared to SAR 7,590.5 million in the year ended 31 December 2018. This was principally as a result of continuous investments in Capex.


As a result of the factors described above, the Group’s operating profit for the year ended 31 December 2019 was SAR 12,480.4 million, an increase of SAR 235.2 million, or 1.9%, compared to SAR 12,245.2 million in the year ended 31 December 2018.


The Group’s cost of early retirement program for the year ended 31 December 2019 was SAR 600.0 million, an increase of SAR 150.0 million, or 33.3%, compared to SAR 450.0 million in the year ended 31 December 2018. This was principally given that the number of participants in the Group’s voluntary retirement scheme increased in 2019.


125

The Group’s finance income for the year ended 31 December 2019 was SAR 639.2 million, an increase of SAR 87.6 million, or 15.9%, compared to SAR 551.5 million in the year ended 31 December 2018. The increase was mainly due to higher returns on investment in sukuk in 2019, including a sukuk issued by the Ministry of Finance during the first quarter of 2019.


The Group’s finance costs for the year ended 31 December 2019 were SAR 765.2 million, an increase of SAR 369.7 million, or 93.5%, compared to SAR 395.4 million in the year ended 31 December 2018. This was principally as a result of an increase in financing costs relating to lease liabilities, as well as higher financing costs relating to the trust certificates (sukuk) issued by the Group in the second quarter of 2019 with an aggregate face amount of USD 1,250 million (equivalent to SAR 4,688 million) with an annual interest of 3.89% and a maturity of ten years.


The Group’s gain from net share in results of investments in associates and joint ventures, for the year ended 31 December 2019 was SAR 49.6 million, an increase of SAR 60.2 million, or 567.7%, compared to a loss from net share in results of investments in associates and joint ventures, of SAR 10.6 million in the year ended 31 December 2018, primarily due to higher share of profit from investments in certain associates and joint ventures in comparison to the same period in 2018.


The Group’s zakat expense for the year ended 31 December 2019 was SAR 762.1 million, an increase of SAR 14.5 million, or 1.9%, compared to SAR 747.7 million in the year ended 31 December 2018 due to the overall increase of the zakat base.

6.7.13 Net profit

As a result of the factors described above, the Group’s net profit for the year ended 31 December 2019 was SAR 10,924.8 million, a decrease of SAR 155.7 million, or 1.4%, compared to SAR 11,080.5 million in the year ended 31 December 2018.

The Group’s net profit margin for the year ended 31 December 2019 was 20.1%, compared to 21.3% in the year ended 31 December 2018.

6.8 Summary of consolidated financial position as at 30 June 2021 and 2020

The following table shows a summary of the Group’s consolidated financial position as at 30 June 2021 and 2020:

Table 31: The Group’s consolidated statement of financial position as at 30 June 2021 and

2020

126

As at 30 June

2021 2020 % change

)SAR’000( Total non-current assets 74,809,097 72,896,348 2.6 Total current assets 44,463,165 46,611,781 (4.6)

Total assets 119,272,262

119,508,12

9 (0.2)

Total equity 65,167,108 64,138,694 1.6 Total non-current liabilities 22,745,690 23,051,192 (1.3) Total current liabilities 31,359,464 32,318,243 (3.0)

Total liabilities 54,105,154 55,369,435 (2.3)

Total equity and liabilities 119,272,262

119,508,12

9 (0.2)

6.8.1 Non-current assets

Total non-current assets increased by 2.6% from SAR 72.9 billion as at 30 June 2020 to SAR 74.8 billion as at 30 June 2021 due to additions to property, equipment, intangible assets and goodwill

6.8.2 Current assets

Total current assets decreased by 4.6% from SAR 46.6 billion as at 30 June 2020 to SAR 44.5 billion as at 30 June 2021, due to the decrease in trade and other receivables.

6.8.3 Non-current liabilities

Total non-current liabilities decreased by 1.3% from SAR 23.1 billion as at 30 June 2020 to SAR 22.7 billion as at 30 June 2021, due to the repayment of long-term borrowings.

6.8.4 Current liabilities

Total current liabilities decreased by 3.0% from SAR 32.3 billion as at 30 June 2020 to SAR 31.4 billion as at 30 June 2021, due to the decrease in trade and other payables in line with the ordinary course of the Group’s business.

6.8.5 Equity

Total equity increased by 1.6% from SAR 64.1 billion as at 30 June 2020 to SAR 65.2 billion as at 30 June 2021, due to an increase in profits.

6.9 The Summary of the consolidated financial position as at 31 December 2020 and 2019

The following table shows a summary of the Group's consolidated statement of financial position as at 31 December 2020 and 2019.

Table 32: The Group’s consolidated statement of financial position as at 31 December 2020

and 31 December 2019

127

As at 31 December(1) Change

2020 2019

(SAR’000) % Total non-current assets 76,113,184 73,484,764 3.6 Total current assets 45,858,916 44,841,492 2.3

Total assets 121,972,100 118,326,256 3.1

Total equity 65,267,015 63,055,046 3.5 Total non-current liabilities 23,813,902 22,664,438 5.1 Total current liabilities 32,891,183 32,606,772 0.9

Total liabilities 56,705,085 55,271,210 2.6

Total equity and liabilities 121,972,100 118,326,256 3.1 ____________


presented in the 2020 Audited Financial Statements, as there are reclassifications. As such, certain figures for the year ended

31 December 2019 do not match respective figures in the 2019 Audited Financial Statements.


Total non-current assets increased by 3.6% from SAR 73.5 billion as at 31 December 2019 to SAR 76.1 billion as at 31 December 2020, due to additions to property and equipment.


Total current assets increased by 2.3% from SAR 44.8 billion as at 31 December 2019 to SAR 45.9 billion as at 31 December 2020, due to an increase in short-term murabaha deposits, which was alternatively offset by a decrease in trade and other receivables.


Total non-current liabilities increased by 5.1% from SAR 22.7 billion as at 31 December 2019 to SAR 23.8 billion as at 31 December 2020, due to an increase in liabilities related to licenses and deferred income.


Total current liabilities increased by 0.9% from SAR 32.6 billion as at 31 December 2019 to SAR 32.9 billion as at 31 December 2020, mainly due to an increase in trade and other payables in line with the ordinary course of the Group’s business, partially offset by a decrease in the statutory and regulatory provisions.

6.9.5 Equity

Total equity increased by 3.5% from SAR 63.1 billion as at 31 December 2019 to SAR 65.3 billion as at 31 December 2020, due to an increase in profits, partially offset by the reassessed actuarial losses related to end of service benefits.

6.10 The Summary of the consolidated financial position as at 31 December 2019 and 2018

The following table shows a summary of the Group's consolidated statement of financial position as at 31 December 2019 and 2018:

Table 33: The Group’s consolidated statement of financial position as at 31 December 2019

and 2018

128

As at 31 December(1) Change

2019 2018

(SAR’000) % Total non-current assets 73,484,764 63,341,069 16.0 Total current assets 44,841,492 46,029,525 (2.6)

Total assets 118,326,256 109,370,594 8.2

Total equity 63,055,046 66,661,598 (5.4) Total non-current liabilities 22,664,438 13,251,941 71.0 Total current liabilities 32,606,772 29,457,055 10.7

Total liabilities 55,271,210 42,708,996 29.4

Total equity and liabilities 118,326,256 109,370,594 8.2 _________________________


presented in the 2020 Audited Financial Statements, as there are reclassifications. As such, certain figures for the year ended 31

December 2019 do not match respective figures in the 2019 Audited Financial Statements.


Total non-current assets increased by 16.0% from SAR 63.3 billion as at 31 December 2018 to SAR 73.5 billion as at 31 December 2019, due to additions to property, equipment and intangible assets and investment in sukuk issued by the Ministry of Finance.


Total current assets decreased by 2.6% from SAR 46.0 billion as at 31 December 2018 to SAR 44.8 billion as at 31 December 2019, due to a decrease in short-term murabaha deposits, mainly offset by an increase in trade and other receivables.


Total non-current liabilities increased by 66.6% from SAR 13.3 billion as at 31 December 2018 to SAR 22.1 billion as at 31 December 2019, due to the issuance of long-term sukuk.


Total current liabilities increased from by 10.7% SAR 29.5 billion as at 31 December 2018 to SAR 32.6 billion as at 31 December 2019, due to the increase in other trade payables and accruals in line with the ordinary course of business.

6.10.5 Equity

Total equity decreased by 5.4% from SAR 66.7 billion as at 31 December 2018 to SAR 63.1 billion as at 31 December 2019 due to additional dividends compared to the profit for the year. Equity also decreased due to the reassessed actuarial losses relating to end of service benefits.

6.11 Liquidity and capital resources

6.11.1 Overview

The Group’s principal source of funding for each of the years under review has been cash flow from operations and borrowings and investment disposal receivables.

6.11.2 Cash flow

The table below summarises the Group’s cash flow from operating activities, investing activities and financing activities for the six-month periods ended 30 June 2021 and 2020 and for each of the years ended 31 December 2020, 2019 and 2018.

129

Table 34: The Group’s cash flow from operating activities, investing activities and financing

activities for the six-month periods ended 30 June 2021 and 2020 and for each of

the years ended 31 December 2020, 2019 and 2018.

For the six-month periods ended 30 June For the years ended 31 December

2021 2020 2020 2019 2018

(SAR ‘000) Net cash generated from

operating activities ......... 1,342,497 5,836,523 28,324,705 9,920,626 19,132,416 Net cash generated from

(used in) investing activities ....................... 5,079,320 (1,614,630) (17,429,177) (1,977,126) (5,027,028)

Net cash used in financing activities ....................... (6,942,335) (4,804,714) (9,919,218) (8,067,645) (8,516,962)

Net increase (decrease) in

cash and cash equivalents (520,518) (582,821) 976,310 (124,145) 5,588,426 Cash and cash equivalents

at beginning of the year 9,004,286 8,031,010 8,031,010 8,153,865 2,567,044 Cash and cash equivalents

at end of the period/year . 8,493,090 7,437,882 9,004,286 8,031,010 8,153,865

6.11.3 Net cash generated from operating activities

The Group’s net cash generated from operating activities for the six-month period ended 30 June 2021 was SAR 1,342.5 million compared to net cash generated from operating activities of SAR 5,836.5 million in the six-month period ended 30 June 2020. The negative cash flow movement in operating activities was the result of the increase in Zakat and income taxes paid, increase in trade receivables and others and decrease in trade payables and others. The trade receivables and others increased due to increase in receivables from Government, whereas the trade payables and others decreased due to the payment for notes payables. Further, 2020 related vendor payments were deferred by way of notes payables due to extended payment term arrangements agreed with the relevant vendors.

The Group’s net cash generated from operating activities for the year ended 31 December 2020 was SAR 28,324.7 million, an increase of SAR 18,404.1 million, or 185.5%, compared to SAR 9,920.6 million in the year ended 31 December 2019. This was principally as a result of a decrease in trade receivables due to collection from the Government.

The Group’s net cash generated from operating activities for the year ended 31 December 2019 was SAR 9,920.6 million, a decrease of SAR 9,211.8 million, or 48.1% compared to SAR 19,132.4 million in the year ended 31 December 2018. This was principally as a result of an increase in trade receivables related to the Government.

6.11.4 Net cash generated from (used in) investing activities

Net cash generated from investing activities for the six-month period ended 30 June 2021 was SAR 5,079.3 million, which consisted primarily of net proceeds from financial assets of SAR 7,737.7 million, partially offset by investments of SAR 2,234.3 million in property and equipment, mainly for the telecommunication network and equipment, with the addition of intangible assets of SAR 594.5 million.

Net cash used in investing activities for the year ended 31 December 2020 was SAR 17,429.2 million, which consisted primarily of investments of SAR 9,150.1 million in property and equipment, mainly for the telecommunication network and equipment, and net payments related to financial assets of SAR 7,882.2 million.

Net cash used in investing activities for the year ended 31 December 2019 was SAR 1,977.1 million, which principally consisted of investments of SAR 9,426.7 million in property and equipment, mainly for the telecommunication network and equipment, partially offset by net proceeds from financial assets of SAR 8,803.0 million.

Net cash used in investing activities for the year ended 31 December 2018 was SAR 5,027.0 million, which consisted primarily of investments of SAR 8,406.9 million in property and equipment, mainly

130

for the telecommunication network and equipment, partially offset by net proceeds related to financial assets of SAR 4,129.2 million.

6.11.5 Net cash used in financing activities

Net cash used in financing activities for the six-month period ended 30 June 2021 was SAR 6,942.3 million, which consisted of payments of dividends by the Group of SAR 6,151.5 million, lease liabilit ies of SAR 460.6 million and the repayment of borrowings of SAR 195.3 million.

Net cash used in financing activities for the year ended 31 December 2020 was SAR 9,919.2 million, which consisted of payments of dividends by the Group of SAR 8,076.2 million, lease liabilities of SAR 831.6 million and the net repayment of borrowings of SAR 381.0 million.

Net cash used in financing activities for the year ended 31 December 2019 was SAR 8,067.6 million, which consisted of payments of dividends by the Group of SAR 12,105.7 million and lease liabilit ies of SAR 712.5 million, partially offset by the net proceeds of borrowings of SAR 5,030.5 million, including the USD 1.25 billion in aggregate face amount of sukuk issued by the Group in the second quarter of 2019.

Net cash used in financing activities for the year ended 31 December 2018 was SAR 8,517.0 million, which consisted of payments of dividends by the Group of SAR 8,054.7 million and net repayment of borrowings of SAR 331.8 million.

6.11.6 Borrowings

As at 30 June 2021, the Group’s borrowings were SAR 8,718.8 million. The table below shows a breakdown of the Group’s borrowings as at 31 December 2020.

Table 35: The Group’s borrowings as at 31 December 2020

Outstanding balance

Current

portion

Non-curren

t portion

Nature of borrowing

Date of borrowin

g

Date of

f inal instalmen

t

Currenc

y Prof it rate 31 December 2020

(SAR ‘000)

Sukuk(1) .............................................. June 2014 June 2024 SAR 3 months SAIBOR +

0.7%

– 2,000,000

Sukuk(2) .............................................. May 2019 May 2029 USD 3.89% – 4,671,615 Murabaha(3) ....................................... May 2009 December

2021

BHD 1-month BHIBOR +

0.25%

26,829 –

Murabaha(4) ....................................... July 2017 May 2022 BHD 1-month BHIBOR +

1.6%

250,447 254,981

Murabaha........................................... December

2018

November

2025

BHD

2.1%

3,291 16,167

Murabaha(5) ....................................... December

2017

December

2022

MYR 6 months KLIBOR +

0.65%

– 1,407,530

Murabaha(6) ....................................... February

2019

February

2022

SAR

SAIBOR + 0.65%

– 202,000

Murabaha........................................... May 2019 April 2023

KWD 3.75%

37,918 85,312

Tawaruq ............................................. May 2019 February

2020

KWD

3.50%

– –

Total ................................................... 318,485 8,637,605

___________

(1) In 2014, stc established a domestic sukuk programme for the issuance of up to a maximum of SAR 5 billion in aggregate face

amount of sukuk certificates in series. In June 2014, stc issued sukuk under this programme with an aggregate face amount of

SAR 2 billion and a tenor of 10 years.

(2) In 2019, stc established an international sukuk programme for the issuance of up to a maximum of USD 5 billion in aggregat e face amount of sukuk in series. In May 2019, Saudi Telecom Sukuk Company Limited (a company established for the purpose

of issuing sukuk under this programme) issued the first series of sukuk under this programme, with an aggregate face amount

of USD 1,250 million (equivalent to SAR 4,688 million) and a tenor of 10 years.

(3) stc Bahrain has a murabaha facility secured by land and a building. A substantial portion of this murabaha facility has been

hedged for profit rate risk.

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(4) stc Bahrain has an unsecured murabaha facility of BHD 84.8 million (equivalent to SAR 844 million). stc Bahrain has entered

into cash flow hedging arrangements to hedge the profit rate risk. The carrying values of this murabaha facility is not materially different from its fair value as the impact of discounting, credit risk and other market risk is not considered significant by

management. This murabaha facility is repayable in 13 instalments starting from June 2019 and ending in May 2022.

(5) stc Asia Holding Limited acquired a variable commission loan on 28 December 2017 from several banks on a five-year

repayment period. This murabaha facility is secured by a letter of guarantee provided by stc.

(6) This murabaha facility is secured by a letter of guarantee provided by stc.

6.11.7 Maturity profile of the Group’s financing

Of the Group’s SAR 8,956.1 million borrowings outstanding as at 31 December 2020, 3.0% was scheduled to mature within 12 months. The table below summarises the maturity undiscounted profile of the Group’s financing at 31 December 2020.

Table 36: The Group’s financing at 31 December 2020

As at 31 December 2020

(SAR

million) (%)

Repayable within 12 months ................................................................................................ 318.5 3.0

Repayable between 1 and 5 years ......................................................................................... 3,985.5 44.0

Repayable after 5 years......................................................................................................... 4,673.5 53.0 Total ..................................................................................................................................... 8,977.5 100.0

6.11.8 Receivables/payables from the Government

As at 30 June 2021, the Group’s trade and other receivables were SAR 23,222.1 million, compared to SAR 16,084.4 million as at 31 December 2020 and SAR 21,372.4 million as at 31 December 2019. As at 30 June 2021, the Group’s trade and other payables were SAR 17,140.1 million, compared to SAR 20,296.8 million as at 31 December 2020 and SAR 18,242.2 million as at 31 December 2019. A substantial portion of the Group’s trade receivables relate to trade receivables from Government entities, which have typically been settled in full, but have been subject to extended payment delays of one year or longer. As at 30 June 2021, the Group’s trade receivables balance from Government entities totaled SAR 20,349 million, compared to SAR 13,889 million as at 31 December 2020 and SAR 18,508 million as at 31 December 2019. As at 30 June 2021, the Group’s trade payable to Government entities totaled SAR 2,166 million, compared to SAR 1,058 million as at 31 December 2020 and SAR 953 million as at 31 December 2019.

6.11.9 Capital expenditure

In 2020, the Group’s Capex was SAR 10.8 billion, compared to SAR 11.4 billion in 2019. In the six-month period ended 30 June 2021, the Group’s Capex was SAR 2.8 billion. The Group expects its Capex as a percentage of the Group’s revenues to largely remain stable at the current level in subsequent periods.

The Group’s Capex principally relates to the expansion of the coverage, capacity and network quality in the Group’s mobile network and the deployment of new technology in Saudi Arabia, as well as the maintenance of both infrastructure assets and assets in relation to network and related equipment. In addition, the Group’s Capex is used for mega projects such as wireless broad band (WBB), national broad band (NBB) and mobile Aspiration, which is mainly to upgrade the existing towers generally and with new information technology.

6.11.10 Capital commitments

The Group enters into commitments in the ordinary course of business for major capital expenditures, primarily in connection with its network expansion programmes.

During 2018, the Company signed an agreement with the Ministry of Finance, the Ministry of Communications and Information Technology (“MCIT”) and the CITC for a comprehensive and final

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settlement of an outstanding dispute related to commercial services provisioning fees provided by the Company and the licences fees granted to the Company for the period from 22/12/1428H (corresponding to 01/01/2008G) to 13/04/1439H (corresponding to 31/12/2017G). In return, the Company is committed to provide capital investments in its infrastructure which is in line with Saudi Arabia’s vision to develop the telecommunications infrastructure within a period of three years from 14/04/1439H (corresponding to 01/01/2018G).

stc Gulf Cable Systems Company has an agreement to invest USD 300 million (equivalent to SAR 1,125 million) as of 20/11/1442H (corresponding to 30/06/2021G) in a venture capital fund with an aim to make capital investments in global and regional information technology companies across various stages and subsectors.

6.11.11 Contingent liabilities

The Group had outstanding letters of guarantee amounting to SAR 4,222 million as at 31 December 2020, compared to SAR 4,514 million as at 31 December 2019 and outstanding letters of credit as at 31 December 2020 amounting to SAR 977 million, compared to SAR 961 million as at 31 December 2019. For further details on the Group’s contingent liabilities, please refer to Note 45 of the 2020 Audited Financial Statements.

6.11.12 Off-balance sheet arrangements

The Group did not have any material off-balance sheet arrangements or items as at 30 June 2021.

6.11.13 Retirement benefit schemes

The Group offers various post-employment schemes, including both defined contribution and defined benefit plans, and post-employment medical, which is offered for five years to the employees who retire under the early retirement program. Additionally, end-of-service benefits are mandatory for all Saudi Arabia based employees, which is where a majority of the Group’s employees are based. This is an unfunded benefit.

6.11.14 Dividend

During 2020, the Company distributed cash dividends to its shareholders for the fourth quarter of 2019 and for the first, second and third quarters of 2020 in an amount of SAR 2,000 million for each quarter representing SAR 1 per Share which is in line with the 2018 Dividend Policy. The total dividends distributed during 2020 were SAR 4 per Share.

The objective of the Dividend Policy is to maintain a minimum level of dividend of SAR 1 per Share on a quarterly basis. The Company will consider and pay additional dividends subject to Board and General Assembly approval after assessment and determination of the Company’s financial situation, outlook and Capex requirements. Additional dividends are likely to vary on a quarterly basis depending on the Company’s performance. The Dividend Policy will remain subject to:

any material changes in the Company’s strategy and business (including the commercial environment in which the Company operates)

laws, regulations and legislations governing the sector at which the Company operates

any banking, other funding or credit rating covenants or commitments that the Company may be bound to follow from time to time.

In line with the 2018 Dividend Policy, as of 30 September 2021, the Company also distributed cash dividends to its shareholders for the fourth quarter of 2020, as well as an additional cash dividend for 2020 and for the first and second quarters of 2021 in an amount of SAR 2,000 million for each distribution representing SAR 1 per Share. In addition, the Company will also distribute cash dividends to its shareholders for the third quarter of 2021 at a rate of SAR 1 per share. The Company will distribute cash dividends to its shareholders for Q3 2021 at the rate of SAR 1 per Share.

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6.12 Quantitative and qualitative disclosure about market risk

6.12.1 Profit rate risk

The Group’s main profit rate risk arises from borrowings and financial assets with variable profit margin rates. Some of the companies in the Group use profit swap contracts to manage profit rate risk.

There has been no change to the Group’s exposure to profit risks or the manner in which these risks are managed and measured.

If profit rates had been 20 basis points higher (lower) and all other variables were held constant, the impact on profit of the Group would have been lower (higher) by SAR 13 million in 2020, compared to SAR 18 million in 2019. This hypothetical effect on profit of the Group primarily arises from potential effect of variable profit financial liabilities.

The sensitivity analyses above have been determined based on the exposure to profit rates for non-derivative instruments at the end of the reporting period. These show the effects of changes in market profit rates on profit and loss. For floating rate asset and liabilities, the analysis is prepared assuming the amounts outstanding at the end of the reporting period were outstanding for the whole year. A 20-basis point increase or (decrease) represents management’s assessment of the reasonably possible change in profit rates.

6.12.2 Foreign currency risk

Saudi Riyals are considered the functional currency of the Group and are pegged against the U.S. dollar. Therefore, the Group is only exposed to exchange rate fluctuations from transactions denominated in foreign currencies other than U.S. dollars. Thus, the impact of foreign currency risk on the Group is minimal.

6.12.3 Credit risk

The Group has approved guidelines and policies from the Board that allows it to only deal with creditworthy counterparties and limits counterparty exposure. The Board’s guidelines and policies allow the Group to invest only with those counterparties that have high investment grade credit rating issued by international credit rating agencies and limits the exposure to a single counterparty by stipulation that the exposure should not exceed 30% of the counterparty’s shareholders’ equity. Further, the Group’s credit risk is monitored on a quarterly basis.

Other than the concentration of credit risk with the Government described in Note 17 attached to the Audited Financial Statements, concentration of credit risk with respect to trade receivables are limited given that the Group’s customer base consists of a large number of unrelated customers. Payment terms and credit limits are set in accordance with industry norms. Ongoing evaluation is performed on the financial condition of trade receivables, and management believes there is no further credit risk provision required in excess of the normal provision for impairment loss. For further details, see Note 17 attached to the 2020 Audited Financial Statements.

In addition, the Group is exposed to credit risk in relation to financial guarantees given to some subsidiaries with regard to financing arrangements. The Group’s maximum exposure in this respect is the maximum amount the Group may have to pay if the guarantee is called upon. There is no indication and instance that the Group will incur any loss with respect to its financial guarantees as of 30 June 2021.

6.12.4 Liquidity risk

The Group has established a comprehensive liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity requirements under the guidelines approved.

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The Group ensures its liquidity by maintaining cash reserves, short-term investments and committed undrawn credit facilities with high credit rated local and international banks.

The Group determines its liquidity requirements by continuously monitoring short and long-term cash forecasts in comparison to actual cash flows.

Liquidity is reviewed on a monthly basis for the Group and stress tested using various assumptions relating to capital expenditure, dividends, trade receivable collections and repayment of loans without refinancing. For further details, see Note 43.6 attached to the 2020 Audited Financial Statements.

6.13 Critical accounting policies

The Group’s Audited Financial Statements have been prepared in accordance with IFRS-KSA. For a discussion of the significant accounting policies applied by the Group generally, see Note 4 attached to the 2020 Audited Financial Statements.

6.14 Related party transactions

Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over it in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or significant influence.

Related parties represent associated companies, certain shareholders, directors and key management personnel of the Group and entities jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Company’s management. The terms and conditions of the related party transactions were made on an arm’s length basis (for more information relating to the Related party transactions, please refer to Section 16 “Financial Statements and Auditor’s Report” of this Prospectus).

The sale and purchase transactions are carried out by the relevant parties in accordance with the normal terms of dealing. The outstanding balances are unguaranteed, without commission and no guarantees have been provided or received in relation to the balances due or from the related parties.

The following balances were outstanding as at 31 December 2020, 2019 and 2018:

Table 37: The outstanding balances as at 31 December 2020, 2019 and 2018:

Amounts due from related parties Amounts due to related parties

As at 31 December As at 31 December

2020 2019 2018 2020 2019 2018

SAR (‘000) Associates ......................... 354,554 292,020 338,652 63,820 38,910 23,184

Joint ventures.................... 47,249 12,215 5,444 157,830 168,173 112,801

401,803 304,235 344,096 221,650 207,083 135,985

Revenues related to transactions with Government and Government entities for the year ended 31 December 2020 amounted to SAR 9,646 million, compared to SAR 7,154 million for the year ended 31 December 2019 and SAR 6,335 million for the year ended 31 December 2018. Expenses related to transactions with Government and Government entities for the year ended 31 December 2020 (including government charges) amounted to SAR 3,753 million, compared to SAR 2,759 million for the year ended 31 December 2019 and SAR 3,214 million for the year ended 31 December 2018 (For more information on trade receivables and trade payables with government entities, please refer to Section 6.11.8 “Receivables/Payables from the Government” of this Prospectus)

With respect to this Offering, the Bookrunners’ Agreement is deemed to be a related party transaction (vendor shareholder) in which Directors of the Company have an interest and, hence, were approved by the Board of Directors and the Shareholders’ General Assembly on 02/04/1443H (corresponding to 07/11/2921G) and 25/04/1443H (corresponding to 30/11/2021G), respectively.

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Table 38: Loans to related parties

As at 31 December

2020 2019 2018

(SAR ‘000)

Loans to senior executives ..................................... 4,598 5,358 2,360

6.15 Telecommunications services provided and received

The Group’s trading transactions with related during the years ended 31 December 2020, 2019 and 2018 were as follows:

Table 39: Group’s trading transactions with related during the years ended 31 December

2020, 2019 and 2018

For the year ended 31 December

2020 2019 2018

(SAR ‘000)

Telecommunication services provided ................................................................ 309,161 430,682 503,008

Telecommunication services received ................................................................. 71,119 29,050 17,188

6.16 Benefits, remuneration and compensation of the members of the Board and senior management

The benefits, remuneration and compensation of the members of the Board and senior management during the years ended 31 December 2020, 2019 and 2018 were as follows:

Table 40: Benefits, remuneration and compensation of the members of the Board and senior

management during the years ended 31 December 2020, 2019 and 2018:


2020 2019 2018

(SAR ‘000)

Short-term benefits and remunerations................................................................ 311,146 280,381 206,224

Provision for leave and end of service benefits ................................................... 88,794 60,061 55,368

Share-based payments ......................................................................................... 6,116 – – Termination and other benefits ............................................................................ 1,535 2,884 –

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7. Dividend Policy

Pursuant to Article 110 of the Companies Law, each shareholder is entitled to the rights and obligations attached to the Shares equally, including the right to receive a portion of the dividends declared. Payment of any dividends will be recommended by the Board of Directors as part of its annual report before being approved by the Shareholders at a General Assembly meeting. Nevertheless, there are no guarantees relating to the distribution of any dividends and any decision to do so will depend on, amongst other things, the Company’s historic and anticipated earnings and cash flow, financing and capital requirements, market and general economic conditions, the Company’s Zakat position, and such other factors as the Board deems relevant, in addition to legal and regulatory considerations. The Company’s expectations regarding these factors, are dependent on many assumptions, risks and uncertainties that may be beyond the Company's control. For example, the Shares entitle their holders the right to receive any dividends that the Company declares from the date of this Prospectus and for subsequent financial years. Although stc intends to distribute dividends to its Shareholders on annual basis, the Company does not guarantee the distribution of such dividends or the amounts to be distributed in any given year.

stc intends to make dividend payments to its shareholders with a view to maximizing Shareholders’ investments in line with the Company capital expenses and investments requirements, depending on the Company’s income, and financial position, market conditions, general economic conditions s, and other factors. Such other factors include the Company's reinvestment needs, cash and capital needs, business prospects and economic activity as well as other legal and regulatory considerations.

The Company's net profits shall be distributed to the shareholders as follows:

1. Ten percent (10%) of the net profits shall be set aside to form the Company's statutory reserve. Such setting aside may be discontinued by the Ordinary General Assembly when such statutory reserve totals 30% of the Company's paid-up capital;

2. the Ordinary General Assembly may, at the request of the Board, set aside a specific percentage of the net profits to form an additional reserve to be allocated towards one or more specific purposes determined by the Assembly;

3. The Ordinary General Assembly may resolve to form other reserves to the extent they serve the Company's interests, or ensure the distribution of fixed dividends- so far as possible to the Shareholders;

Out of the balance of the net profits, Shareholders shall receive a payment of:

4. No less than 5% of the Company's paid-up capital;

Subject to Article 21 of the Company’s Bylaws and Article 76 of the Companies Act, the General Assembly will allocate a remuneration to the Director, provided that entitlement to such remuneration is prorated to the number of meetings attended by a Director. According to the Board of Directors' suggestion, the General Assembly may distribute the remaining profits, if any, to the shareholders as an additional dividend.

By a Board Resolution and subject to CMA rules, the Company may, quarterly or semi-annually, distribute interim dividends to the Shareholders.

As described in an announcement by the Company on Tadawul’s website on 20/02/1443H (corresponding to 27/09/2021G), stc's Board of Directors has approved the Company's dividend policy in its meeting held on 02/20/1443H (corresponding to 9/27/2021G) for the upcoming three years, starting from the fourth quarter of 2021. It is expected that such policy would be introduced to the General Assembly in its upcoming meeting for approval. The objective of the dividend policy is to maintain a minimum level of dividend of SAR 1 per Share on a quarterly basis. The additional dividends are subject to the Board of Director's recommendation to the Company's General Assembly, after assessing the Company's financial position, future forecasts and capital requirements. The additional

137

dividends are likely to vary from quarter to quarter based on the Company's performance. stc’s dividend policy is changeable based on the following:

Any material changes in the Company’s strategy and business (including the commercial environment in which the Company operates).

The sector's regulations, legislations and controls to which the Company is subject.

Any obligations or representations to banking or financing bodies, or meeting the requirements of the Credit Rating Agencies, which may be binding on the Company from time to time.

Following is a summary of dividends declared and distributed by the Company during the six-month period ended 30 June 2021 and the years ended 31 December 2020, 2019 and 2018.

Table 41: Dividends Distributed for the Years Ended on 31 December 2018, 2019 and 2020,

and the six-month period ended 30 June 2021.

2018

(SAR ‘000)

2019

(SAR ‘000)

2020

(SAR ‘000)

The six-month

period ended on 30

June 2021

(SAR ‘000)

12,000,000 8,000,000 10,000,000 4,000,000 The dividends announced for the

Period

2,000,000 2,000,000 2,000,000 2,000,000 Number of shares

4 6 4 3 The dividends distributed in the Period per each

share (SAR)

8,000,000 12,000,000 8,000,000 6,000,000 The dividends announced for the

Period

20,000,000 20,000,000 20,000,000 20,000,000 stc's Capital in the Period

10,779,771 10,664,666 10,994,875 5,773,303 Net profit attributable to the

equity holders of the Company

111.3% 75.0% 91.0% 69.2% The dividends ratio to the profits of the

year

Source: The Company

Offer Shares shall are not entitled to any dividends declared prior to the date of this Prospectus Offer Shares shall be entitled to dividends declared by the Company from the date of this Prospectus and subsequent financial years. As at the date of this Prospectus, the Directors confirm that there are no declared or outstanding dividends announced for the said periods except as set out above.

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8. Use of Offering Proceeds

The total proceeds from the Offering are estimated to be SAR ( ), of which approximately SAR 100 million will be applied towards the Offering expenses, which include the fees of the Lead Manager, the Financial Advisors, Bookrunners and Legal Advisors, as well as marketing, printing, translation and distribution fees and other costs and expenses related to the Offering. The Selling Shareholder has also agreed to reimburse the Company for any expenses incurred in connection with the Offering. The net proceeds from the Offering of approximately SAR ( ) will be distributed to the Selling Shareholder. The Company will not receive any part of the net proceeds from the Offering. The Selling Shareholder will bear all the fees, expenses and costs relating to the Offering.

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9. Capitalisation and IndebteDness of the Company

The following table provides the equity capitalisation and indebtedness of the Group as at 30 September 2021. The following table should be read in conjunction with the relevant Financial Statements, including the explanatory notes annexed thereto, which are set forth in Section 16 ("Financial Statements and Auditor's Report") of this Prospectus.

Table 42: Capitalisation of the consolidated Equity and Indebtedness of the Group as at 30

September 2021

Equity As at 30 September 2021

(unaudited)

(SAR thousand, unless

otherwise indicated)

Issued capital 20,000,000

Statutory reserves 10,000,000

Treasury shares (286,563)

Other reserves 572,608

Retained earnings 38,217,387

Non-controlling interests 1,972,144

Total equity 70,475,576

Total long-term borrowings 9,103,027

Total short-term borrowings 94,199

Capitalisation(1) 79,672,802

Source: Financial Statements and Management Information

(1) Capitalisation represents the total equity plus total long-term borrowings and total short-term borrowings.

Members of the Board of Directors hereby declare as follows:

a. None of the Company's shares are subject to the share options rights.

b. The Company's cash balance and cash flows are sufficient to meet its expected cash and working capital requirements for at least twelve (12) months following the date of this Prospectus. Any adverse and material change in the Company's business should be taken into consideration.

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10. Statement by Experts

All advisors and the auditors, whose names are listed on pages 9-12 have given their respective written consent to the reference to their names, addresses and logos, and to the publication of their respective statements in this Prospectus as received, and have not, as of the date of this Prospectus, withdrawn their consent. As of the date of this Prospectus, neither the advisors nor any of their employees forming part of the team serving the Company, or their relatives have any shareholding or interest of any kind in the Company which would impair their independence.

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11. Directors’ Declarations

The Directors declare that:

1) there has been no interruption in the Company’s business or that of its Subsidiaries that may influence or have a significant impact on the financial position during the last 12 months.

2) there is no intention to materially change the nature of the Company’s activities or those of its Subsidiaries;

3) No commissions, discounts, brokerages or other non-cash compensations were granted by the Company or its Subsidiaries within the last three years immediately preceding the date of the application for the offering of the Offer Shares subject of this Prospectus in connection with the issuance or offering of any securities.

4) Except as disclosed in Section 6 “Management’s Discussion and Analysis of Financial Position and Results of Operations” of this Prospectus, neither the Company nor any of its subsidiaries have any secured, existing or approved but non-issued debt instruments, term loans or mortgages.

5) Except as disclosed in Section 6 “Management’s Discussion and Analysis of the Financial Position and Results of Operations” of this Prospectus, the Company and its Subsidiaries do not have any loans or any other liabilities either covered by a personal guarantee or non-personal guarantee or covered by a mortgage, including overdraft from bank accounts, nor guaranteed liabilities, liabilit ies under acceptance, acceptance credits, or any hire purchase commitments.

6) Except as disclosed in Section 6 "Management’s Discussion and Analysis of the Financial Position and Results of Operations" of this Prospectus, no property of the Company and its subsidiaries is subject to any liens, rights or encumbrances as at the date of this Prospectus.

7) there has been no material adverse change in the business or financial position of the Company or its Subsidiaries in the three years immediately preceding the date of filing the application for registration and offering of the securities subject to this Prospectus. In addition, the same applies to the period covered in the auditor's report and up to the date of approval of this Prospectus except for the period set forth in Section 6 “Management’s Discussion and Analysis of Financial Position and Results of Operations” of this Prospectus or any other part herein, especially the factors stated in Section 2 "Risk Factors" of this Prospectus.

8) The financial information included in Section 6 “Management’s Discussion and Analysis of Financial Position and Results of Operations” of this Prospectus has been derived without any material change and is presented in accordance with the Financial Statements.

9) The company has the ability to prepare the required reports timely as per the implementing regulation issued by the Authority.

10) None of the Directors, Senior Executives, and Board Secretary have been declared bankrupt or been subject to bankruptcy proceedings at any time;

11) There has been no declaration, within the last five years, of any insolvency or bankruptcy has of any of the Company’s Directors, Senior Executives, or Secretary holding an administrative or supervisory position.

12) Except as described in Section 5-13 "Employee Long-term Incentive Program" of this Prospectus, there are no employee share schemes that would involve employees in the Company's share capital, and no other similar arrangements are in place.

13) The General Assembly has approved a program that grants shares to some of the employees as performance rewards in accordance with such program's procedures and conditions set out in this Prospectus for more details, please refer to Section 5-13 "Employee Long-term Incentive Program" of this Prospectus.

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14) As at the date of this Prospectus, none of the Directors have participated in any activities similar to or in competition with the Company’s activities. The Directors undertake to fulfil this regulatory requirement in the future as per Article 72 of the Companies Law and Chapter Six of Part Three of the Corporate Governance Regulation.

15) Except as disclosed in Section 5.3 “The Board of Directors,” Section 6.14 “Related Party Transactions,” Section 12.2 “Material Agreements” and Section 13 “Book-Building” of this Prospectus, neither the Directors nor any of their relatives have any shares or interest of any kind in the Company or any of its Subsidiaries.

16) Performing Work shall be performed according to Articles 71 and 72 of the Companies Law together with Articles 44 and 46 of the Corporate Governance Regulation, stipulating.

17) Unless otherwise approved by the General Assembly, the Directors shall not have a direct or indirect interest, in the transactions and contracts entered into by the Company.

18) The Directors shall notify the Board of any direct or indirect interests they may have in the transactions and contracts entered into by the Company, and this notification will be recorded in the minutes of the Board meeting. The respective member shall not participate in the voting thereon.

19) All works and contracts concluded with Related Parties shall be subject to a vote in Board meetings, and, in the General Assembly and, if required by regulation without the vote of the Directors on any resolution related to transactions or contracts with the Company, in which they have a direct or indirect interest, whether in the Board meeting or the General Assembly, in accordance with Article Seventy-one of the Companies Law and Chapter Six of Part Three of the Corporate Governance Regulation.

20) Not to compete with the Company's business. All the transactions made with related parties in the future shall be conducted on a competitive basis in application of Article Seventy-two of the Companies Law.

21) The Directors and the CEO shall not have the right to vote on decisions relating to their fees and remuneration that are to be given to them.

22) Neither the Directors nor any Senior Executives shall obtain a loan from the Company, and the Company shall not guarantee any loans entered into by a Director.

23) The Directors have developed procedures, controls and rules that enable the Company to meet the requirements of the relevant laws, regulations and instructions, including the Companies Law, the Capital Market Law and its Implementing Regulations, the Rules on the Offer of Securities and Continuing Obligations, and Listing Rules.

24) Appropriate internal control systems and rules have been developed by the Company. A written policy to regulate conflict of interest and address any possible conflicts, which include the misuse of the Company's assets and abuse resulting from Related Party transactions that have been developed. In addition, the Company has verified that the financial and operational systems are sound and that appropriate control procedures for risk management are in place, as required under Part Five of the Corporate Governance Regulation. The Directors conduct an annual review of the Company's Internal Control Procedures.

25) The Company's Internal Control, financial and accounting systems are adequate and sufficient.

26) None of the shares of the Company or its Subsidiaries is subject to any of the option rights.

27) The Company nor its Subsidiaries have any properties (contractual or otherwise) or any assets, whose value is not subject to fluctuation and impossible to be ascertained, which may adversely and materially affect the evaluation of the Company's financial position.

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28) The Company has provided in Section 6 “Management’s Discussion and Analysis of Financial Position and Results of Operations” the details of any contingent liabilities. Provisions against such liabilities have been registered as mentioned in this Prospectus.

29) Properties of the Company and its Subsidiaries are neither subject to any liens, rights nor burdens as at the date of Prospectus.

30) Except as disclosed in Section 2 "Risk Factors" and Section 6 “Management’s Discussion and Analysis of Financial Position and Results of Operations” of this Prospectus, the Company is not aware of any information relating to any governmental, economic, financial, or political policies, seasonal factors, economic downturns relevant to the business activity, or any other factors that might have a material effect, directly or indirectly, on its transactions.

31) All the material facts relating to the Company and its financial performance have been disclosed herein. There are no other information, documents or facts that non-inclusion of them may make any statement misleading.

32) All the necessary approvals for the Offering of the Offer Shares on the Exchange.

33) The Offering does not violate any of the contracts and agreements to which the Company is a party.

34) The Company must abide by all the terms and conditions under its financing agreements entered into with its financiers. As of the date of this Prospectus there are no material breaches of terms or conditions under agreements entered into with financiers, as at the date of this Prospectus.

35) All the documents and agreements that the Company believes to be significant or material or which may affect the investors’ decisions to invest in the Offered Shares have been disclosed. There are no material contracts and agreements that have not been disclosed.

36) All material terms and conditions that may affect investors’ decisions to invest in the Offer Shares have been disclosed.

37) Except as disclosed in Section 12-5 "Litigation, Arbitration and Disputes” of this Prospectus, the Company and its Subsidiaries are not party to any disputes, claims or lawsuits that may individually or in aggregate have a material impact on the Company’s business operations or financial position as at the date of this Prospectus. The Company is not aware of any threatened or disputes or claims.

38) The Directors are not subject to any legal proceedings or cases that may individually or in aggregate have a material impact on the business or financial position of the Company and its Subsidiaries.

39) The Company's insurance mentioned in Section 12-3 "Insurance" of this Prospectus provide sufficient insurance coverage for the Company to run its business. The Company renews its insurance contracts and policies periodically in order to ensure a continuous insurance coverage.

40) Except as disclosed in Section 2 "Risk Factors" of this Prospectus, the Company has obtained all necessary licenses and permits to carry out its business activities.

41) All of the Group's staff in the Kingdom are under our sponsorship.

42) All increases in the Company's share capital are in compliance with the laws and regulations enforced in the Kingdom.

43) The information and details contained herein, which have been obtained from third parties, including the information that has been obtained from the market study report, are reliable and there is no reason for the Company to believe such information to be materially inaccurate.

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12. Legal Information

12.1 Declarations Related to the Legal Information

Each member of the Board of Directors, whose names appear in Table 1 “The Board of Directors” in this Prospectus hereby declares as follows:

(a) the Offering does not violate the laws and regulations applicable in the Kingdom of Saudi Arabia;

(b) the Offering does not breach the terms of any contracts or agreements to which the Company is a party;

(c) all material legal information relating to the Company has been disclosed in this Prospectus;

(d) except as disclosed in Paragraph 12.5 ("Litigation, Arbitration and Disputes" of this Prospectus), the Company and its Affiliates, as at the date of this Prospectus, are not involved in any lawsuits or legal proceedings that may individually or collectively, have a material effect on the business or the financial position of the Company;

(e) the Directors are not involved in any lawsuits or legal proceedings that may, individually or collectively, have a material effect on the business or financial position of the Company;

(f) except as disclosed in Section 5.3 “The Board of Directors”, Section 6.14 “Related Party Transactions”, Section 12.2 “Material Agreements” and Section 13 “Book-Building” of this Prospectus, neither the Directors nor any of their relatives have any shares or interest of any kind in the Company or any of its Subsidiaries; and

(g) no commissions, discounts, brokerage fees or any non-cash compensation were granted by the Company or any of its Subsidiaries during the three years immediately preceding the date of the application for offering the Offer Shares.

12.2 Material Agreements

The Company has entered into a number of material agreements and contracts with multiple parties. This Section sets out a summary of the agreements that the Group considers material or important or which may affect investors’ decision to invest in the Offer Shares. The summary of agreements and material contacts referred to below does not include all terms and conditions and it cannot be considered a substitute for the terms and conditions of these agreements and forms.

12.2.1 Network Supply and Support Agreements

The Company has entered into several agreements for the supply and support of network equipment and wireless coverage, 5G network coverage and reservation software, with Huawei, Ericsson, Nokia and TATA. These agreements cover a variety of services and the supply and support for the Group’s operational requirements, implementation of the Group’s wireless networks and 5G coverage over a number of locations, as well as operations management and maintenance services for 5G networks, specialised consultation and other services.

The agreements are framework agreements, technical assistance agreements and supply agreement. The framework agreements include the terms of delivery for particular supplies and services (usually on the basis of the Group’s orders, requirements and priorities). The technical assistance agreements generally regulate the provision of support services and maintenance, for software and hardware and warranty terms. The supply agreements cover, among others, the supply, installation, provision of spare-part consumables, integration and test services for equipment, tools, programmes and systems. The agreements are generally entered into for between 1 to 3 years, and are typically renewed by addendum or novation agreements.

12.2.2 Agreements with Government and Government related entities

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The Group provides/offers various services to the Government and Government related entities. In this regard, the Group abides by its own procurement policy. When the Group enters into agreements with Government and Government related entities for the supply of services, for example, the Group prepares technical offer and financial offer to such entities. In case the technical and financial offers are accepted, the Company issues offer application that sets out information on the client and the services provided by the Group, to be signed by the authorised signatory from the relevant entity. The Group follows this mechanism while furnishing the Group’s services that include managed services, data connection services, mobile, and cloud and internet services. The Group’s terms and conditions related to the relevant service are usually included, which refers to the effective date, term, and guarantee conditions. (For further information, please refer to Section 6.11.8 “Receivables/payables from the Government”).

In 2018, the Company entered into a settlement agreement with the Ministry of Finance, the Ministry of Communications & Information Technology and CITC for a comprehensive and final settlement of the outstanding dispute related to commercial services provisioning fees provided by the Company and the licence fees granted to the Company for the period from 22/12/1428H (corresponding to 01/01/2008G) to 13/04/1439H (corresponding to 31/12/2017G). In return, the Company committed to provide capital investments in its infrastructure which is in line with Saudi Arabia's vision to develop the telecommunications infrastructure within a period of three years starting from 14/04/1439H (corresponding to 01/01/2018G) according to the terms and conditions of the settlement agreement (“Target Performance Indicators”). As of 31 December 2020, the Company re-evaluated the related provisions in line with the terms and conditions of the settlement agreement (“Target Performance Indicators”) which are reviewed periodically by the Company.

12.2.3 Western Union Agreement

In November 2020, the Company entered into a share subscription agreement, as further amended on 13/10/1442H (corresponding to 25/05/2021G) under which Western Union Company (“WU”) sold 15% equity stake in the Company’s wholly owned subsidiary, stc pay, for a consideration of SAR 750 million. The completion of the deal was conditional upon receipt of applicable regulatory approvals from relevant authorities, including the approval of the Council of Ministries to issue a license for stc pay making it a digital bank. On 14/02/1443H (corresponding to 21/09/2021G), the general assembly of stc pay approved the sale of 15% of stc pay’s shares to WU, and the conversion of stc pay from a limited liability company into a joint stock company. The proceeds of the deal were used to finance stc pay’s capital.

12.2.4 Certain financing arrangements of the Group

The following is a summary of material financing arrangements entered into by the Group

12.2.4.1 Facility Agreements

On 12/10/1439H (corresponding to 26/06/2018G), the Company entered into a facility agreement with Riyad Bank amounts to a maximum of SAR 4.250 billion for the purpose of (a) issuing financial guaranties and (b) issuing direct credit alternatives. The initial maturity date of the agreement was June 2021. The facility is currently in the process of being renewed. As of the date of this Prospectus, SAR 2.006 billion is outstanding as a result of these facilities.

On 17/09/1441H (corresponding to 10/05/2020G), The Company entered into a facility agreement with SNB worth an amount not exceeding SAR 2.825 billion for the purpose of (a) funding working capital requirements, (b) facilitating the issuance of letters of credit, (c) issuing deferred letters of credit, (d) issuing letters of credit and (f) letters of guarantee. The initial maturity date of the agreement was July 2021. The facility is currently in the process of being renewed. As of the date of this Prospectus, SAR 792 million is outstanding as a result of these facilities.

12.2.4.2 Sukuk

During the six months period ended on 30 June 2014, the Company approved a domestic sukuk issuance programme, with a maximum programme size of SAR 5 billion (the “Domestic Sukuk Programme”).

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The first tranche of the Domestic Sukuk Programme was issued on June 2014 with a tenor of ten years for an aggregate amount of SAR 2 billion.

In 2019, the Company established an international sukuk issuance programme for the issuance of a maximum programme size of USD 5 billion (the “International Sukuk Programme”). In May 2019, Saudi Telecom Sukuk Company Limited (a Company established for the issuance of sukuk under this programme), with an aggregate face amount of USD 1.250 billion (equivalent to SAR 4.688 billion) and a tenor of 10 years.

12.2.4.3 Guarantee

In December 2017, stc Malaysia Holding Ltd (a wholly owned subsidiary of stc Asia Holdings Limited) acquired financing facilities from Bank of Tokyo-Mitsuishi UFJ (Malaysia) Berhad, HSBC Amanah Malaysia Berhad and Standard Chartered Bank, in the form of murabaha, with a term of five years with profit calculated using a floating rate based on six-months KLIBOR plus 65 basis points. The murabaha is subject to a letter of guarantee provided by the Company.

12.3 Insurance

The Group’s operations are subject to a variety of operational and geographic risks, including accidents, natural disasters, fire, weather-related perils, geopolitical risk and other events beyond the Group’s control. Accordingly, in order to protect against the financial impact arising from unexpected events when the amount of the potential loss would be significant enough to prevent normal business operations, the Group maintains a variety of insurance policies with reputable insurance companies at both the Group-wide and country-specific levels.

The Group has not experienced any difficulty in renewing its insurance policies in the last three years and management believes that the Group’s current levels of insurance are sufficient in light of the risks faced by the Group and are consistent with industry standards based upon the regions and markets in which the Group operates (for more details regarding the risks related to natural disasters and other catastrophic events, please refer to Section 2-2-10 “Risks relating to the telecommunications networks may be adversely affected by natural disasters or other catastrophic events beyond the control of their operators” of this Prospectus).

12.4 Intellectual Property

Apart from its brand names, the Group does not have any intellectual property rights that it believes are critical to its ability to carry on its business. The Group was ranked as the most valuable telecommunications brand in the MENA region by Brand Finance in 2021. The Group seeks to protect this brand, as well as its stc Bahrain and stc Kuwait brands, using appropriate intellectual property registrations in its main markets. The Group has not experienced any material infringement of its stc brand in the last three years.

12.5 Litigation, arbitration and disputes

The Group is, from time to time, party to various legal actions arising in the ordinary course of its business. The Group does not believe that the resolution of these legal actions will, individually or in the aggregate, have a material adverse effect on its financial condition or results of operations.

As for the Company’s zakat, it is worth noting that the Group has previously submitted an objection with respect to the 2008 and 2009 assessments. The First Appeal Committee for Income Tax Violations and Disputes issued an appeal decision in support of the Group’s position not to consider the adjusted net profit as a basis for Zakat for the years 2008 and 2009, and accordingly, the dues were settled during the third quarter of 2021. In addition, the Group submitted appeals to the zakat assessments for the years from 2015 to 2017 worth SAR 134 million. These appeals are still being considered by the General Secretariat of Tax Committees, and the Group considers the soundness of its Zakat position and that it will not result in any substantial additional provisions.

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In addition, the Group received claims from the CITC related to imposing Government fees for selling devices in instalments for the period from 2018 until the end of the first quarter of 2021, totaling to SAR 782 million. The Group objected within the statutory deadline. Based on the opinions of the specialised consultants in this regard and the nature of these sales, the Group believes that the result will be in its favour and no material additional provisions are required.

12.6 Summary of Company Bylaws

The following is a summary of Company Bylaws. It is worth noting that nothing mentioned in the Bylaws prevents the Company from undertaking a fully marketed secondary public offering.

12.6.1 Objectives of the Company

a. Establishing, managing, operating and maintaining fixed and mobile communication networks, Systems, and infrastructures as needed, which will Help achieve digital transformation;

b. Providing subscribers with the various communication and information technology services along with, maintaining and managing them.

c. Preparing the plans and studies necessary for developing, implementing, and providing communication and information technology services from all technical, financial and administrative aspects; and preparing and implementing communication and information technology training plans, and providing consultancy services related directly or indirectly to its work or activities.

d. Expanding and developing telecommunication, information technology networks, Systems, and infrastructures by using the latest devices and equipment in the field of communication technologies especially in the area of providing and managing services, applications, and software.

e. Providing comprehensive communication and information technology solutions, including, (communication and services, e-commerce, devices and equipment, software, applications, etc.) information technology, managed services, cloud services, content management, data centre services, jpeg data, digital

f. Providing customers with information, technologies and information based Systems, including the preparation and distribution of telephone directories, business directories, pamphlets, information and data, and providing the communication means required to transfer internet services in a mariner that shall not contradict the Cabinet Resolution No. (163) dated 23/10/141B H; and providing general computer services and other activities related to telecommunications and services provided by the Company whether for media, business or advertising purposes or any other purposes deemed fit by the Company.

g. Wholesale and retail trade, importing, exporting, purchasing, owning, renting, manufacturing, marketing, selling, developing, designing, installing, and maintaining equipment, components and parts of the various telecommunication networks, including fixed, mobile and private networks as well as computer software, other intellectual properties; and providing other services and carrying out contracting works related to the various telecommunication networks.

h. Real estate investment and the consequent actions such as selling, purchasing, renting, managing, developing and maintaining such real estates.

i. Entering into and executing loan agreements, owning fixed and movable assets to achieve the Company’s objectives.

j. Providing administrative and financial support and other services for subsidiaries.

k. Providing development and training services, asset management and development, and other related services.

l. Providing solutions that support decision-making, business intelligence and data investment.

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m. Providing supply chain services and miscellaneous services.

The Company shall carry out its aforementioned activities in accordance with applicable laws and upon obtaining the necessary and required licenses and permits from competent authorities and bodies.

12.6.2 Participation and Ownership in Companies

This Company shall have the right to set up companies by itself (companies of limited liability or closed joint stock ones) in accordance with the Saudi Companies Law. In addition, the Company shall be entitled to possess an interest or a shareholding in existing companies or merge into sane, and shall also be entitled to partner with third parties to form joint stock companies or limited liability companies or any other entities whether inside or outside the Kingdom of Saudi Arabia after having fulfiled all the relevant legal requirements and set regulations. The Company may dispose of such interests or shareholdings provided it will not act as a broker in the trading.

12.6.3 Head Office of the Company

The Company’s head office shall be in the City of Riyadh. The Board of Directors may establish branches, offices or agencies for the Company within or outside the Kingdom of Saudi Arabia.

12.6.4 Term of Existence of the Company

The term of existence of the Company shall be Ninety-Nine (99) Gregorian years commencing from the date of the issuance of the Royal Decree No. M/35 dated 24/12/1418H to establish the Company. In addition, the Company’s term may always be extended for a similar term(s) or a shorter one(s), by a resolution of the Extraordinary General Assembly taken at least one year prior to the expiration of the term of the Company.

12.6.5 Capital of the Company

The share capital of the Company shall be SAR 20,000,000,000, (twenty billion Saudi Riyals) divided into 2,000,000,000 (two billion) nominal shares of equal value of SAR 10 (ten Saudi Riyals) each.

12.6.6 Subscription for Shares

The Shareholders have subscribed for the full capital stock and have fully paid its value totalling 2,000,000,000 (two billion) shares the value of which is SAR 20,000,000,000, (twenty billion Saudi Riyals),

12.6.7 Preferred Shares

In accordance with guidelines set by the Competent Authority, the Company’s. Extraordinary General Assembly may issue, buy preferred shares, transform ordinary shares into preferred shares or vice versa. Such preferred shares shall be non- voting shares in the Shareholders’ General Assemblies. Such shares shall give their holders a percentage of net profits greater than that given to ordinary shareholders, having allocated the statutory reserves. Without prejudice to the above, the Extraordinary General Assembly may stipulate further conditions and provisions related to preferred shares.

12.6.8 The issuance of Shares

The issuance of shares shall be nominal and may not be issued at less than their face value. However, the shares may be issued at a value higher than their face value, in which case the difference in value shall be added to an independent item under Shareholders’ equity, and may not be distributed as profits among Shareholders. A share shall be indivisible vis-à-vis the Company. In the event that a share is owned by several persons, they shall select one person from amongst them to exercise, on their behalf, the rights pertaining to the share, and they shall be jointly responsible for the obligations arising from the ownership of the share.

12.6.9 Selling Non-Fully Paid Shares

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a. A shareholder shall pay the share value at the specified and set times. If the shareholder fails to pay on the due date, the Board of Directors may sell such shares in a public auction or a security market, as the case may be, in accordance with the directives of the Competent Authority, after having warned the shareholder by means of a registered letter.

b. The Company shall recover what is due to it from the sale proceeds and refund the balance to the shareholder. If the sale proceeds are insufficient to cover the Company’s dues, then the Company may recover the entire amount due from the shareholders’ funds.

c. However, the defaulting shareholder, who fails to pay until the day of selling, may still, in such a situation, pay the value due plus the expenses incurred by the Company in such regard.

d. If this is done, then the Company shall cancel the share sold in accordance with the provisions of this Article, and shall give the purchaser a new share bearing the same number of the cancelled share, a notation of which shall be made in the Shareholders Register sta ting the new owner’ s name.

12.6.10 Acquiring, Selling and Mortgaging the Company Shares

The Company may buy, sell, or mortgage its own shares in accordance with directives set by the Competent Authority, and such shares so acquired shall not be voting in the Shareholders’ Assembly Meetings. In addition, the Company may purchase its own shares to allocate same as part of employee share scheme in accordance with the directives issued by the Competent Authority in this regard. Furthermore, the Company may sell treasury shares at one or several stages as per the relevant directives set by the Competent Authority.

12.6.11 Shares Negotiation and Shareholders Register

The Company shares shall be negotiable in accordance with the Capital Market Law alongside the regulations, rules, and directions issued from the Capital Market Authority.

12.6.12 Increase of Capital

a. After verifying the economic efficiency and having obtained the approval of the Competent Authority, the Extraordinary General Assembly may decide to increase the Company’s share capital one or several times by issuing new shares of the same nominal value of the original shares provided that the original capital have been paid in full. It shall not be required chat the capital be fully paid up in case the unpaid portion of the capital is related to shares issued against converting debt instruments or debenture bonds into shares and are not expired yet following the period specified for converting same to shares.

b. The Extraordinary General Assembly may in all cases allocate shares issued upon increasing capital or a portion thereof for the Company employees and subsidiaries or some of them, or any of such cases. Shareholders shall not have pre-emptive rights to subscribe for said shares issued for the Company employees.

c. Upon the issuance of the resolution of the Extraordinary General Assembly of raising capital, shareholders shall have pre-emptive rights to subscribe for the new cash shares. The shareholders shall be notified of the pre-emptive rights vested in them by notice to be published in a daily newspaper addressing the capital increase resolution and the conditions and duration of subscription and the dates of commencement and expiration of the same, or by written notice to the shareholder by registered mail.

d. Shareholders may sell or give up their pre-emptive rights starting from the issuance of Extraordinary General Assembly of resolution of raising capital until the last day specified for subscription for new shares attached to such rights in accordance with the directives of the Competent Authority,

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e. The new shares shall be allotted to the shareholders with pre-emptive rights who have expressed their desire to subscribe thereto, in proportion to the pre-emptive rights owned by them of the total pre-emptive rights resulting from the increase of capital provided that the number of shares allotted to them shall net exceed the number of new shares they have applied for, The remaining new shares shall be allotted to the shareholders with pre-emptive rights who have asked for more than their proportionate share, in proportion to their pre-emptive rights of the total pre-emptive rights resulting from the increase of capital, provided that their total allotment does not exceed the number of new shares they have asked for. Any remaining new shares shall be offered for public subscription unless otherwise specified by the Extraordinary General Assembly or the Capital Market Law.

12.6.13 Decrease of Capital

a. The Extraordinary General Assembly may reduce its capital if it proves to be in excess of the Company’s needs or if the Company sustains losses, in which case only capital may be lowered beyond the limit specified in Article (54) of the Companies Law, In addition, such resolution shall be issued only after reading the Auditor’s report on the reasons calling for such reduction, the obligations to be fulfiled by the Company, and the effect of the reduction on such obligations.

b. If the reduction of the capital is due to its being in excess of the Company’s needs, thon the Company’s creditors must be invited to express their objection thereto within 60 (sixty) days front the date of publication of the reduction resolution in a daily newspaper published in the city where the Company’s head office is located. Should any creditor object and present to the Company evidentiary documents of such debt within the time limit set above, then the Company shall pay such debt/ if already due, or present an adequate guarantee of payment if the debt is due on a later date.

12.6.14 Bonds and Sukuk

a. The Company may issue negotiable and indivisible debt instruments or financing sukuk of equal value as per provisions of the Companies Law.

b. Subject to a resolution from the Board of Directors and in accordance with the Capital Market Law and other related regulations can issue any kind of negotiable debt instruments, whether in Saudi Riyal or otherwise, inside and outside the Kingdom of Saudi Arabia, such as bonds and sukuk whether such have been issued at the same time or in a series of issues, or in one or more programmes as set front time to time. In addition, the Board shall be entitled to take all necessary actions and procedures in this regard.

c. The Company may issue debt instruments or financing sukuk convertible to shares upon a relevant resolution from the Extraordinary General Assembly stating the maximum number of shares which may be issued in return for such instruments or sukuk, whether such instruments or sukuk have been issued at the same time or in a series of issues, or in one or more schemes for issuing debt instruments or financing sukuk. The Board of Directors shall, without the need for a new approval from the Extraordinary General Assembly, issue new shares in return for such instruments or sukuk whose holders wish to convert, upon the expiration of the conversion period specified for the holders of such instruments or sukuk. The Board of Directors shall take whatever procedures it deems appropriate to amend the Company’s Incorporation Document in connection with the number of issued shares and capital. In addition, the Board of Directors shall notarise the completion of procedures of each capital increase in the manner specified herein to notarise the resolutions of the Extraordinary General Assembly.

12.6.15 Board of Directors

The Company shall be managed by a Board of Directors composed of 11 (eleven) members to be appointed by the Shareholders’ Ordinary General Assembly for a term not exceeding 3 (three) Gregorian years. A shareholder shall be entitled to nominate himself or one or more persons to be a member of the Board of Directors within the limit of such shareholder’s portion of the Company capital.

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12.6.16 Board Membership Expiration

Membership of the Board of Directors shall be terminated upon the expiration of the appointment period. Termination of membership shall also occur if the member becomes unsuitable for membership under any law or regulations prevailing in the Kingdom. However, the Ordinary General Assembly may re-appoint the Board Directors, and may also dismiss all or some of the Board Directors without prejudice to the dismissed Director’s right to compensation if dismissal was due to groundless reasons or was made in an inappropriate time. In addition, a Board

Director may resign provided that such resignation shall be in a suitable time; otherwise he shall be liable before the Company for any damage resulting from his resignation.

12.6.17 Vacancies

If the office of a Board Director becomes vacant, the Board may appoint another member in the vacant position temporarily at the Board’s discretion. Such new member must be qualified and experienced. Additionally, a notice of such appointment shall be sent to the Competent Authority within a period of five business days as of the date of appointment, provided also that such appointment is put forward before the first meeting of the Ordinary General Assembly for endorsement. The term of office of the new member designated to fill a vacancy shall only extend to the term of office of his predecessor. In case the number of the members of the Board of Directors falls below the quorum required for the proper convening of the Board meetings as stated in the Companies Law or these Articles, the Ordinary General Assembly shall be called for a meeting by the remaining members within a period of sixty (60) days in order to appoint the necessary number of Board members.

12.6.18 Powers of the Board of Directors

In accordance to the powers conferred on the General Assembly, the Board of Directors shall be vested with full powers to manage the business of the Company, supervise its affairs, and to set its general policies to achieve its objectives as per provisions of the Companies Law. For such purposes, the Board of Directors shall be empowered, for example and not limited to, the following powers:

a. Approving the Board of Directors’ Charter, as well as the financial, managerial, technical, and investment Charters of the Company alongside the accounting policies and internal control Systems and update same regularly; approve and operate Company action plans; approve annual budget; and approve social corporate responsibility allocation and donations. In addition, the Board may authorise officers in the Company to sign on its behalf as per the Controls set by the Board.

b. Forming communities which help the Board carry out its duties including the Nomination and Remuneration Committee together with other committees which the Board establishes. In addition, the Board shall control over the performance of its committees regularly and coordinate among them for the expedient resolution of matters referred thereto.

c. Opening, managing, operating, and closing bank accounts; withdraw and deposit; opening credits; appointing authorised signatories and determining and revoking their powers; signing all papers, documents, and commercial papers, including cheques, bills, bonds to order, and endorsing the same; making transfers; issuing bank guarantees, applying and obtaining credit facilities, dealing in treasury products, e-banking, and all other bank transactions; and investing an operating Company funds in local and international markets, whether inside or outside the Kingdom, and giving authorisations for such investments.

d. Approving and signing financing agreements, financial derivatives, and other commercial, financial, financing funds and institutions, and other banking agreements, of whatever durations in addition the loan agreements of terms exceeding three years, including governmental financing institutions and funds, commercial banks, finance houses, credit companies, and any other credit bodies, and granting authorisations in loan agreements regardless of their durations.

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e. Providing proper financial facilities for companies in which the Company holds, whether directly or indirectly, shareholdings or shares regardless of their durations, and the Board may provide guarantees and mortgages to creditors of such companies, and giving priority for settling such companies’ debts over repaying the Company’s liabilities. The Board may also provide investment, managerial, technical, credit, and financial support and treasury management for such companies and providing loans thereto. The Board may as well provide surety for any of such companies, which all shall be subject to the Board’s discretion as deemed appropriate for serving the Company’s beat commercial objectives.

f. Carrying out any and all acts and actions serving the Company’s objectives.

g. The Board of Directors may discharge the Company’ s debtors of their debt obligations towards the Company as deemed appropriate for serving its objectives after the Company’s has taken the actions as deemed suitable by the Board to collect such debts; issuing financial guaranties and bonds; issuing fine and performance guarantees regarding Company business for any third party whenever the Board considers, at its discretion, that would serve the Company’s objectives; executing all kinds of bank transactions and agreements; providing bank guarantees and any other guarantee documents; giving priority to paying third party debts and the like; and allowing third parties to use all or any part of the facilities given to the Company or the companies in which the Company participates.

h. Disposing of the Company’s assets, properties, and real estate properties in return for the fair consideration as approved by the Board; providing guarantees for creditors; mortgaging, redeeming mortgage, and giving authorisation in same; selling, buying, leasing, renting, transferring ownership, collecting and delivering price and sold items; and providing some assets, properties and real estates of the Company as an in kind share in the capital of a company in which the Company participates.

i. Representing the Company in its relations with third parties, before governmental and private bodies and all executive authorities and bodies, all companies, institutions, individuals, commercial banks, financial institutions, exchanges, any and all governmental financing institutions and funds of all titles and powers, and other lending bodies; clearing and receiving Company’s products at customs, and submitting applications and data in such regard and signing them; receiving mail parcels; applying for visas from the Ministry of Labor, paying their fees; granting exit and re-entry visas and final exit visas; transferring sponsorship and assigning the same; applying for visit visas; applying for and obtaining Iqama cards, labor permits and renewing the same; establishing offices and branch offices; applying for and renewing commercial registrations for branches and making amendments thereto including any omissions, additions, modifications, or deletions; applying for and renewing licenses of whatever kind, and making amendments thereto including any □missions, additions, modifications, or cancellations; entering bids, tenders, and auctions, whether independently or in conjunction with other persons or companies or through a consortium; carrying out transactions on behalf of the Company; collecting payments, paying, and receiving dues at third parties’ liabilities; and accepting gifts.

j. Applying for commonage settlement, assigning and sorting the same; applying for ownership and titles deeds; applying for deeds amendment, sorting, alternative declaration of same; applying for a replacement for lost titles deeds and submitting applications for obtaining copies thereof, annotating or correcting same; correcting and amending measurements and borders of real estate properties; consolidating deeds into one deed or more; applying for and obtaining new deeds; signing and receiving legal deeds; selling, buying, transferring ownership and accepting same, collecting and delivering, and signing the same before public notary; paying, receiving, and delivering price; adjoining properties, deeds of titles, sorting and dividing; applying for the modification of plans; leasing, renting, collecting, and paying; signing contract and agreements including without limitation, bills of sale, purchase contracts, leases, renting contracted, service agreements, agency agreements, franchising agreements, Insurance contracts, and other contracts the Company needs to carry out its business activities.

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k. Establishing companies and amending their articles of association and signing on behalf of the Company on articles of association and amendment annexes of companies of whatever kind, in which the Company participates, regardless of the content of such amendments, including those amendments related to raising/lowering capital stock, assigning and selling shares and shareholdings as per relevant Laws; accepting shares and shareholdings assigned to the Company; transforming or merging companies; selling and buying some or all shares and shareholdings of companies; liquidating and removing records of companies; requesting, accepting, and negotiating potting shares and shareholdings held by the Company to public or private placement whether inside or outside the Kingdom of Saudi Arabia taking into consideration legal requirements, and appointing Company representatives in managing any other subsidiary company or in which the Company participates; attending the partners’ assemblies, shareholders’ meetings, board meetings, board of management meetings, voting thereat on behalf of the Company, and signing the resolutions and minutes of meetings of partners’ assemblies, shareholders’ meetings, board meetings, and board of management meetings.

l. Selecting legal attorneys, revoking powers of attorney, appointing the Board Secretary, Company Chief Executive Officer and staff, determining their remuneration, benefits, terms and conditions of their employments and terminating their contracts, and contracting service providers, such as Law, engineering, accounting, and auditing firms, and other firms.

b. m, Signing agreements and deeds before the notary public and official bodies, and granting powers of attorney.

a. The Board of Directors may, within the limits of its jurisdiction, authorise and delegate one or more of its members or a third party to undertake a specified function or functions and to authorise them to sub-delegate such powers to others.

12.6.19 Remuneration of Board of Directors

Remuneration of the members of the Board of Directors for discharging Board duties shall be a specific amount and an allowance for attending Board meetings in accordance with laws and regulations issued in this respect. In addition, a Board member shall be eligible for a reward for whatever technical, managerial or advisory duties assigned to him. The report submitted by the Board of Directors to the General Assembly shall contain a comprehensive statement of all payments made to the members of the Board during the fiscal year; rewards, expenses and other benefits. Such report shall as well contain a statement of payments made for the Board members for being officers or managers or in consideration for technical, administrative or consultancy assignments carried out by them alongside a statement of number of Board meetings or the sessions each Director attended as of the date of the last meeting of the General Assembly.

12.6.20 Powers of Board Chairman, Vice-Chairman, and Board Secretary

a. The Board of Directors shall appoint a Chairman and a Vice-Chairman from among its members. The person holding the Chairman position may not hold any other executive position in the Company.

b. The Board Chairman or Vice- Chairman, in the absence of the Chief Executive Officer, shall have the powers: to represent the Company in its relationships with others and before the judiciary, notaries public, all government departments, commissions for settlements of disputes of all degrees and any and all other bodies; to represent the Company in buying, selling, and transferring ownership of lands and real estate properties,’ to sign the articles of association of the companies in which the Company participates, and any other contracts and agreements; and to delegate sortie or all of these powers to any other person or persons. The Board of Directors shall specify the Chairman’s duties not herein stated.

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c. The Board of Directors shall appoint a Secretary from among its members or others, and such Secretary shall be assigned the duties set forth in the Charters issued by the Competent Authority, and the Board of Directors shall also specify any other duties assigned to the Board Secretary.

d. The term of office of the Chairman, Vice-Chairman, and the Secretary — if the Secretary is a Board member - shall not exceed their respective term of service as Board Directors, and they may be re- elected at any time by the Board. In addition, the Board may at any time remove any of them without prejudice to their right to compensation if dismissal was due to groundless reasons or was made in an inappropriate time.

12.6.21 Board Meetings

The Board of Directors shall be convened at least four (4) times a year upon an invitation by the Chairman. Such invitation shall also contain the agenda. The Board Chairman shall invite for a meeting if so requested by any two (2) Board members. Board meetings shall be held at the Company head office or at any other place the Chairman selects. Besides, the Board may invite whomever it considers helpful for their information or experience, and those invitees shall not be entitled to vote at such meetings. A Board meeting may be held and a Director may take part in its deliberations and vote at proposed resolutions using one of the modem technological means subject to the regulating directives.

12.6.22 Quorum and Resolutions

A Board meeting shall not be a valid meeting unless attended by at least five (5) members. In the event that a member of the Board of Directors gives a proxy to another member to attend the Board meetings on his behalf, then such proxy shall be given accordance with directives issued by the Competent Authority. The Board resolutions shall be passed with the approval of the majority vote of the members present in person or represented by proxy. In case of a tie, Director presiding over the Board shall have a tie- breaking vote.

12.6.23 Board Deliberations

The Board deliberations and resolutions shall be drawn in minutes to be signed by the Board Chairman, attending Directors, and the Secretary. Such minutes shall be recorded in a special register to be signed by the Board Chairman and the Secretary.

12.6.24 Attending General Assemblies

a. Each Shareholder shall have the right to attend the Shareholders’ General Assemblies. In addition, each Shareholder may authorise another Shareholder, other than the members of the Board of Directors or employees of the Company, to attend the General Assembly on his behalf in accordance with the directives issued by the Competent Authority.

b. Shareholders General Assemblies may be held and a Director may take part in its deliberations and vote at proposed resolutions using one of the modem technological means in accordance with the Controls issued by the Competent Authority.

12.6.25 Competencies of Ordinary General Assembly

Except for matters reserved for the Extraordinary General Assembly, the Ordinary General Assembly shall be in charge of all matters concerning the Company. The Ordinary General Assembly shall be convened at least once a year, within six (6) months following the end of the Company’s fiscal year. Additional Ordinary General Assembly meetings may be convened whenever needed.

12.6.26 Competencies of Extraordinary General Assembly

The Extraordinary General Assembly shall have the power to amend the Company’s Incorporation Document except for such provisions as may be impermissible to be amended under the law. Furthermore, the Extraordinary General Assembly may pass resolutions on matters falling originally

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within the competence of the Ordinary General Assembly under the same conditions applicable to the latter.

12.6.27 Manner of Convening General Assemblies

a. The Shareholders’ Ordinary or Special Assemblies shall be convened by convocation from the Board of Directors. The Board of Directors shall convoke a meeting of the General Assembly if requested to do so by the Auditor, the Audit Committee, or a number of Shareholders representing at least five percent (5%) of the Company’s share capital. The Auditor may invite the General Assembly to convene if the Board does not invite it within thirty (30) days of the date the Auditors request.

b. The invitation for convening the General Assembly shall be published in a daily newspaper circulated in the Company’s head office at least twenty-one (21) days prior to the time set for such meeting. However, sending such invitations at the date specified to all Shareholders with registered letters may be sufficient. A copy of the invitation and the agenda shall be sent, within the period set for publication, to the Ministry of Commerce and Investment and the Capital Market Authority.

12.6.28 Record of Attendance at the Meetings of the General Assemblies

Before the time specified for the Ordinary or Special General Assembly, Shareholders wishing to attend shall register their names in the ad hoc list maintained at the Company head office.

12.6.29 Quorum of Ordinary General Assembly

A meeting of the Ordinary General Assembly shall be valid only if attended by the Shareholders representing at least fifty percent (50%) of the Company’s share capital. If such quorum cannot be attained at the first meeting:

a. A second meeting shall be held within an hour following the time set for the first meeting provided that the invitation to hold the first meeting shall State the possibility of holding such meeting;

b. Or an invitation shall be made for a second meeting to be held within a period not less than twenty (20) days and not exceeding (30) thirty days from the date of the previous meeting. Such invitation shall be published in the manner prescribed in Article (29) hereof. In all cases, the second meeting shall be valid regardless of the number of the shares represented therein.

12.6.30 Quorum of Extraordinary General Assembly

A meeting of the Extraordinary General Assembly shall be valid only if attended by Shareholders representing at least fifty percent (50%) of the Company’s share capital. If such quorum cannot be attained at the first meeting:

a. A second meeting shall be held within an hour following the time set for the first meeting provided that the invitation to hold the first meeting shall State the possibility of holding such meeting;

b. Or an invitation shall be made for a second meeting to be held under the same conditions stated in Article (29), and Article (31) - (b) of this Incorporation Document.

c. In all cases, the second meeting shall be deemed valid if attended by a number of Shareholders representing at least 1/4 (one-quarter) of the Company’s share capital, in case quorum cannot be attained at the second meeting, an invitation shall be made to a third meeting which shall be held under the same conditions applicable to Article (29) hereof. The third meeting shall be deemed valid irrespective of the number of shares represented therein having obtained the consent of the Competent Authority.

12.6.31 Voting Rights

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Each Shareholder shall have one vote for each share held at the General Assemblies. Cumulative voting must be used when electing the Board of Directors. Each Shareholder may authorise another Shareholder, other than the members of the Board of Directors or employees of the Company, to attend the General Assembly, on his behalf.

12.6.32 Assembly Resolutions

Resolutions of the Ordinary General Assembly shall be adopted by an absolute majority of the shares represented thereat. Resolutions of the Extraordinary General Assembly shall be adopted by a majority vote of two thirds of the shares represented at the meeting. However, if the resolution to be adopted is related to increasing or reducing the capital, extending the Company’s term of existence, dissolving the Company prior to the expiry of the period specified therefor under this Incorporation Document or merging the Company with another company, then such resolution shall be valid only if adopted by a majority of 3/4 (three-quarters) of the shares represented at the meeting.

12.6.33 Discussions at the Assembly Meetings

Each Shareholder shall have the right to discuss the items listed in the General Assembly’s agenda and to direct questions in respect thereof to the members of the Board and the Auditor in this respect. The members of the Board or the Auditor must answer the Shareholders’ questions to the extent that does not expose the Company’s interest to any damage. If the Shareholder considers the answer to the question unsatisfactory, then he may refer the issue to the General Assembly and its decision in this regard shall be conclusive and binding.

12.6.34 Chairing the General Assemblies and Preparing the Minutes

a. The Shareholders’ General Assembly meetings shall be presided over by the Board Chairman or, in his absence, the Vice-Chairman, or the Director designated by the Board from among its members in the absence of the Chairman and the Vice- Chairman.

b. Minutes shall be written for the meeting showing the number of the Shareholders present in person or represented by proxy, the number of the shares held by each, whether of the principal or the agent, the number of votes attached to such shares, the resolutions adopted at the meeting, the number of votes assenting or dissenting to such resolutions and a comprehensive summary of the discussions that took place at the meeting. Such minutes shall be regularly recorded after each meeting in a special register to be signed by the chairman of the Assembly, the Secretary and the canvasser.

12.6.35 Committee Formation

An Audit Committee shall be formed by a resolution of the Ordinary General Assembly. Such Committee shall comprise from 3 to 5 members who shall be non- Executive Board Directors, whether from Shareholders or the others. Such resolution shall determine the duties of the Committee, its functioning controls, and remunerations of its members. If the office of the Audit Committee member becomes vacant, the Board of Directors may appoint a member in the vacant position temporarily, and such appointee shall be experienced and competent to fill such position. The Ministry and the Capital Market Authority must be notified of such appointment within a period of five (5) business days as of the date of appointment. In addition, such appointment is to be put forward before the first meeting of the Ordinary General Assembly for endorsement. The term of office of the new member designated to fill a vacancy shall only extend to the term of office of his predecessor.

12.6.36 Meeting Quorum

For a valid meeting of the Audit Committee, the majority of its members is required to attend. In addition, the Committee decisions shall be passed by the majority of attending members. In case of a tie, the Committee Chairman shall have a tie-breaking vote.

12.6.37 Committee Competencies

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The Audit Committee shall be responsible for overseeing the Company’s business, and for such purpose, the Committee shall be given access to the Company records and documents, and shall also request any explanation or statement from the Board of Directors or the Executive Management. In addition, the Audit Committee shall be entitled to ask the Board of Directors to call the General Assembly to convene if the Board obstructs the Committee functions or should the Company experience serious losses or damage.

12.6.38 Committee Reports

The Audit Committee shall examine the Company financial statements, reports, and notes submitted by the Auditor, and shall express its comments, if any, thereon. In addition, the Committee shall prepare a report of its opinion of the sufficiency of the Company internal control System alongside any other activities it carried out within its competence. The Board of Director shall file sufficient copies of such report at the Company head office at least twenty- one (21) days before the date specified for the General Assembly such that each Shareholder shall be given a copy thereof. Such report shall be read at the General Assembly meeting.

12.6.39 Appointment of Auditor

The Company shall have one auditor or more to be selected from among the auditors licensed to work in the Kingdom of Saudi Arabia. The Auditor’s appointment, his compensation and term of office shall be fixed by the Ordinary General Assembly, The Ordinary General Assembly may further dismiss the Auditor without prejudice to his right to compensation if dismissal was due to groundless reasons or was made in an inappropriate time.

12.6.40 Auditor’s Authorities

The Auditor shall have access at all times to the Company’s books, records and any other documents, and may request statements, notes, information, and clarifications as he deems necessary. He may further check the Company’s assets and liabilities, etc. of what is within his scope of work. The Chairman shall help the Auditor perform his duties, and should the Auditor encounter any difficulties in this regard, he shall state the same in a report to be submitted to the Company’s shareholders. In case the Board does not facilitate the Auditor’s duties, the Auditor shall be required to ask the Board to hold an Ordinary General Assembly to consider the matter.

12.6.41 Financial Year

The Company’s fiscal year shall be twelve (12) Gregorian months and shall commence as on the 1 January and shall expire on the 31 December of each financial year.

12.6.42 Annual Accounts

a. The Board of Directors shall prepare at the end of each fiscal year an inventory of the Company’s financial statements, a report on the Company’s activities and its financial position for the preceding fiscal year and the Board’s proposals as to the distribution of the net profits. The Board of Directors shall put such documents at the Auditor’s disposal at least forty-five (45) days prior to the convening of the General Assembly.

b. The documents stated in paragraph (1) above, shall be signed by the Chairman of the Board of Directors, Chief Executive Officer, and Chief Financial Officer, and copies thereof shall be available at the Company’s head office for the Shareholders’ review at least twenty-one (21) days prior to the time set for convening the General Assembly,

c. The Chairman of the Board of Directors shall provide Shareholders with the Company’s financial statements, Board of Directors’ report, Auditor’s report unless all such documents are published in a daily newspaper circulated in the Company’s head office. In addition, the Chairman shall also send copies of such documents to the Ministry of Commerce and Investment and the Capital Market Authority at least fifteen (15) days prior to the date set for convening the General Assembly.

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12.6.43 Distribution of Profits

The Company’s annual net profits shall be allocated as follows:

a. Ten percent (10%) of the annual net profits shall be set aside to form a statutory reserve. Such setting aside may be discontinued by the Ordinary General Assembly when said reserve totals thirty percent (30%) of the Company’s paid-up capital.

b. The Ordinary General Assembly may, upon the request of the Board of Directors, set aside a specific percentage of the annual net profits to form a consensual reserve to be allocated for the purpose or purposes decided by the General Assembly.

c. Ordinary General Assembly may form other reserves to the extent that would serve the Company’s beat interest or would ensure distributing constant profits, as much as possible, amongst Shareholders. Besides, the Ordinary General Assembly may allocate from the net profits amounts to establish social institutions for the Company employees or to support existing social institutions.

d. Out of the balance of the profits, if any, there shall be paid to the Shareholders an initial payment of five percent (5%) of the Company paid-up capital.

e. Subject to provisions in Article (21) hereof, and Article (76) of the Companies Law, the Ordinary General Assembly may allocate a portion of the remaining amount to be paid as compensation to the Board of Directors provided that entitlement of such remuneration shall be in proportion to number of sessions the member has attended.

f. The Ordinary General Assembly may, upon proposal from the Board of Directors, distribute the remaining balance (if any) among Shareholders in the form of an additional dividend. In addition, the Company may pay interim dividend to its Shareholders on a bi-annual or quarterly basis in accordance with the directives issued by the Competent Authority upon authorisation issued by the Ordinary General Assembly to the Board of Directors to distribute such interim dividend.

12.6.44 Dividends Maturity

A shareholder shall be paid his dividend share subject to a resolution by the General Assembly, and such resolution shall State the date of maturity and distribution. Eligibility for dividends shall be for Shareholders registered in the Shareholders’ Register at the end of the day specified for maturity. The dividends to be distributed amongst Shareholders shall be paid at the place, dates, and in the manners to be specified by the Board of Directors as per instructions issued by the Competent Authorities.

12.6.45 Distribution of Dividends of Preferred Shares

In the event of non-distribution of profits for any fiscal year, profits of forthcoming years shall not be distributed before the portion specified in Article (114) of the Companies Law is paid to the owners of preferred shares for that year.

If the Company fails to pay the said portion of the profits specified in Article (114) of the Companies Law for a period of three consecutive years, the Private Assembly of these interest holders may, in accordance with Article (89) of the Companies Law, resolve to either attend the General Assemblies of the Company and participate in the voting thereof, or to designate representatives on their behalf in the Board of Directors, in accordance with their share of the Company capital. This shall remain the case until the Company manages to fully pay the priority profits for past years specified for the owners of such shares.

12.6.46 Company Losses

At any time of the fiscal year, if the Company’s losses total half of its paid-up capital, then any officer of the Company or the Auditor, once he is aware of such fact, must notify the Chairman of the Board, and the Chairman, in turn, must immediately notify the Board, and latter shall, within a period of fifteen

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(15) days of being notified of same, call the Extraordinary General Assembly for a meeting within forty-five days of the date the Board is notified of such losses. The Extraordinary General Assembly shall consider whether to raise or lower the Company capital stock in accordance with the Companies Law, such that losses should be lowered beyond half of the paid-up capital, or to decide whether the Company shall be dissolved prior to the expiry of the term specified therefor under these Articles.

The Company shall expire under the Companies Law in case the Extraordinary General Assembly does not convene within the period specified in Paragraph (1) above hereof, or if the meeting thereof fails to decide upon the subject, or even if the Assembly decides to raise the capital in accordance with the conditions stared in this Article but each increase is not subscribed for within the ninety (90) days following the issuance of the Assembly’s resolution of increasing the Company capital.

12.6.47 Liability Action

Each Shareholder shall have the right to file a liability action, vested in the Company, against the members of the Board of Directors if they have committed a fault which has caused some particular damage to such Shareholder, provided that the Company’s right to file such action is still valid. The Shareholder must notify the Company of his intention to file such action.

12.6.48 Company Expiration

Immediately upon the expiry of its term of existence, the Company shall be liquidated, and shall retain its legal personality to the extent needed for liquidation. Voluntary liquidation shall be made pursuant to a resolution by the Extraordinary General Assembly whose resolution shall appoint the liquidator and specify his powers and fees in addition to the restraints on his powers and the duration needed for liquidation. The duration of voluntary liquidation shall not exceed five years and may not be extended except with a judicial order. Besides, the powers of the Board of Directors shall cease upon the Company’s winding up. However, the Board of Directors shall remain responsible for the management of the Company and shall be considered as liquidators for third parties until liquidator is appointed. The Shareholders’ Assemblies shall remain, through the liquidation period and shall maintain their competencies to the extent that they do not interfere with the competencies of the liquidator.

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13. Book-Building

The Company, the Selling Shareholder, and the Bookrunners have entered into a bookrunners agreement dated 01/05/1443H (corresponding to 05/12/2021G) with respect to the sale of Offer Shares to Participating Parties (the “Bookrunners’ Agreement”). The Bookrunners have agreed to market the Offer Shares to Participating Parties in various jurisdictions. The following is a summary of the material provisions of the Bookrunners’ Agreement.

13.1 Pricing and Allocation

The Final Offer Price shall be determined by the Selling Shareholder and the Bookrunners at the end of the Book-building Period, based on the Offer Price Range and in consultation with the Company. The Offer Price will also be reflected in the Pricing Agreement that will be concluded between the parties in accordance with the Bookrunners’ Agreement. The Bookrunners will determine the allocation mechanism of the Offer Shares in coordination with the Company and the Selling Shareholder.

13.2 Closing Date

As per to the Bookrunners’ Agreement, the Closing Date of the Offering shall occur within two Business Days of the trade date agreed upon between the parties to the Bookrunners’ Agreement (T+2) (for more information, please refer to Section “Key Announcement Dates” on page 24 of this Prospectus). The Depository Center (Edaa) guarantees the deposit of the Offer Shares to the investment accounts of the Investors that will be determined by the Bookrunners in accordance with the Bookrunners’ Agreement and the procedures issued by Tadawul. This deposit of shares will be done in exchange for the Offering proceeds that Edaa will receive, following the deduction of the Bookrunners’ fees, costs and expenses, which PIF will pay to the Bookrunners.

Investors should note that deposit of the Offer Shares allocated to Individual Investors and Participating Parties will be completed before market open, and accordingly both Individual Investors and Participating Parties will be able to trade their Offer Shares on the same day, which is Sunday 08/05/1443H (corresponding to 12/12/2021G). Any additional information regarding timing of settlement will be shared with Investors through announcements and the relevant communication channels.

The Offer Shares will not be underwritten. In the event of a settlement failure with respect to any Offer Shares, such Offer Shares shall be reallocated at the discretion of the Selling Shareholder and the Bookrunners, in consultation with the Company.

13.3 Termination

The obligations of the Bookrunners under the Bookrunners’ Agreement are subject to certain conditions and may be subject to termination by the Bookrunners under certain customary circumstances. Should the Bookrunners decide to terminate the Bookrunners’ Agreement, the Offering may be cancelled; if cancelled, no Offer Shares will be delivered.

13.4 Representations and Warranties

In the Bookrunners’ Agreement, the Company and the Selling Shareholder have made certain representations and warranties and agreed to indemnify the Bookrunners against certain liabilities.

The warranties made by the Company to the Bookrunners include, but are not limited to, warranties of eligibility and validity, information contained in this Prospectus, activities and share capital of the Company, compliance with the relevant regulations and financial statements, taxes and combatting money-laundering. The Company has agreed to compensate and exempt the Bookrunners from any losses or requests resulting from facts related to the Offering and the related documents, including losses resulting from failure to comply with the relevant regulations.

13.5 Fees, costs and expenses

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The Selling Shareholder will pay fees to the Bookrunners based on the total value of the Offering, as well as the Bookrunners’ and Company’s costs and expenses in connection with the Offering.

13.6 Contractual Lock-up

Pursuant to the terms of the Bookrunners Agreement, each of the Company and the Selling Shareholder have severally undertaken that, from the date of the closing of the Offering and for a period of six (6) months (with respect to the Company) and a period of twelve (12) months (with respect to the Selling Shareholder) thereafter, it will not, without the prior written consent of the Bookrunners (such consent not to be unreasonably withheld or delayed), directly or indirectly, offer, issue, lend, mortgage, assign, charge, pledge, sell or contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of the Company’s Shares (or any interest therein or in respect thereof) or any other securities exchangeable for or convertible into, or substantially similar to, the Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing, other than pursuant to the Offering, in the manner described in this Prospectus, save that the above restrictions shall not prohibit the Selling Shareholder from:

a. accepting a general offer made to all holders of issued and allotted Ordinary Shares for the time being (other than Company Shares held or contracted to be acquired by the offeror or its associates);

b. executing and delivering an irrevocable commitment or undertaking to accept a general offer (without any further agreement to transfer or dispose of any Ordinary Shares or any interest therein) as is referred to in paragraph (a) above;

c. selling or otherwise disposing of Company Shares pursuant to any offer by the Company to purchase its own Shares which is made on identical terms to all holders of Company Shares;

d. transferring or disposing of Shares pursuant to a compromise or arrangement between the Company and its creditors or any class of them or between the Company and its members or any class of them which is agreed to by the creditors or members and (where required) sanctioned by the court under the Companies Law;

e. disposing of, or taking up any Ordinary Shares or other rights granted in respect of a rights issue or other pre-emptive share offering by the Company; or

f. Transferring the Company’s Shares to any Governmental entity, legal entities owned by the Government, or a foreign strategic investor affiliated to a foreign government.

13.7 Stabilisation

No stabilisation activities will be undertaken in connection with the Offering.

13.8 Other relationships

Subject to the terms and conditions of the Bookrunners’ Agreement, each of the Bookrunners and any of its affiliates, acting as an investor for its own account, in connection with the Offering, may take up Offer Shares and in that capacity may retain, purchase or sell for its own account such Offer Shares and any related investments and may offer or sell such Offer Shares or other investments otherwise than in connection with the Offering. Accordingly, references in this Prospectus to the Offer Shares being “offered” or “placed” should be read as including any offering or placement of Offer Shares to the Bookrunners and any affiliate acting as an investor for its own account.

None of the Bookrunners intend to disclose the extent of any such investment or transactions otherwise than to the Company and the Selling Shareholder and in accordance with any legal or regulatory obligation to do so. In addition, in connection with the Offering, certain of the Bookrunners may enter into financing arrangements with investors, such as share swap arrangements or lending arrangements where securities are used as collateral,that could result in such Bookrunners acquiring shares in the Company.

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It should be noted that, his Excellency Dr. Khaled H.Biyari, Mr.Yazeed A. AlHumied, Ms. Rania Mahmoud Nashar, Mr. Arndt F.Rautenberg and Mr. Sanjay Kapoor, who are Directors of the Company have indirect interests in the Bookrunners’ Agreement, as they are PIF’s representatives on the Board of Directors.

Since (a) PIF owns 70% of the Company’s share capital, (b) the following directors are representatives of PIF: Dr. Khaled H.Biyari, Mr.Yazeed A.AlHumied, Ms. Rania Mahmoud Nashar, Mr. Arndt F.Rautenberg and Mr. Sanjay Kapoor, the Bookrunners’ Agreement is deemed to be a Related Party transaction, in which the abovementioned Directors have an interest. Therefore, pursuant to Article 71 of the Companies Law and Article 58 of the Instructions for Listed Companies, this agreement has been approved by the Board of Directors on 02/04/1443H (corresponding to 07/11/2021G) and the Ordinary General Assembly on 25/04/1443H (corresponding to 30/11/2021G). The Directors with a conflict of interest have abstained from voting.

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14. Offering Expenses

The Selling Shareholder will bear all the expenses and costs relating to the Offering, which are to be deducted from the total offer proceeds. The Offering expenses amount to approximately SAR 100 million Saudi Riyals, including the fees and expenses (as applicable) of the Financial Advisors, the Bookrunners, the Lead Manager, the Receiving Entities and Legal Advisors and other expenses incurred by the Selling Shareholder and the Company in relation to the Offering, together with the fees of the Receiving Entities, and marketing, printing and distribution expenditures, and other offer-related expenses. The Company will not pay any expenses or costs related to the Offering.

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15. Subscription Terms and Conditions

All subscribers must carefully read the Subscription Terms and Conditions before completing the Subscription Application Form. The signing and submission of the Subscription Application Form to a Receiving Entity or to a Bookrunner, as applicable, are deemed as acceptance and approval of these Subscription Terms and Conditions.

15.1 Subscription for the Offer Shares

The Offering described in this Prospectus consists of a sale by the Selling Shareholder of 100,200,000 fully paid ordinary Shares with a nominal value of ten Saudi Riyals (SAR 10) per Share, representing 5.01% the Company's total Shares (the “Offering Size”), while retaining a controlling interest in the Company, through a Fully Marketed Secondary Public Offering Process. The price range in respect of the Offer Shares is from SAR 100 to SAR 116 per Share (the “Offer Price Range”).

The Final Offer Price will be determined by the Selling Shareholder and the Bookrunners at the end of the Book-building Period, based on the level of the investors’ demand for the Offer Shares. The Offer Price is expected to be published by the Bookrunners (on behalf of the Selling Shareholder and the Company) following the end of the Book-Building Period.

The Final Offer Price is the price at which the Offer Shares are allocated to all categories of Investors, amounting to SAR per Share.

It should be noted that, if there are any updates or amendments to the terms and conditions of the Offering, including the Offering Size, an announcement will be made by the Bookrunners (on behalf of the Selling Shareholder and the Company) before the start of the retail offering period. The said adjustments (if applicable) will not include any amendments made to the number of shares allocated to the Individual Investors which will represent 10% of the total offering size, if there is sufficient demand.

The Offering is directed at the following two categories of investors (the “Investors”):

Category A: Participating Investors: this category includes the categories described in paragraph (5) of the Book-building Instructions in accordance with the terms set out in this Prospectus (the “Participating Parties”). The Selling Shareholder in consultation with the Lead Manager, Financial Advisors and the Bookrunners, will determine the number and percentage of Offer Shares which will be allocated to the Participating Parties after the end of the Book-building Period and following the announcement of the Final Offer Price.

Category B: Individual Investors: This category includes Saudi Arabian natural persons, including Saudi women who are divorced or widowed, and who have children by a non-Saudi husband who may subscribe for the Offer Shares in her own name or the name(s) of any of those children who are minors for her own benefit, provided that she shall provide whatever documents proving that she is divorced or widowed, and any non-Saudi natural person resident at or national of the GCC who has a bank account at a receiving agent and an investment portfolio account with a brokerage company affiliated with the same Receiving Agent that provides such services ("Individual Investors"). A subscription shall be deemed null if it is in the name of the divorced wife. If this operation is proved, the regulation shall be applied on the applicant. In case there has been two subscriptions, the second one is deemed null and only the first one shall prevail. An Individual Investor must have a bank account at any of the receiving authorities, together with an investment portfolio account with a brokerage company affiliated to a receiving authority providing such services. A subscription shall be deemed null and void if an Individual Investor has no bank account and an investment portfolio as set out above.

The number of Offer Shares to be allocated to Individual Investors is 10,020,000 Offer Shares, representing 10% of the total Offering Size, to the extent there is sufficient demand. Accordingly, the final number of Offer Shares will be announced post the Book-building process and the announcement of the Final Offer Price. The Selling Shareholder in consultation with the Lead Manager, Financial Advisors and the Bookrunners, will determine the final number and percentage of Offer Shares which

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will be allocated to Participating Parties and Individual Investors after the end of the Book-building Period and following the announcement of the Final Offer Price

15.2 Subscription Period

The Subscription Period for the Participating Parties shall commence at 6:00 pm (Riyadh time) on 01/05/1443H (corresponding to 05/12/2021G) and shall end at 5:00 pm (Riyadh time) on 05/05/1443H (corresponding to 09/12/2021G)

The Subscription Period for Individual Investors shall commence at 11:59 pm (Riyadh time) on 03/05/1443H (corresponding to 07/12/2021G) and shall end at 11:59 pm (Riyadh time) on 04/05/1443H (corresponding to 08/12/2021G).

15.3 Book-building and subscription by Participating Parties

The Bookrunners will offer the Offer Shares to the Participating Parties during the Book-building Period within the Offer Price Range of SAR 100 to SAR 116. The Final Offer Price will be announced at the end of the Book-building Period, and will be determined by the Selling Shareholder and the Bookrunners in consultation with the Company.

Subscription for the Offer Shares during the Book-building Period will be in accordance with the terms and conditions as made available by the Bookrunners. Participating Parties shall comply with the following requirements:

a. Each Participating Party must submit the subscription application during the Book-building Period to purchase the Offer Shares within the Offer Price range through the Bookrunners by completing and submitting the subscription application according to the terms and conditions detailed therein. The minimum number of Offer Shares which may be subscribed by a Participating Party is one hundred thousand (100,000) Offer Shares.,

b. Participating Parties will fund their allocation of Offer Shares based on the Final Offer Price basis through negotiated trades through their brokers.

c. Participating Parties may amend or cancel their applications at any time during the Book-building Period, provided that the relevant applications are amended by submitting a modified Bid Form or an appended Bid Form (where applicable) before determination of the Offer Price, which will take place before the Subscription Period for the Participating Parties shall commence.

The number of requested Offer Shares shall be subject to the allocation procedures described herein. The Bookrunners will inform the Participating Parties of the Offer Price and the number of Offer Shares initially allocated thereto. Following the end of the Book-building Period, Subscription Applications submitted prior to such time shall be deemed binding on the Participating Parties and, accordingly, Participating Parties will be bound to accept the Offer Shares allocated to them. Each Subscription Application shall contain instructions to the broker to take the necessary actions for executing the settlement of the shares that are subscribed to.

It should be noted that the Final Price of the Offer Shares will be determined by the Selling Shareholder and the Bookrunners at the end of the Book-building Period, based on the level of demand by investors for the Offer Shares.

15.4 Subscription by Individual Investors

Each Individual Investor must submit an Individual Investors Subscription Application, and must subscribe for Offer Shares in multiples of ten (10), calculated based on the Offer Price. Each Individual Investor has the right to subscribe to such amount of Offer Shares and multiples thereof. There is no maximum number of Offer Shares, or maximum subscription amount that an Individual Investor may request to subscribe. Individual Investors are not entitled to change or cancel their subscription forms following their submissions.

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Individual Investors can subscribe through the Receiving Entities’ electronic channels (i.e., online banking, mobile applications and telephone banking), provided that the following requirements are satisfied:

a. the Individual Investor must have a bank account at a Receiving Entity;

b. the Individual Investor must have an investment portfolio account (with an affiliated brokerage house of one of the Receiving Entities); and

c. There should have been no changes to the personal information or data of the Individual Investor previously submitted to relevant Receiving Entity.

Once submitted, each Individual Investor will be deemed to have accepted the terms and conditions of the Individual Investors Subscription Application, which represents a legally binding agreement between the Selling Shareholder, the Company and the relevant Individual Investor submitting it.

Individual Investors may obtain a copy of this Prospectus from the websites of the Company, the Bookrunners and the Receiving Entities listed below:

Receiving Entities

Saudi National Bank King Fahd Road – Al Okeik District– King Abdullah Financial Center P.O. Box 3208, Unit: 778 Riyadh 6676 - 13519 Kingdom of Saudi Arabia Tel: +966920001000 Website: www.alahli.com Email: [email protected]

Al Rajhi Bank King Fahd Road – Al-Moroug District– Al-Rajhi Bank Tower Riyadh 11411 Kingdom of Saudi Arabia Tel: +966118282515 Fax: +96611279 8190 Website: www.alrajhibank.com.sa Email: [email protected]

Riyad Bank Eastern Ring Road P.O. Box 22622 Riyadh 11614 Kingdom of Saudi Arabia Tel: +966114013030 Fax: +966114030016 Website: www.riyadbank.com Email: [email protected]

The Receiving Entities providing such services will commence receiving Subscription Applications Forms through electronic channels starting at 11:59 p.m. (Riyadh time) on Tuesday 03/05/1443H (corresponding to 07/12/2021G) and ending at 11:59 p.m. (Riyadh time) on Wednesday 04/05/1443H (corresponding to 08/12/2021G).

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Each Individual Investor shall identify the number of Offer Shares that it wishes to subscribe for in the Individual Investor Subscription Application based on the Retail Subscription Price. The excess subscription amount or the full amount shall be refunded to the Individual Investor in cash in the following cases: (a) the Final Offer Price is less than the Retail Subscription Price, (b) not all of the Offer Shares requested by the relevant Individual Investor have been allocated thereto, or (c) if the Final Offer Price is higher than the closing market price of the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If paragraph (c) is applicable, no allocations of Offer Shares will be made to Individual Investors. The said amounts will be refunded to the Individual Investor (if applicable) without any commissions or deductions by the Receiving Entities. The refunds will be deposited in the Individual Investors’ accounts specified in his application, including any amounts related to the fractional Offer Shares (if any).

Each Individual Investor agrees to subscribe for and purchase the number of Offer Shares specified in their Individual Investor Subscription Application for an amount equal to the number of the Offer Shares applied for multiplied by the Retail Subscription Price. The Retail Subscription Price shall be within the Offer Price Range. Each Individual Investor shall acquire the number of the Offer Shares allocated thereto upon:

a. submission by the Individual Investor of the Individual Investor Subscription Application to any of the Receiving Entities; and

b. payment in full by the Individual Investor to the Receiving Entity of the total value of the Offer Shares subscribed for.

The total value of the Offer Shares subscribed for must be paid in full through the applicable Receiving Entity channels by authorizing a debit of the Individual Investor’s account held with the Receiving Entity to which the Subscription Application is being submitted.

The Selling Shareholder (in consultation with the Lead Manager and the Company) has the right to reject any Individual Investor Subscription Application in full or in part if it is not compliant with the terms and conditions of the Offering. Each Individual Investor is required to accept number of Offer Shares allocated thereto unless the Offer Shares so allocated exceed the number of Offer Shares applied for.

15.5 Allocation and Refunds

The Lead Manager and Receiving Entities shall open and operate escrow accounts. The Lead Manager and each of the Receiving Entities shall deposit all amounts received from Individual Investors into the escrow account mentioned above.

The Bookrunners will notify Participating Parties of the final number of the Offer Shares allocated thereto. The Receiving Entities will notify the Individual Investors of the final number of the Offer Shares, together with the amounts to be refunded as further described below.

The excess subscription amount or the full amount shall be refunded to the Individual Investor in cash in the following cases: (a) the Final Offer Price is less than the Retail Subscription Price, (b) not all of the Offer Shares requested by the relevant Individual Investor have been allocated thereto, or (c) if the Final Offer Price is higher than the closing market price of the Company’s shares on Thursday, 05/05/1443H (corresponding to 09/12/2021G). If paragraph (c) is applicable, no allocations of Offer Shares will be made to Individual Investors. Such amounts (if applicable) will be refunded to the relevant Individual Investor without any deductions therefrom by the Receiving Entities. The applicable refunds will be deposited in the relevant Individual Investors’ account specified in his or her Individual Investor Subscription Application, including any amounts related to the fractional Offer Shares (if any)

The announcement of the final Offer Price and final allocation and refund process shall be made no later than Sunday 08/05/1443H (corresponding to 12/12/2021G). Subscribers should communicate with the Lead Manager or the branch of the Receiving Entity where they submitted their Individual Investor Subscription Application, as applicable, for any further information.

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15.6 Circumstances where listing may be suspended or cancelled

15.6.1 Power to Suspend or Cancel Listing

A. CMA may suspend stock trading or cancel the listing at any time as it deems fit, in any of the following circumstances:

1. the CMA considers it necessary for the protection of investors or the maintenance of an orderly market;

2. the Company fails, in a manner which the CMA considers material, to comply with the Capital Market Law, its Implementing Regulations or the Exchange rules (as applicable);

3. the Company fails to pay on time any fees due to the CMA or the Exchange or any fines due to the CMA;

4. the CMA considers that the Company, its business, the level of its operations or its assets are no longer suitable to warrant the continued listing of its securities on the Exchange;

5. when a reverse takeover announcement does not contain sufficient information about the proposed transaction; In the event that the Company has given sufficient information regarding the target and the CMA is convinced, after the announcement of the Company, that sufficient public information is available on the proposed transaction of the reverse takeover, the CMA may decide not to suspend trading at this stage;

6. when information about the proposed transaction of reverse takeover is leaked and the Company cannot accurately assess its financial position and the Exchange cannot be informed accordingly;

7. upon an application for a financial reorganisation of the Company with a court in accordance with the Bankruptcy Law, if its losses exceed 50% of its share capital;

8. upon an application liquidation or administrative liquidation of the Company with the court in accordance with the Bankruptcy Law;

9. upon a court’s termination of a financial reorganisation procedure and the commencement of a bankruptcy proceeding or the administrative liquidation procedure of the Company in accordance with the Bankruptcy Law; and

10. upon a court’s issuance of a final ruling to commence a bankruptcy proceeding or the administrative liquidation procedure of the Company in accordance with the Bankruptcy law.

B. Lifting of the trading suspension under paragraph a above is subject to the following:

1. the events which led to the suspension being sufficiently remedied, and the suspension being no longer necessary for the protection of investors;

2. the lifting of suspension being unlikely to affect the normal activity of the Exchange;

3. the Company complying with any other conditions that the CMA may require;

4. in the event that the suspension is due to the fact the Company’s accumulated losses reaches 50% or more of its capital as per the Bankruptcy Law, then the suspension shall be lifted upon the issuance of the final court ruling on the commencement of a financial restructuring procedure for the Company under the Bankruptcy Law, unless suspended from the practice of its activities by the relevant competent authority; and

5. in the event that the suspension was due to an issuer liquidation procedure or administrative liquidation procedure before the court under the Bankruptcy Law, the suspension shall be lifted upon the issuance of the final court ruling rejecting the commencement of liquidation

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procedures or administrative liquidation procedures under the Bankruptcy Law, unless suspended from the practice of its activities by the relevant competent authority.

C. The Exchange shall suspend the trading of securities of the Company in any of the following cases:

1. when the Company does not comply with the deadlines for the disclosure of its periodic financial information within the periods specified in the Rules on the Offer of Securities and Continuous Obligations;

2. when the Auditor’s Report on the financial statements of the Company contains an adverse opinion or an abstention from expressing an opinion;

3. if the liquidity requirements in Parts two (2) and eight (8) of the Listing Rules are not satisfied after listing after the time limit set by the Exchange for the Company to rectify its conditions, unless the CMA agrees otherwise; or

4. upon the issuance of a resolution by an Extraordinary General Assembly of the Company to reduce its capital for the two trading days following the issuance of such resolution.

D. The Exchange may at any time propose to the CMA to suspend the trading of any listed security or cancel its listing where in its opinion any of the circumstances of Paragraph A is likely to occur.

E. An issuer whose trading of securities has been suspended must continue to abide by the Law, its executive regulations and the Exchange rules.

F. In the event that the listing suspension continues for six (6) months with no appropriate procedure made by the Company to correct such suspension, the CMA may cancel the Company's listing

G. Upon the Company’s completion of a reverse takeover, the Company’s shares are de-listed; If the issuer wishes to re-list its shares, it must submit a new application to list its shares in accordance with the Listing Rules and fulfil the relevant requirements stipulated in the OSCO Rules; and

H. This shall not prejudice the suspension of trading and cancellation of listing resulting from the losses of the Company pursuant to relevant Implementing Regulations and Exchange Rules.

The Exchange shall remove the suspension referred to in sub-paragraphs 1 and 2 above, prior to one trading session after the cause of suspension ceases to exist. In the event that the over-the-counter trade of the Company’s shares is allowed, the Exchange shall remove the suspension within a period of no more than five (5) trading sessions after the cause of suspension ceases to exist.

15.6.2 Voluntary Cancellation of Listing

A. an issuer whose securities have been admitted to listing may not cancel the listing of its securities on the Exchange without the prior approval of the CMA. In order to obtain such approval, the Company will submit an application for the cancellation to the CMA, with concurrent notification to the Exchange, which must include the following:

1. specific reasons for the request for the cancellation;

2. a copy of the disclosure described in Paragraph 4 below;

3. a copy of the relevant documentation and a copy of each related communication to Shareholders if the cancellation is to take place as a result of a takeover or other corporate action by the Company; and

4. names and contact information of the Financial and Legal Advisors appointed according to the Rules on the Offer of Securities and Continuing Obligations.

B. The CMA may, at its discretion, approve or reject the cancellation request.

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C. The Company must obtain the consent of the extraordinary general assembly on the cancellation of the listing after obtaining the CMA’s approval.

Where cancellation is made at the Company’s request, the Company must disclose such to the public as soon as possible. The disclosure must include the reason for the cancellation, the nature of the event resulting in the cancellation, and the extent to which it affects the Company’s activities.

15.6.3 Temporary Trading Suspension

A. The Company may request a temporary trading suspension upon the occurrence of an event that occurs during trading hours which requires immediate disclosure under the CML, its Implementing Regulations or the Exchange Rules, where the issuer cannot maintain the confidentiality of this information until the end of the trading period. The Exchange shall suspend the trading of the Company’s securities immediately upon receipt of the request;

B. Upon a temporary trading suspension made at the Company’s request, the Company must announce as soon as possible the reason for the trading suspension, the anticipated period of the trading suspension and the event affecting the Company’s activities;

C. The CMA may impose a temporary trading suspension without a request from the Company when the CMA has information or there are circumstances that affect the Company’s activities which the CMA considers would be likely to interrupt the operation of the Exchange or jeopardise the protection of investors; An issuer whose securities are subject to temporary trading suspension must continue to comply with the CML and its implementing regulations and Exchange Rules; and

D. The Exchange may propose that CMA exercise its authorities under Paragraph C above in case it finds that there are information or circumstances that may affect the Company’s activities and that are likely to interrupt the operation of the Exchange or the protection of investors.

E. The temporary trading suspension will be lifted following the elapse of the period referred to in Paragraph b above, unless the CMA or the Exchange decide otherwise.

15.6.4 Lifting of Suspension

Lifting of trading suspension under Paragraph (A) of Section 15.6.1 “Power to Suspend or Cancel Listing” is subject to the following:

A. The events which led to the suspension being sufficiently remedied, and the suspension being no longer necessary for the protection of investors;

B. The lifting of suspension being unlikely to affect the normal activity of the Exchange;

C. The issuer complying with any other conditions that the CMA may require;

D. Upon the issuance of a final judgement initiating the financial restructuring of the Company under the Bankruptcy Law, unless suspended from the practice of its activities by the relevant competent authority, in the event the suspension was in accordance with Article 36, Paragraph A, Subparagraph 13 of the Listing Rules.

E. Upon issuance of a final judgement rejecting the liquidation procedure or the administrative liquidation under the Bankruptcy Law, unless suspended from the practice of its activities by the relevant competent authority, in the event the suspension was in accordance with Article 36, Paragraph A, Subparagraph 14 of the Listing Rules.

In the event that the listing suspension continues for six months with no appropriate procedure made by the Company to correct such suspension, the CMA may cancel the Company's listing.

15.7 Approvals and decisions under which the Shares will be Offered

The Offer Shares, under this Prospectus, will be offered pursuant to:

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The resolution of the Company’s Board of Directors approving the public Offering of the Offer Shares issued on 09/04/1443H (corresponding to 14/11/2021G).

15.8 Lock-up Period

According to the Bookrunners Agreement the Selling Shareholder may not dispose of the Company’s shares within a period of twelve (12) months from the Closing Date (as defined in Section 1 “Definitions and Terminology”). According to the Bookrunners Agreement, the Company may not issue of new shares within a period of six (6) months from the Closing Date (for more information regarding the Bookrunners Agreement, including the contractual lock-up period, please refer to Section 13 “Book-Building” of this Prospectus).

15.9 Pricing

The Offer Price at which all Investors shallsubscribe for the Offer Shares is the Final Offer Price.

The number of Offer Shares and Final Offer Price shall be determined by the Selling Shareholder and the Bookrunners (in consultation with the Company) following the Book-building Period.

Following the last day of the Book-building Period, the Selling Shareholder and the Bookrunners (in consultation with the Company) will determine the final Offer Price. After the determination of the final Offer Price, the Selling Shareholder in consultation with the Bookrunners, the Legal Advisors, the Lead Manager and the Company will determine the final Offering Size to be allocated to each category of Investors.

Following the Book-building Period, the Selling Shareholder, Company and Bookrunners will announce the aggregate amount of Offer Shares subscribed by the Participating Parties and Individual Investors relative to the number of the Offer Shares sold in the Offering.

Transfer of the shares shall not be deemed valid unless their relevant price is paid, and as at the shares registration date in the Shareholders Register in accordance with the instructions and regulations of the Saudi shares trade as applicable in this regard.

15.10 Acknowledgments by Individual Investors

By completing and delivering the Retail Subscription Application, each Individual Investor:

A. agrees to subscribe to the number of the Offer Shares specified in the Individual Investors Subscription Application;

B. warrants that he/she has read this Prospectus and understood all its content;

C. accepts the Company’s Articles of Association and all Offering instructions and terms mentioned in this Prospectus and in the Retail Subscription Application, and subscribes in the Offer Shares accordingly;

D. declares that he/she has not previously subscribed for any Offer Shares in the Offering, and that the Company has the right to reject any or all duplicate applications;

E. accepts the number of Offer Shares allocated to him/her as per the Individual Investor Subscription Application;

F. agrees not to cancel or amend the Individual Investor Subscription Application after submitting it to the Lead Manager or the Receiving Entity; and

G. undertakes to have an investment portfolio account at a receiving entity (with an affiliated brokerage house of the same Receiving Entity).

15.11 Acknowledgments by Participating Parties

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By completing and delivering the application bid form, each such Participating Parties:

A. agrees to subscribe to the number of Offer Shares specified in the Participating Parties Application Form;

B. warrants that it has read this Prospectus and understood all its content;

C. accepts the Company’s Articles of Association and all Offering instructions and terms mentioned in this Prospectus;

D. accepts the number of the Offer Shares allocated to it as pursuant to the binding Participating Parties Subscription Application. Participating Parties are obligated to pay the value of the shares allocated to them;

E. declares that it is well aware of his/her responsibility to inform their broker to execute the negotiated trade in the event their broker is not one of the Bookrunners, otherwise they may face delay in receiving shares; and

F. declares that it has fulfilled all the requirements and conditions relating to the Book-building process, and all other applicable requirements set forth in the CML and its implementing regulations; and that all documents and information submitted by it as part of the Book-building process are true, complete, up to date, and not misleading. Further declares that it shall bear full legal responsibility in the event that it is proved otherwise (and the Authority and other government entities have the right to undertake adequate measures in this regard).

15.12 Brief Summary of the Trade Process

Trading in the Ordinary Shares occurs on Tadawul through a fully integrated trading system covering the entire trading process from execution of the trade transaction through settlement thereof. Trading occurs on each business day of the week from 10:00 a.m. to 3:00 p.m. (Riyadh time), from Sunday to Thursday, during which orders are executed. However, during other than those times, orders can be entered, amended and cancelled from 9:30 a.m. to 10:00 a.m. (Riyadh time). The said times are subject to change during the month of Ramadan and they are announced by the Tadawul Management. Transactions take place through automatic matching of orders. Each valid order is accepted and generated according to the price level. In general, market orders (orders placed at the best price) are executed first, followed by limit orders (orders placed at a price limit), provided that if several orders are generated at the same price, they are executed according to the time of entry. Exchange transactions are settled on a T+2 basis, meaning that the transfer of share ownership takes two working days after the trade transaction is executed.

The listed companies are required to disclose all material information that is important for investors via Tadawul. Surveillance and monitoring of the Stock Exchange is the responsibility of Tadawul as the operator of mechanism with which the Stock Exchange operates to ensure fair trading and an orderly shares trading operations.

15.13 Settlement and Trading

The deposit of Offer Shares into Individual Investors’ investment portfolios and the completion of the execution of the Negotiated trades with respect to Participating Parties are expected to occur on Sunday, 08/05/1443H (corresponding to 12/12/2021G) as follows:

with respect to the Participating Parties, settlement and delivery of the Offer Shares to Participating Parties will take place by way of negotiated trades executed in accordance with Tadawul’s “Negotiated Trade ” Framework issued by Tadawul; and

with respect to the Individual Investor, settlement of the Offer Shares will be executed by the Receiving Entities and the Lead Manager, and will be delivered to Individual Investors’ portfolio accounts via Edaa.

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Investors should note that the deposit of the Offer Shares allocated to Individual Investors and Participating Parties will be completed before market open, and accordingly both Individual Investors and Participating Parties will be able to trade their Offer Shares on the same day, which is Sunday, 08/05/1443H (corresponding to 12/12/2021G). Any additional information regarding timing of settlement will be shared with Investors through announcements and the relevant communication channels.

Settlement of securities trading on the "Tadawul" is governed by the Tadawul’s rules and regulations, which are available on its website www.saudiexchange.sa.

Dates and times included in this Prospectus are only indicative on a preliminary basis and may be changed or extended. Shares may only be traded after the allocated Offer Shares have been credited to the relevant Investor’s account at Tadawul. Tadawul shall maintain a shareholder’s record containing their names, nationalities, the Shares held by them and the amounts paid for such Shares.

Saudi Arabian nationals, non-Saudi Arabian nationals residing in Saudi Arabia who own an investment account with a Capital Market Institution, and companies, banks, and investment funds established in Saudi Arabia or in countries of the GCC, as well as GCC nationals, are permitted to trade in the Ordinary Shares. Moreover, Qualified Foreign Investors are permitted to trade in the Shares in accordance with QFI Rules. Non-Saudi nationals living outside Saudi Arabia and institutions registered outside Saudi Arabia, excluding Qualified Foreign Investor and Foreign Strategic Investors, also have the right to invest indirectly to acquire economic benefits in the Ordinary Shares by entering into swap agreements with Capital Market Institutions to acquire, hold and trade in the Ordinary Shares on the Exchange on behalf of a foreign non-GCC investor. Capital Market Institutions shall be deemed the legal owners of the Ordinary Shares under the swap agreements.

15.14 Miscellaneous

The Retail Subscription Application and all related terms, conditions, provisions, covenants and undertakings shall be binding on and inure to the benefit of the parties to the subscription and their respective successors, permitted assigns, executors, administrators and heirs; provided that neither the Retail Subscription Application nor any of the rights, interests or obligations arising pursuant thereto shall be assigned and delegated by any of the parties to the subscription without the prior written consent of the other party. These instructions, conditions and the receipt of any Retail Subscription Applications or related contracts shall be governed, construed and enforced in accordance with the laws of Saudi Arabia.

The Company, Selling Shareholder, Bookrunners and Lead Manager require recipients of this Prospectus to inform themselves of any regulatory restrictions on the Offer Shares and to observe all such restrictions. The distribution of this Prospectus or the sale of the Offer Shares to any person is expressly prohibited, except as described herein; provided that all applicable laws and regulations are observed.

The responsibility to inform the broker to execute the negotiated trade falls on the Participating Parties if that broker is not one of the Bookrunners.

The Participating Parties' applications shall be executed shortly after the Saudi Stock Exchange opening, which may delay the execution of application.


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16. Financial Statements and Auditor's Report

This Section contains the Audited Financial Statements, which have been prepared in accordance with IFRS-KSA, and the Unaudited Interim Condensed Consolidated Financial Statements, which have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) endorsed in KSA. A brief analysis of the financial performance for the nine-month period ended 30 September 2021 has also been added below.

16.1 Financial performance for the nine-month period ended 30 September 2021

16.1.1 Key Financial Data and Business Highlights

The Group’s revenues for the nine-month period ended 30 September 2021 remained strong and grew organically by 8.2%. This growth was witnessed across all three business units: (i) Consumer Business Unit revenues increased for the residential segment, driven by an increase in FTTH and fixed wireless access subscribers by 15% and 27%, respectively, (ii) Enterprise Business Unit revenues increased by 27.4%, and (iii) Wholesale Business Unit revenues increased by 3.4%, in each case, compared to the same period in 2020.

The Group’s gross profit margin for the nine-month period ended 30 September 2021 was 53.4% compared to 58.3% in the nine-month period ended 30 September 2020. The Group’s net profit margin for the nine-month period ended 30 September 2021 was 18.7%, compared to 19.6% in the nine-month period ended 30 September 2020. In addition, the Group’s Capex for the nine-month period ended 30 September 2021 was SAR 4,357.3 million compared to SAR 6,357.7 million in the nine-month period ended 30 September 2020. Further, the Group’s dividend payout ratio for the nine-month period ended 30 September 2021 was 68.5% (excluding special dividend distributions), and for the twelve-month period ended 30 September 2021, the Group’s dividend payout ratio was 70.8%.

The Group’s Adjusted EBITDA for the nine-month period ended 30 September 2021 grew by 3.7% compared to the same period in 2020. The Group’s Adjusted EBITDA margin for the nine-month period ended 30 September 2021 decreased to 36.1% compared to 37.6% in the nine-month period ended 30 September 2020.

In addition, some of the Group’s business highlights for the nine-month period ended 30 September 2021 include: (i) channels by stc signed a strategic partnership agreement with ASUS, a leading company which designs and manufactures technology products for businesses and individuals, to become an authorised distributor of ASUS technology products (for example, laptops, screens and accessories) in Saudi Arabia, (ii) stc ranked top mobile operator in Saudi Arabia by speed and coverage in the first and second quarters of 2021, according to Ookla, (iii) stc won the “Platinum Game Operator” award for the best performing service providers in terms of electronic games in Saudi Arabia during the first half of 2021, according to the Game Mode report issued by CITC, (iv) sirar by stc reported that the number of cyber-attacks repelled during the nine-month period ended 30 September 2021 reached over 71,000 attacks and 14 million malicious “phishing” emails, (v) stc signed an agreement with GSMA to contribute to sponsoring the “Artificial Intelligence for Impact” initiative, in cooperation with international operators, such as Vodafone, Orange and Telefónica, and (vi) stc Academy won two global awards by Brandon Hall in partnership with the Center for Creative Leadership (CCL) for its digital leadership programme, under which 14 courses were delivered reaching 330 participants.

16.1.2 Results of Operations

The table below sets out a comparison of the Group’s results of operations for the nine-month periods ended 30 September 2021 and 2020.

Table 43: Comparison of the Group’s results of operations for the nine-month periods

ended 30 September 2021 and 2020.

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For the nine-month periods ended 30

September

2021 2020 % change

(SAR’000)

Revenues 47,329,619 43,736,514 8.2

Cost of revenues (22,051,437) (18,228,686) 21.0

Gross Profit 25,278,182 25,507,828 (0,9)

Operating Expenses

Selling and marketing (4,335,625) (4,746,717) (8.7)

General and administration (3,869,292) (4,301,603) (10.1)

Depreciation and amortisation (7,149,661) (6,933,712) 3.1

Total Operating Expenses (15,354,578) (15,982,032) (3.9)

Operating Profit 9,923,604 9,525,796 4.2

Other Expenses, net

Cost of early retirement program (272,207) (500,193) (45.6)

Finance income 278,207 322,199 (13.7)

Finance cost (444,437) (477,853) (7.0)

Net other expenses (120,484) (57,890) 108.1

Net share in results of investments in associates and joint ventures

82,264 14,265 476.7

Net other gains 163,906 491,240 (66.6)

Total other Expenses, net (312,751) (208,232) 50.2

Net Profit before Zakat and Income Tax 9,610,853 9,317,564 3.1

Zakat and income tax (770,571) (752,893) 2.3

Net Profit 8,840,282 8,564,671 3.2


Equity holders of the Company 8,697,693 8,402,497 3.5

Non-controlling interests 142,589 162,174 (12.1)

16.1.3 Revenues

The Group is principally engaged in providing telecommunication services and related products. For the nine-month period ended 30 September 2021, 92.3% of the Group’s revenues were from its operations in Saudi Arabia (including stc, channels by stc, solutions by stc and other Saudi subsidiaries), compared to 92.1% for the nine-month period ended 30 September 2020. Outside Saudi Arabia, the Group operates through its subsidiaries and associates, primarily in Kuwait and Bahrain.

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The Group’s revenues for the nine-month period ended 30 September 2021 were SAR 47,329.6 million, an increase of SAR 3,593.1 million, or 8.2%, compared to SAR 43,736.5 million in the nine-month period ended 30 September 2020. This was principally due to improved performance of (i) stc in Saudi Arabia, mainly in the EBU, (ii) stc channels, mainly from sales of devices, and (iii) solutions by stc, mainly from an increase in demand for dedicated internet access (“DIA”) and Very Small Aperture Terminal (“VSAT”) products, in addition to growth in cloud services.


The Group’s cost of revenues for the nine-month period ended 30 September 2021 was SAR 22,051.4 million, an increase of SAR 3,822.8 million, or 21.0%, compared to SAR 18,228.7 million in the nine-month period ended 30 September 2020. This was principally as a result of an increase in revenues from lower margin products and services, given the strong focus of the Group to expand in the ICT space.

16.1.5 Gross profit

As a result of the factors described above, the Group’s gross profit for the nine-month period ended 30 September 2021 was SAR 25,278.2 million, a decrease of SAR 229.6 million, or 0.9%, compared to SAR 25,507.8 million in the nine-month period ended 30 September 2020.


The Group’s selling and marketing expenses for the nine-month period ended 30 September 2021 were SAR 4,335.6 million, a decrease of SAR 411.1 million, or 8.7%, compared to SAR 4,746.7 million in the nine-month period ended 30 September 2020. This was principally as a result of the positive impact of cost optimisation initiatives under the Business Efficiency Program.


The Group’s general and administration expenses for the nine-month period ended 30 September 2021 were SAR 3,869.3 million, a decrease of SAR 432.3 million, or 10.1%, compared to SAR 4,301.6 million in the nine-month period ended 30 September 2020. This was principally as a result of the positive impact of cost optimisation initiatives under the Business Efficiency Program.


The Group’s depreciation and amortisation expenses for the nine-month period ended 30 September 2021 were SAR 7,149.7 million, an increase of SAR 215.9 million, or 3.1%, compared to SAR 6,933.7 million in the nine-month period ended 30 September 2020. This was principally as a result of continuous investments in Capex.


As a result of the factors described above, the Group’s operating profit for the nine-month period ended 30 September 2021 was SAR 9,923.6 million, an increase of SAR 397.8 million, or 4.2%, compared to SAR 9,525.8 million in the nine-month period ended 30 September 2020.


The Group’s cost of early retirement program for the nine-month period ended 30 September 2021 was SAR 272.2 million, a decrease of SAR 228.0 million, or 45.6%, compared to SAR 500.2 million in the nine-month period ended 30 September 2020. This was principally as a result of a decrease in the number of participants in the Group’s voluntary retirement scheme.


The Group’s finance income for the nine-month period ended 30 September 2021 was SAR 278.2 million, a decrease of SAR 44.0 million, or 13.7%, compared to SAR 322.2 million in the nine-month

177

period ended 30 September 2020. The Group’s finance income was lower due to the lower murabaha income given the significantly lower deposit rates and excess liquidity in the market.

16.1.12 Finance cost

The Group’s finance costs for the nine-month period ended 30 September 2021 were SAR 444.4 million, a decrease of SAR 33.4 million, or 7.0%, compared to SAR 477.9 million in the nine-month period ended 30 September 2020. This was principally as a result of lower finance costs related to end of service benefits due to changes in actuaries’ assumptions, in addition to lower cost of funding.


The Group’s net share in results of investments in associates and joint ventures for the nine-month period ended 30 September 2021 was SAR 82.3 million, an increase of SAR 68.0 million, or 476.7%, compared to SAR 14.3 million in the nine-month period ended 30 September 2020. The change was primarily due to a higher share of profit from investments in certain associates and joint ventures in comparison to the same period in 2020.


The Group’s zakat expense for the nine-month period ended 30 September 2021 was SAR 770.6 million, an increase of SAR 17.7 million, or 2.3%, compared to SAR 752.9 million in the nine-month period ended 30 September 2020 due to a slight increase in the zakat base.

16.1.15 Net Profit

As a result of the factors described above, the Group’s net profit for the nine-month period ended 30 September 2021 was SAR 8,840.3 million, an increase of SAR 275.6 million, or 3.2%, compared to SAR 8,564.7 million in the nine-month period ended 30 September 2020.

F-1

INDEX TO FINANCIAL STATEMENTS

Contents Page

Interim Condensed Consolidated Financial Statements for the three and nine months ended 30 September 2021

F-2

Independent Auditor’s Review Report F-4Interim Condensed Consolidated Statement of Financial Position F-5Interim Condensed Consolidated Statement of Profit or Loss F-6Interim Condensed Consolidated Statement of Comprehensive Income F-7Interim Condensed Consolidated Statement of Cash Flows F-8Interim Condensed Consolidated Statement of Changes in Equity F-9Notes to the Interim Condensed Consolidated Financial Statements F-10

Interim Condensed Consolidated Financial Statements for the three and six months

ended 30 June 2021

F-25

Independent Auditor’s Review Report F-27Interim Condensed Consolidated Statement of Financial Position F-28Interim Condensed Consolidated Statement of Profit or Loss F-29Interim Condensed Consolidated Statement of Comprehensive Income F-30Interim Condensed Consolidated Statement of Cash Flows F-31Interim Condensed Consolidated Statement of Changes in Equity F-32Notes to the Interim Condensed Consolidated Financial Statements F-33

Annual Audited Financial Statements for the year ended 31 December 2020 F-47Independent Auditor’s Report F-49Consolidated Statement of Financial Position F-57Consolidated Statement of Profit or Loss F-58Consolidated Statement of Comprehensive Income F-59Consolidated Statement of Cash Flows F-60Consolidated Statement of Changes in Equity F-61Notes to the Consolidated Financial Statements F-62

Annual Audited Financial Statements for the year ended 31 December 2019 F-124Independent Auditor’s Report F-126Consolidated Statement of Financial Position F-134Consolidated Statement of Profit or Loss F-135Consolidated Statement of Comprehensive Income F-136Consolidated Statement of Cash Flows F-137Consolidated Statement of Changes in Equity F-138Notes to the Consolidated Financial Statements F-139

Saudi Telecom Company(A Saudi Joint Stock Company)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2021

(Unaudited)

THIRD QUARTER 2021

F-2

F-2

Saudi Telecom Company (A Saudi Joint Stock Company) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2021

INDEX Pages

Independent auditor’s review report F-4

Interim condensed consolidated statement of financial position F-5

Interim condensed consolidated statement of profit or loss F-6

Interim condensed consolidated statement of comprehensive income F-7

Interim condensed consolidated statement of cash flows F-8

Interim condensed consolidated statement of changes in equity F-9

Notes to the interim condensed consolidated financial statements F-10

F-3

EV Building a better working world

Ernst and Young & Co Public Accountant (Professional LLC) Paid capital SAR {5,500,000) (Five Million and Five hundred thousand Saudi Riyal) Head Office Al Faisaliah Office Tower, 14th Floor King Fahad Road P.O. Box 2732 Riyadh 11461 Kingdom of Saudi Arabia

C.R. No. 1010383821

Tel: +966 11 215 9898 +966 11 273 4740

Fax: +966 11 273 4730

[email protected] ey.com/mena

Independent auditor's review report on the interim condensed consolidated financial

statements to the shareholders of Saudi Telecom Company

(A Saudi Joint Stock Company)

Introduction:

We have reviewed the accompanying interim condensed consolidated statement of financial

position of Saudi Telecom Company - a Saudi Joint Stock Company ("the Company") and its

subsidiaries (collectively referred to as "the Group") as at 30 September 2021, and the related

interim condensed consolidated statements of profit or loss and comprehensive income, for the

three and nine months periods ended 30 September 2021, and the related interim condensed

statements of cash flows and changes in equity for the nine months period then ended, and a

summary of significant accounting policies and other explanatory notes. Management is responsible

for the preparation and presentation of these interim condensed consolidated financial statements

in accordance with International Accou nting Standard 34, "Interim Financial Reporting" ("IAS 34")

endorsed in the Kingdom of Saudi Arabia. Our responsibility is to express a conclusion on these

interim condensed consolidated financial statements based on our review.

Scope of Review:

We conducted our review in accordance with International Standard on Review Engagements 2410,

"Review of Interim Financial Information Performed by the Independent Auditor of the Entity"

endorsed in the Kingdom of Saudi Arabia. A review of interim financial statements consists of

making inquiries, primarily to persons responsible for financial and accounting matters, and

applying analytical and other review procedures. A review is substantially less in scope than an audit

conducted in accordance with International Standards on Auditing that are endorsed in the Kingdom

of Saudi Arabia and consequently does not enable us to obtain assurance that we would become

aware of all significant matters that might be identified in an audit. Accordingly, we do not express

an audit opinion.

Conclusion:

Based on our review, nothing has come to our attention that causes us to b elieve that the

accompanying interim condensed consolidated financial statements are not prepared, in all material

respects, in accordance with IAS 34 endorsed in the Kingdom of Saudi Arabia.

. Saad M. AI-Khathlan

Certified Public Accountant

License No. (509)

Riyadh: 21 Rabi' al Awwal 1443H

(27 October 2021G)

1.1.P'AP'Arlo.lJl;;l.1� -�_:c=---Cfl .10103!3'21

jn,ltlli,j,t-W�IS..,.:,�_til�,J1S.,.Ci t�iJJ��_,.;-.::..i�.s..,:.)

(nut� YOl.lftl & Co ,Ubllc Accountants ("ofi!UiOMI LlC)

F-4

Saudi Telecom Company (A Saudi Joint Stock Company)

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2021

(All amounts in Saudi Riyals thousands unless otherwise stated}

JO September 2021 31 December 2020 ti!llll lUnauditedl (Audited)

ASSETS NON-CURRENT ASSETS Property and equipment Investment properties Intangible assets and goodwill Right of use assets Investments in associates and joint ventures Contract costs Contract assets Financial assets and others TOTAL NON-CURRENT ASSETS CURRENT ASSETS Inventories Contract assets Trade and other receivables Financial assets and others Short term murabahas Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Issued capital Statutory reserves

5 6 7 8

9

11,12 9

20-2

Treasury shares 17,21 Other reserves 20 Retained earnings Equity attributable to the equity holders of the Parent Company

Non-controlling interests 20 TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Long term borrowings End of service benefit provision 13 Lease liabilities 14 Provisions Contract liabilities Financial liabilities and others TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables Provisions Contract \ia bilities Zakat and income tax Lease liabilities Short term borrowings Financial liabilities and others TOTAL CURRENT LIABILITIES TOTAL LIABILITIES

C Chief Executive Officer

15

16 14

15

46,124,685 47,847,623 62,913 36,980

10,093,849 10,466,408 2,704,723 2,892,814 6,713,615 6,704,947

630,319 637,470 672,165 457,657

7,680,420 7,069,285 74,382,689 76,113,184

684,175 1,008,645 5,765,001 6,059,440

26,151,248 16,084,416 2,468,446 3,268,280

429,771 10,433,849 14,048,875

--�� 9,004,286

49,537,616 45,858,916 123,920,205 121,972,100

20,000,000 20,000,000 10,000,000 10,000,000

(286,563) (300,000) 572,608 (3,262,245)

38,217,387 37,508,027 68,603,432 63,945,782

1,972,144 1,321,233 70,475,676 65,267,015

9,103,027 8,637,605 5,420,607 5,239,313 2,224,601 2,237,853

708,035 725,625 771,915 771,915

6,761,195 6,201,591 23,979,380 23,813,902

17,309,324 20,296,791 3,690,438 4,158,923 2,356,196 1,901,237 1,567,484 1,903,791

806,959 742,185 94,199 318,485

3,640,649 3,569,771 29,465,249 32,891.183 53,444,629 I 56,1os,oa5

;;::920,2�12;:_,100

Authorized Boa d Member

s. The accompanying notes from 1 to 24 form an Integral part of these interim condensed consolidated financi I

statement

F-5


INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS (UNAUDI D) FOR THE THREE AND NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2021

(AU amounts in Saudi Riyals thousands unless otherwise stated)

Revenues Cost of revenues GROSS PROFIT

OPERATING EXPENSES Selling and marketing General and administration Depreciation and amortisation TOTAL OPERATING EXPENSES

OPERATING PROFIT

OTHER EXPENSES, NET Cost of early retirement program Finance income Finance cost Net other expenses Net share in results of investments in associates and joint ventures Net other gains Oosses) TOTAL OTHER EXPENSES, NET

NET PROFIT BEFORE ZAKAT AND INCOME TAX Zakat and income tax NET PROFIT


Equity holders of the Parent Company Non-controlling interests

For the three months H2w _ _,p

,::..;e:..cr..;..;fo:;..:d:....:e:..cn=d=e=d=3""'-0 =S=ep=t=e..:..:.m=b=e;....r _202i 2020

4

5,7,8

16

2021 2020

16,736,352 14,881,429 (7,366,469) (5,910.474)

8,368,883 8,970,955

(1,465,637) (1,297,788) (2,413,847) (6,1n,112)

3,191,711

(110,666) 86,639

(162,626) (66,080)

21,100 194,620 (28,011)

3,163,700 (196,660)

2,968,050

(1,748,754) (1,434,123)

(2,328,483) (5,511,360)

3,459,595

(200,193) 86,103

(146,639} (33,174)

26,204 Q0,295)

(337,994}

3,121,601 (287,159)

2,834,442

47,3f9,619 43,736,514 (22,061,437) (18,228,686) ... r.,.. , ... o, .• ,.(4,33f,626) (4,746,717) (3,86�,292) (4,301,603) (7,149,661) (6,933.712)

(16,36*,678) (15,982,032)

(27�,207) 2f8,207

(44f,437)

"l�:1�,906

(3i2,761)

9,6 0,863 (7 0,671)

9,525,796

(500,193) 322,199

(4n.e53) (57,890)

14,265 491240

(208,232)

9,317,564 052,893) 8,564,671

2,924,390 2,765,537 8,69i7,693 ___ 4::..::3

L::,66;;.;:;;.;:;;..0 68,905 142,689

8.402,497 162174

2,968,060 2,834,442 8,840,282 8,564,671

Earnings per share, based on net profit attributable to equity holders of the Parent Company (in raudt Riyals):

- Basic 17 1.46 1.38 4.35 _____ 4_.2_0 - Diluted 17 1.46 1.38 I 4.35 4.20

�C�=��IJ:?� =c::::::::::::::�==--===--rJ;:E. 2=��;;.--chief Execunve Officer Authorized Board Member

The accompanying notes from 1 to 24 form an integral part of these interim condensed consolidated financi I statements.

F-6


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOM (UNAUDITED)

FOR THE THREE AND NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2021

I(AU amounts in Saudi Riyals thousands unless otherwise stated)

For the three months period F r the nine months period � ended 30 September ended 30 September

2021 2020 12021 2020

NET PROFIT 2,968,050 2,834,442 18.840 282 8,564,671

OTHER COMPREHENSIVE INCOME (OTHER COMPREHENSIVE LOSS): Item that will not be reclassified subsequently to consolidated statement of profit or loss: Re-measurement of end of service benefit provision 13 82,265 97092 250 985 (306,803)

Items that may be reclassified subsequently to consolidated statement of profit or loss:

Foreign currency translation differences (6,924) 10,029 23,061 (32,764) Fair value changes from cash flow hedges 1,820 Net share of other comprehensive (loss) income of associates and joint ventures !68,103! 44,123 (60.992) (21,381) Total Items that may be reclassified subsequently to consolidated statement of profit or loss Q'.6

1027� 54,152 !37,931! (52

1325)

TOTAL OTHER COMPREHENSIVE INCOME (OTHER COMPREHENSIVE LOSS) 7,228 151,244 213,054 {359,128)

TOTAL COMPREHENSIVE INCOME 2,975,278 2,985,686 19,053,336 8,205,543

Total comprehensive income attributable

to:

Equity holders of the Parent Company 2,934,681 2,911,760 8,900,254 8,064,096 Non-controlling interests 40,697 73,926 153,082 141,447

2,976,278 2,985,686 19,053,336 8,205,543

C .. - ,LL) -- riFE� Chief Executive Officer Authorized Boatd Member

The accompanying notes from 1 to 24 form an integral part of these interim condensed consolidated financ al statements.

F-7


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER 2021

I (All amounts in Saudi Riyals thousands unless otherwise stated)

CASH FLOWS FROM OPERATING ACTIVITIES Net profit before zakat and income tax Adjustments:

Depreciation and amortisation 5,7,8 Impairment toss and amortisation of contract costs and contract assets Impairment toss on trade receivables Allowance for slow moving inventories Finance income Finance costs Provision for end of service benefit and other provisions Net share in results of investments in associates and joint ventures Share- based payment expenses 21 Net other gains

Changes in:

Trade receivables and others Inventories Contract costs Contract assets Other assets Trade payables and others Contract liabilities Provisions and other liabilities

Cash generated from operations Less: Zakat and income tax paid 16 Less: Provision for end of service benefit paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment 5 Additions to intangible assets 7 Proceeds from sale of property and equipment Proceeds from sale of an associate Proceeds from the initial public offering of a stake in a subsidiary 20-1Proceeds from finance income Proceeds related to financial assets, net Net cash generated from (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to the equity holders of the Parent Company Dividends paid to non-controlling interests Purchase of treasury shares Repayment oflease liabilities Repayment of borrowings Proceed from borrowings Transactions with non-controlling interests Finance costs paid Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD

F-8

20-2

For the }

ine months period ended� 30 September

2021 2020

I 9,6 0,853 9,317,564

7,1

f

49,661

3 a,n4 6, ,066 �2.692

(218�207)4r,431

�:\:� 119,138

(163,906)

(10,J5,939) 271,702

(212,048) la6,1a1

�89,101 (3,063,279)

4¥4,963 (1,057,836) 5,2t9,462

(1,1�9,474) (318,490)3,781,498

(3,4 8,165) (929,096)

16,30�

3,660,296 237,669

9,812,752 9,269,762

(7,91 3,320)

{184,172)

(7�3,676) (6,3,504)

9tl8,549 760,000

(167,992) (8,004,115) 6,037,145 9,004,286

I 7444

6,933,712 489,044 972,274

1,408 (322,199) 477,853 375,114 (14,265)

3,080 (491,240)

(8,075,628) 767,686

(138,773) 12,930

346,227 (564,889)

158,133 (1,155,107) 9,092,924 (750,449) (597,629)7744,846

(5,326,657) (1,031,079)

13,715 760,862

390,917 1,454,842

(3,737,400)

(5,972,094) (98,942) (173,773)

(628,209) (295,817)

20,000

(216,855)(7,365,690)(3,358,244)

8,031,010 (7,419)

4,665,347


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER 2021


Total equity attributable to the equity holders of the Parent Company

Issued Statutory Treasury Other Retained tmm. capital reserves shares reserves earnings Total

Balance as at 7 January 2020 20,000,000 10,000,000 (2,745,608) 34,508,202 61,762,594 Net profit 8,402,497 8,402,497 Other comprehensive loss (338,401) (338,401) Total comprehensive income (338,401) 8,402,497 8,064,096

Dividends to the equity holders of the Parent Company (5,998,033) (5,998,033) Dividends to non-controlling interests Share-based payment transactions 3,080 3,080 Purchase of treasury shares c11J,n31 (173,nJJ Share of changes in other reserves 5,739 5739 Balance as at 30 September 2020 20,000,000 10,000,000 Q73,773) (3,075,190) 36,912,666 63,663,703

Balance as at 7 January 2021 20,000,000 10,000,000 (300,000) (3,262,245) 37,508,027 63,945,782 Net profit 8,697,693 8,697,693 Other comprehensive income 202 561 202561 Total comprehensive income 202

1561 8

1697,693 8

1900

1254

Dividends to the equity holders of the Parent Company 22 (7,988,333) (7,988,333) Dividends to non-controlling interests

Share-based payment transactions 21 13,437 6,398 19,835 Transactions with non-controlling interests 20 3,631,042 Share of changes in other reserves {6

1148)

Balaneaas at.30.September.2021 20,000.Q.QO 286,563) 572 608 38217 C -::. J �

Chfof FinanC'iat: Chief Executive Officer Authorized Board Member

The accompanying notes from 1 to 24 form an integral part of these interim condensed consolidated financial statements.

F-9

Non-controlling

interests Total equity

1,292,452 63,055,046 162,174 8,564,671

(20,727) (359,128) 141447 8 205543

(5,998,033) {144,327) (144,327)

3,080 (173,mJ

5,739 1,289,572 64,953,275

1,321,233 65,267,015 142,589 8,840,282

10 493 213 054 153,082 9,053,336

(7,988,333) (181,425) (181,425)

19,835 679,254 4,310,296

{51148) 1972144 70475576

Saudi Telecom Company (A Saudi Joint Stock Company) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2021 (All amounts in Saudi Riyals thousands unless otherwise stated)

F-10

1- GENERAL INFORMATION

A) ESTABLISHMENT OF THE COMPANY Saudi Telecom Company (the “Company”) was established as a Saudi Joint Stock Company pursuant toRoyal Decree No. M/35 dated 24 Dhul Hijja 1418H (corresponding to 21 April 1998) that authorised the transferof the telegraph and telephone division of the Ministry of Post, Telegraph and Telephone (“MoPTT”) withits 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) thatapproved the Company’s by-laws (“By-laws”). The Company was wholly owned by the Government of theKingdom of Saudi Arabia (the “Government”). Pursuant to the Council of Ministers Resolution No. 171 dated2 Rajab 1423H (corresponding to 9 September 2002), the Government sold 30% of its shares. The ultimatecontrolling party of the Company is the Government through the Public Investment Fund (PIF), which owns 70% of the total shares of the Company.The Company commenced its operation as the provider of telecommunications services throughout theKingdom of Saudi Arabia (“the Kingdom”) on 6 Muharram 1419H (corresponding to 2 May 1998) and receivedits 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, ImamMohammed Bin Saud Street Al Mursalat Area, Riyadh, Kingdom of Saudi Arabia (the “Kingdom”).

B) GROUP ACTIVITIESThe main activities of the Company and its subsidiaries (the “Group”) comprise the provision andintroduction of telecommunications, information, media services and digital payments, which include,among other things:1) Establish, manage, operate and maintain fixed and mobile telecommunication networks, systems and

infrastructure.2) Deliver, provide, maintain and manage diverse telecommunication and information technology (IT)

services to customers. 3) Prepare the required plans and necessary studies to develop, implement and provide the telecom and

IT services covering all technical, financial and administrative aspects. In addition, prepare andimplement training plans in the field of telecommunications and IT, and provide consultancy services.

4) Expand and develop telecommunication networks, systems, and infrastructure by utilizing the mostcurrent devices and equipment in telecom technology, especially in the fields of providing andmanaging services, applications and software.

5) Provide integrated communication and information technology solutions which include among otherthings (telecom, IT services, managed services, and cloud services, etc.).

6) Provide information-based systems and technologies to customers including providingtelecommunication means for the transfer of internet services.

7) Wholesale and retail trade, import, export, purchase, own, lease, manufacture, promote, sell, develop,design, setup and maintain of devices, equipment, components and executing contracting works thatare related to different telecom networks including fixed, moving and private networks. In addition,computer programs and the other intellectual properties.

8) Real estate investment and the resulting activities, such as selling, buying, leasing, managing,developing and maintenance.

9) Acquire loans and own fixed and movable assets for intended use.10) Provide financial and managerial support and other services to subsidiaries. 11) Provide development, training, assets management and other related services.12) Provide solutions for decision support, business intelligence and data investment.13) Provide supply chain and other related services. 14) Provide digital banking services. 15) Providing cybersecurity services. 16) Construction, maintenance and repair of telecommunication and radar stations and towers.

Moreover, the Company is entitled to set up individual companies as limited liability or closed joint stock. It may also own shares in or merged with other companies, and it has the right to partner with others toestablish joint stock, limited liability or any other entities whether inside or outside the Kingdom.

Saudi Telecom Company (A Saudi Joint Stock Company) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS PERIODS ENDED 30 SEPTEMBER 2021 (CONTINUED) (All amounts in Saudi Riyals thousands unless otherwise stated)

F-11

2- BASIS OF PREPARATION These interim condensed consolidated financial statements have been prepared in accordance withInternational Accounting Standard 34 “Interim Financial Reporting” that is endorsed in the Kingdom ofSaudi Arabia and other standards and pronouncements that are issued by the Saudi Organization forChartered and Professional Accountants (“SOCPA”).

The interim condensed consolidated financial statements do not include all the information anddisclosures required in the annual consolidated financial statements in accordance with InternationalFinancial Reporting Standards and should be read in conjunction with the Group’s annual consolidatedfinancial statements as at 31 December 2020.

3- THE GROUP’S ACCOUNTING POLICIES

The accounting policies adopted in the preparation of the interim condensed consolidated financialstatements are consistent with those followed in the preparation of the Group’s annual consolidatedfinancial statements for the year ended 31 December 2020.

There are no new standards or interpretations with application date effective on 1 January 2021. There areamendments to the standards that come into effect at 1 January 2021, but they do not have any materialimpact on the Group interim condensed consolidated financial statements.


F-12

4- SEGMENT INFORMATION

The Group is engaged mainly in providing telecommunication services and related products. Majority ofthe Group’s revenues, income and assets relate to its operations within the Kingdom (Saudi TelecomCompany and Channels by stc). Outside of the Kingdom, the Group operates through its subsidiaries,associates and joint ventures in several countries.

Revenue is distributed to an operating segment based on the entity of the Group reporting the revenue.Sales between segments are calculated at normal business transaction prices.

The disclosed operating segments exceeded 75% of total revenue and therefore all other operatingsegments are combined and disclosed as “Other segments”.

The following is an analysis of the Group's revenues and results based on segments:

For the three months period ended 30 September

For the nine months period ended 30 September

2021 2020 2021 2020 Revenues (1) Saudi Telecom Company 11,469,191 11,041,838 33,951,070 31,657,940 Channels by stc 4,745,069 3,706,499 15,002,705 12,967,902 Other operating segments (2) 4,424,548 4,215,331 12,835,412 11,604,833 Eliminations / adjustments (4,903,456) (4,082,239) (14,459,568) (12,494,161) Total revenues 15,735,352 14,881,429 47,329,619 43,736,514 Cost of operations (excluding depreciation and amortisation) (10,129,794) (9,093,351) (30,256,354) (27,277,006)

Depreciation and amortisation (2,413,847) (2,328,483) (7,149,661) (6,933,712) Cost of early retirement (110,565) (200,193) (272,207) (500,193) Finance income 85,539 86,103 278,207 322,199 Finance cost (152,625) (146,639) (444,437) (477,853) Net other expenses (66,080) (33,174) (120,484) (57,890) Net share in results of investments in associates and joint ventures 21,100 26,204 82,264 14,265

Net other gains (losses) 194,620 (70,295) 163,906 491,240 Zakat and income tax (195,650) (287,159) (770,571) (752,893) Net profit 2,968,050 2,834,442 8,840,282 8,564,671

Net profit attributable to: Equity holders of the Parent Company 2,924,390 2,765,537 8,697,693 8,402,497

Non-controlling interests 43,660 68,905 142,589 162,174 2,968,050 2,834,442 8,840,282 8,564,671

Following is the gross profit analysis on a segment basis:


For the nine months Period ended 30 September

2021 2020 2021 2020 Saudi Telecom Company 6,586,346 7,049,492 20,093,228 20,001,595 Channels by stc 345,964 342,178 1,122,092 998,974 Other operating segments (2) 1,809,868 1,702,729 5,202,318 4,813,372 Eliminations / adjustments (373,295) (123,444) (1,139,456) (306,113) Gross profit 8,368,883 8,970,955 25,278,182 25,507,828


F-13

4- SEGMENT INFORMATION (Continued)

Information about geographical segmentation:

Following is the geographical segmentation of revenues:



2021 2020 2021 2020 Kingdom of Saudi Arabia 14,487,186 13,619,331 43,702,372 40,278,094 Others (*) 1,248,166 1,262,098 3,627,247 3,458,420

15,735,352 14,881,429 47,329,619 43,736,514

(*) Includes State of Kuwait and Kingdom of Bahrain

The following is an analysis of the assets and liabilities of the Group on a segment basis as at:

30 September 2021 31 December 2020

Assets Saudi Telecom Company 129,568,893 129,915,566 Channels by stc 7,391,688 5,527,646 Other operating segments (2) 40,846,177 37,788,535 Eliminations / adjustments (53,886,553) (51,259,647)

Total assets 123,920,205 121,972,100

Liabilities Saudi Telecom Company 48,488,460 52,654,060 Channels by stc 5,935,528 3,943,509 Other operating segments (2) 25,032,923 24,302,252 Eliminations / adjustments (26,012,282) (24,194,736)

Total liabilities 53,444,629 56,705,085

(1) Segment revenue reported above represents revenue generated from external and internal customers.There were SR 4,903 million and SR 14,460 million of inter-segment sales and adjustments (between theGroup’s Companies) for the three and nine months periods ended 30 September 2021, respectively (forthe three and nine months periods ended 30 September 2020: SR 4,082 million and SR 12,494 million,respectively) which were eliminated at consolidation.

(2) Other operating segments include: Arabian Internet and Communications Services Company “solutionsby stc”, Telecommunications Towers Company “TAWAL”, stc Bank (previously “Saudi Digital PaymentsCompany or stc pay”), Kuwait Telecom Company “stc Kuwait”, stc Bahrain, Public TelecommunicationsCompany “specialized by stc”, Advanced Technology and Cybersecurity Company “sirar by stc”, Aqalat,Gulf Digital Media Model Company, stc Gulf Investment Holding and stc GCC Cable Systems Company(See note 20).

5- PROPERTY AND EQUIPMENT

During the nine months period ended 30 September 2021, the Group acquired property and equipment with total cost of SR 3,573 million, including non-cash additions with an amount of SR 145 million (30 September 2020: SR 5,440 million, including non-cash additions with an amount of SR 113 million)

During the nine months period ended 30 September 2021, the Group disposed of property and equipmentwith a net book value of SR 62 million (30 September 2020: SR 100 million) resulting in a loss on sale ofproperty and equipment for the three and nine months periods ended 30 September 2021 with an amountof SR 30 million and SR 56 million, respectively (for the three and nine months periods ended 30 September 2020 with an amount of SR 77 million and SR 86 million, respectively).


F-14

5- PROPERTY AND EQUIPMENT (Continued)

The following table shows the breakdown of depreciation expense if allocated to operating costs items: For the three months period

ended 30 September For the nine months period

ended 30 September

2021 2020 2021 2020

Cost of revenues 1,413,090 1,273,275 4,119,904 3,810,316 Selling and marketing expenses 3,522 1,602 6,752 4,898 General and administration expenses 286,603 283,990 874,441 858,141

1,703,215 1,558,867 5,001,097 4,673,355

6- INVESTMENT PROPERTIES

During the fourth quarter of 2020, the Group transferred a land with a book value of SR 37 million fromproperty and equipment to investment properties for the purpose of real estate development andinvestment.

During the nine months period ended 30 September 2021, the Group added projects in progress amounting to SR 26 million (30 September 2020: nil).

The fair value of the land amounted to SR 244 million as at 30 September 2021, which was valued by EsnadReal Estate appraisal Company License No. (784/18/323) appointed as an independent, professionallyqualified valuer accredited by the Saudi Authority for Accredited Valuers (Taqeem). The fair valuemeasurement is classified within level 3 based on valuation techniques applied (residual approach).

7- INTANGIBLE ASSETS AND GOODWILL

During the nine months period ended 30 September 2021, the net additions in intangible assets amountedto SR 1,044 million, including non-cash additions with an amount of SR 115 million (30 September 2020: SR1,243 million, including non-cash additions with an amount of SR 212 million).

The following table shows the breakdown of amortisation expense if allocated to operating costs items:


For the nine months Period ended 30 September

2021 2020 2021 2020

Cost of revenues 122,774 164,221 400,885 501,872 Selling and marketing expenses 906 700 2,471 1,786 General and administration expenses 363,500 357,262 1,100,401 1,053,160

487,180 522,183 1,503,757 1,556,818


F-15

8- RIGHT OF USE ASSETS

During the nine months period ended 30 September 2021, the net additions in right of use assets amountedto SR 802 million (30 September 2020: SR 856 million).

The following table shows the breakdown of depreciation expense if allocated to operating costs items:



2021 2020 2021 2020 Cost of revenues 172,591 194,036 497,424 552,728 Selling and marketing expenses 5,195 3,012 11,788 6,812 General and administration expenses 45,666 50,385 135,595 143,999

223,452 247,433 644,807 703,539

9- FINANCIAL ASSETS AND OTHERS

9-1 Financial assets


Financial assets measured at FVTPL 1,538,779 1,119,413 Financial assets at amortised cost: Sukuk 5,309,070 5,371,446 Loans to employees 364,118 411,665 Others 134,308 167,498

5,807,496 5,950,609

7,346,275 7,070,022

Current 149,660 180,397 Non-current 7,196,615 6,889,625

7,346,275 7,070,022

9-2 Other assets


Advances 2,009,944 2,366,620 Prepaid expenses 174,964 498,020 Deferred expenses 183,001 128,578 Others 324,682 274,325

2,692,591 3,267,543

Current 2,308,786 3,087,883 Non-current 383,805 179,660

2,692,591 3,267,543


F-16

10- FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

The Group has assessed that fair values of the financial instruments comprising of trade and otherreceivables, short-term murabahas, cash and cash equivalents, and trade and other payables approximate their carrying values significantly due to the short maturities of these financial instruments. The fair value of financial assets and liabilities is recognised as the amount for which the instrument canbe exchanged in an existing transaction between willing parties, other than a forced sale or liquidation.The Group uses valuation techniques appropriate to current circumstances that provide sufficient data to measure fair value. In addition, for the financial reporting purposes, fair value measurements arecategorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which aredescribed as follows: a- Level “1” inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that

the Group can access at the measurement date;b- Level “2” inputs are inputs, other than quoted prices included within Level 1, that are observable for

the asset or liability, either directly or indirectly; andc- Level “3” inputs are unobservable inputs either directly or indirectly.

The following table shows the fair values of the Group's financial assets and liabilities that were measured at fair value:

Financial instruments categories Fair value as at

Fair value measurement

hierarchy

30 September

2021 31 December 2020

Financial assets

At fair value through profit or loss: stc Ventures Fund and STV LP Fund Level 3 1,538,779 1,119,413

Financial liabilities At fair value through profit or loss: Derivative liabilities Level 2 1,370 9,882

The fair value of the Group’s investment in the units of stc Ventures Fund and STV LP Fund (the Funds) is obtained from the net asset value (NAV) reports received from the Funds’ managers. The funds’ managers deploy various techniques (such as discounted cash flow models and multiples method) for the valuation of underlying financial instruments classified under level 3 of the respective fund's fair value hierarchy. Significant unobservable inputs embedded in the models used by the funds’ managers include risk adjusted discount rates, marketability and liquidity discounts and control premiums.


F-17

10- FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (Continued )

The following is a reconciliation of the Group’s investment in these Funds, which are categorised withinLevel “3” of the fair value hierarchy:

30 September 2021 31 December 2020 Net assets value as at beginning of the period 1,119,413 1,550,869 Contributions paid to the funds during the period 375,020 375,700 Distributions received from the funds during the period (136,214) (723,767) Net unrealised gain (loss) recognised in the interim condensed consolidated statement of profit or loss (*) 180,560 (83,389) Net assets value as at ending of the period 1,538,779 1,119,413

(*) The net unrealized gain (loss) recognised was included within net other gains (losses) item in the interim condensed consolidated statement of profit or loss.

The Group believes that the other financial assets and liabilities carried at cost in the interim condensed consolidated financial statements approximate their fair value.

There are no transfers between levels of the fair value hierarchy during the nine months period ended 30 September 2021.

11- TRADE AND OTHER RECEIVABLES

30 September 2021

31 December 2020

Trade receivables 27,898,859 17,660,288Less: allowance for impairment loss (2,674,681) (2,859,566)

25,224,178 14,800,722

Non trade receivables 927,070 1,283,69426,151,248 16,084,416

12- RELATED PARTY TRANSACTIONS

12-1 Trading transactions and balances with related parties (Associates and Joint Ventures) The Group trading transactions with related parties were as the following:



2021 2020 2021 2020

Telecommunication services provided 70,530 88,954 251,924 220,200 Telecommunication services received 33,262 805 85,490 44,794

The following balances are outstanding with related parties:


30 September 2021

31 December 2020

30 September 2021

31 December 2020

Associates 373,516 354,554 60,187 63,820 Joint ventures 10,961 47,249 151,460 157,830

384,477 401,803 211,647 221,650


F-18

12- RELATED PARTY TRANSACTIONS (Continued)

12-1 Trading transactions and balances with related parties (Associates and Joint Ventures) (continued)

The sale and purchase transactions are carried out by the relevant parties in accordance with the normal terms of trade. The outstanding balances are unguaranteed, without commission and no guarantees have been provided or received in relation to the balances due or from the related parties.

12-2 Trade transactions and related parties’ balances (government and government related entities)

Revenues from transactions with government and government related entities for the three and nine months periods ended 30 September 2021 amounted to SR 3,169 million and SR 8,794 million, respectively (for the three and nine months periods ended 30 September 2020 amounted to SR 2,530 million and SR 6,675 million, respectively). Expenses related to transactions with government and government related entities for the three and nine months periods ended 30 September 2021 (including government charges) amounted to SR 1,784 million and SR 4,562 million, respectively (for the three and nine months periods ended 30 September 2020 amounted to SR 1,264 million and SR 3,723 million, respectively).

As at 30 September 2021, debit balances with government entities amounted to SR 23,440 million (31 December 2020: SR 13,889 million) and as at 30 September 2021, credit balances with government entities amounted to SR 1,065 million (31 December 2020: SR 1,058 million).

As at 30 September 2021, debit balances with government related entities amounted to SR 1,793 million (31 December 2020: SR 912 million). And as at 30 September 2021, credit balances with government related entities amounted to SR 274 million (31 December 2020: SR 345 million).

Receivable aging from government entities is as follows:


Less than a year 12,812,422 10,275,707 More than one year to two years 8,982,946 3,153,841 More than two years 1,644,896 459,707

23,440,264 13,889,255

13- END OF SERVICE BENEFIT PROVISION

Calculation of end of service benefit provision was done using the most recent actuarial valuation as at 30 September 2021. During the period, the actuarial assumptions relating to the discount rate and salaryincrease rate have been updated, resulting in recording of net actuarial gain included in the interimcondensed consolidated statement of comprehensive income for the three and nine months periodsended 30 September 2021 amounting to SR 82 million and SR 251 million, respectively (net actuarial gainincluded in the interim condensed consolidated statement of comprehensive income for the three months period ended 30 September 2020 amounting to SR 97 million and net actuarial losses included in theinterim condensed consolidated statement of comprehensive income for the nine months period ended30 September 2020 amounting to SR 307 million).


F-19

14- LEASE LIABILITIES 30 September 2021 31 December 2020


3,031,560 2,980,038

The interest expense on lease liabilities for the three and nine months periods ended 30 September 2021 amounted to SR 24 million and SR 69 million, respectively, were included in finance costs (for the three and nine months periods ended 30 September 2020 amounted to SR 24 million and SR 77 million, respectively).

15- FINANCIAL LIABILITIES AND OTHERS

15-1 Financial liabilities30 September 2021 31 December 2020

Dividends payable 2,199,063 2,151,116Financial liabilities related to frequency spectrum licenses 2,000,977 2,276,505Others 83,989 61,957

4,284,029 4,489,578

Current 2,290,309 2,208,687Non-current 1,993,720 2,280,891

4,284,029 4,489,578

15-2 Other liabilities


Deferred income 3,784,278 3,814,889Government charges 1,159,734 1,085,873Statutory dues and others 163,803 381,022

5,107,815 5,281,784

Current 1,350,340 1,361,084Non-current 3,757,475 3,920,700

5,107,815 5,281,784

16- ZAKAT AND INCOME TAX

The Group submitted all zakat returns for all years up to 2020, with payment of zakat due based on thosereturns, and accordingly the Group received zakat certificates for those years. Effective from year 2009,the Group started the submission of consolidated zakat return for the Company and its wholly ownedsubsidiaries whether directly or indirectly in accordance with the executive regulations for collectingzakat.

The Group received final zakat assessments for all years up to 2011 and the years ended as at 31 December2014 and 2018.

The decision of the First Appeal Committee for Income Tax Violations and Disputes was issued in supportof the Group’s position not to consider the adjusted net profit as a basis for zakat for the years 2008 and2009 and the dues were also settled according to the appeal decision during the third quarter of 2021.


F-20

16- ZAKAT AND INCOME TAX (Continued)

The Group submitted objections to the zakat assessments for the years from 2015 to 2017 amounting to SR134 million, and these objections are still being considered by the General Secretariat of Tax Committeesuntil the date of preparing these interim condensed consolidated financial statements. The Groupbelieves that its zakat position will be in its favour and that it will not result in any material additionalprovisions.

17- EARNINGS PER SHARE

The following is the calculation of basic and diluted earnings per share:For the three months period ended

30 September For the nine months period

ended 30 September 2021 2020 2021 2020

Net profit attributable to equity holders of the Parent Company 2,924,390 2,765,537 8,697,693 8,402,497

Number of shares (in thousands): Weighted average number of ordinary shares for the purposes of calculating basic earnings per share 1,997,061 1,999,364 1,997,061 1,999,364 Weighted average number of treasury shares to be vested on long-term incentive plan

2,939 636 2,939 636 Weighted average number of ordinary shares for the purposes of calculating diluted earnings per share 2,000,000 2,000,000 2,000,000 2,000,000

Earnings per share attributable to equity holders of the Parent Company (in Saudi Riyals):

- Basic 1.46 1.38 4.35 4.20 - Diluted 1.46 1.38 4.35 4.20

The following is the number of outstanding shares (in thousands) during the nine months period ended 30 September 2021:

1,997,017The number of outstanding shares at beginning of the period 132The number of treasury shares vested during the period

1,997,149 The number of outstanding shares at end of the period

The following is the number of treasury shares (in thousands) during the nine months period ended 30 September 2021:

2,983The number of treasury shares at beginning of the period (132)The number of treasury shares vested during the period 2,851 The number of treasury shares at end of the period


F-21

18- CAPITAL COMMITMENTS

One of the subsidiaries has an agreement to invest in a fund aimed to drive innovation in thecommunications and information technology sector in the Kingdom of Bahrain and other GCC Countrieswith an amount of SR 1,125 million (equivalent to USD 300 million) as at 30 September 2021 (31 December2020: SR 1,125 million (equivalent to USD 300 million) (See note 20-3).

19- CONTINGENT ASSETS AND LIABILITIES

(a) The Group has outstanding letters of guarantee on behalf the Parent and the subsidiaries as at 30September 2021 amounting to SR 5,106 million (31 December 2020: SR 4,222 million).

(b) The Group has outstanding letters of credit as at 30 September 2021 amounting to SR 857 million (31December 2020: SR 977 million).

(c) On 21 March 2016, the Company received a letter from a key customer requesting a refund for paidbalances amounted to SR 742 million related to construction of a fibre optic network. Based on theindependent legal opinions obtained, the management believes that the customer’s claim have nomerit and therefore this claim has no material impact on the financial results of the Group.

(d) The Group, in its ordinary course of business, is subject to proceedings, lawsuits and other claims.However, these matters are not expected to have any material impact on the Group’s financial position or on the results of its operations as reflected in these interim condensed consolidated financialstatements.

(e) The Group received the appeal committee’s decision with respect to the withholding tax assessmenton international operators’ networks rentals for the years from 2004 to 2015, rejecting its appeal withan amount of SR 1,500 million. The Group submitted a petition for reconsideration as it believes thatSaudi tax regulations do not impose withholding tax on the rental of international operators’ networks since the source of income does not occur inside the Kingdom, and therefore these services shouldnot be subject to withholding tax. Based on the opinions of tax specialists in this matter and the natureof the technical dispute, the Group believes that this assessment will not result into additionalprovisions.

(f) The Group received claims from the Communications and Information Technology Commissionrelated to imposing government fees on devices sold in instalments for the period from 2018 until theend of the first quarter of 2021, totalling SR 782 million for which the Group has objected within thestatutory deadline. Based on the opinions of the specialized consultants in this matter and the natureof these sales, the Group sees the merits of its legal position.

(g) In April 2017, Kuwait’s Cassation Court invalidated a portion of the regulatory tariff decree levied onmobile telecommunication companies in Kuwait since 26 July 2011 by Kuwait’s Ministry ofCommunications. Accordingly, stc Kuwait had filed a claim for the recovery of the excess amount paid from change in regulation date until date. On 30 June 2020, the Court of appeal of Kuwait has issued a verdict in favor of stc Kuwait obliging the appellant to pay amount of KD 18.3 million (equivalent to SR225 million).


F-22

20- SUBSIDIARIES

1. In September 2021, the Group completed the initial public offering “IPO” for 20% of its shareholding in itssubsidiary – Solutions by stc with a total proceeds of SR 3,624 million before deducting total IPO’s cost ofSR 63.7 million.

As a result of this offering, the non-controlling interests increased by SR 428 million and shareholders’equity (other reserves) increased by SR 3,132 as at 30 September 2021.

2. In November 2020, the Group signed an agreement with Western Union “WU” to sell 15% of the Group’sshare in the Saudi Digital Payments Company (stc pay) (currently “stc Bank) for a total of SR 750 million(equivalent to USD 200 million).

During the second quarter of 2021, the Council of Ministers approved granting Saudi Digital PaymentsCompany a digital banking services license to become a digital bank with a share capital of SR 2.5 billion.Accordingly, WU and the Group deposited an amount of SR 750 million and SR 802 million, respectively ina restricted account by the Saudi Central Bank (SAMA) until the final approval is obtained. Therefore, thecash and cash equivalent balances include an amount of SR 1,552 million, which represents cash balancesrestricted by the Saudi Central Bank (SAMA) as at 30 September 2021.

During the third quarter of 2021, the regulatory requirements were completed to conclude the agreementwith WU. As a result of this transaction, the non-controlling interests increased by SR 251 million andshareholders’ equity (other reserves) increased by SR 499 as at 30 September 2021.

3. During the second quarter of 2021, the Group established stc Gulf Cable Systems Company - a limitedliability company in the Kingdom of Bahrain with a capital of SR 188.6 million (equivalent to BHD 18.9 million) wholly owned by the Group as part of the agreement to invest in a fund aimed to drive innovation in thecommunications and information technology sector in the Kingdom of Bahrain and other GCC Countries(See note 18). stc Gulf Cable Systems Company main activities include the sale and installation oftelecommunications equipment and the construction of utilities projects.

4. During the third quarter of 2021, the Group has established the Innovation Fund Company - a limitedliability company in the Kingdom of Saudi Arabia with a total capital of SR 56.2 million wholly owned by the Group, and its main activity includes administrative services and IT and telecommunication support.

5. During the third quarter of 2021, the Group has completed all legal and regulatory procedures of Sapphireliquidation without any financial impact on the Group’s interim condensed consolidated statement ofprofit or loss for the period ended 30 September 2021.

21- EMPLOYEES LONG-TERM INCENTIVES PROGRAM

On 20 April 2020, the Extraordinary General Assembly voted to approve the purchase of a number of theCompany's shares, with a maximum of 5.5 million shares, with an amount not to exceed SR 300 million to be allocated for the employees long-term incentives program (the Program). The shares to be purchased will not have the right to vote in the Company’s shareholders general assemblies, and will not be entitled to any dividends while the shares still under the Company's possession.

The Program intends to attract, motivate and retain the executive employees responsible for the achievement of the Group’s goals and strategy. The Program provides a share-based payment plan for eligible executives participating in the Program by granting them shares in the Company upon completing the duration of service and performance requirements and achieving the targets determined by the Group. Each employee is entitled to receive variable number of shares depending on their certain KPIs as identified by the Group. During the years 2020 and 2021.


F-23

21- EMPLOYEES LONG-TERM INCENTIVES PROGRAM (Continued)

The group awarded the first and second tranches of the program as follows:

Tranche 1 Tranche 2 Grant date 1 July 2020 1 July 2021 Total number of shares granted (*) 802 thousand shares 706 thousand shares Average Fair value per share at grant date (**) SR 94.40 SR 128.6 Vesting date 1 July 2021/2022/2023 1 July 2022/2023/2024 Settlement method Equity Equity

(*) The number of shares granted has been updated to reflect the number of shares actually granted to eligible executives participating in the program who met all the conditions of granting.

(**) The fair value was calculated based on the market price after deducting the expected dividends per share on the grant date.

Total expenses related to the Program for the three and nine months periods ended 30 September 2021 amounted to SR 11.6 million and SR 19.1 million respectively (for the three and nine months periods ended 30 September 2020: SR 3.1 million and SR 3.1 million respectively), which were included as part of employees benefits expense in the interim condensed consolidated statement of profit or loss, with the corresponding amount recorded under other reserves within equity in accordance with the requirements of International Financial Reporting Standard (2): Share-based Payment.

On 1 July 2021, a total of 135 thousand shares have vested at fair value of SR 100.58 per share.

22- DIVIDENDS

On 9 Rabi Thani 1440H (corresponding to 16 December 2018) the Board of Directors have approved theCompany’s dividends policy for the next three years starting from the fourth quarter of 2018, which wasapproved by the General Assembly on 19 Sha`ban 1440H (corresponding to 24 April 2019). The objective ofthe dividends policy is based on maintaining a minimum level of dividend of SR 1 per share on quarterlybasis. The Company will consider and pay additional dividend subject to the Board of Directorsrecommendation after assessment and determination of the Company's financial situation, outlook andcapital expenditure requirements.

It is probable that additional dividends are likely to vary on quarterly basis depending on the Company’sperformance.

The dividends policy will remain subject to: a- Any material changes in the Company's strategy and business (including the commercial environment

in which the Company operates).b- Laws, regulations and legislations governing the sector at which the Company operates.c- Any banking, other funding or credit rating covenants or commitments that the Company may be

bound to follow from time to time. On April 26, 2021, the General Assembly approved, during its meeting, the recommendation of the Board of Directors to distribute additional cash dividends for the year 2020 at the rate of SR 1 per share.

In accordance with dividends policy, the Company distributed cash dividends to the shareholders of the Company for the first quarter of 2021 at a rate of SR 1 per share.

In addition, the Company distributed cash dividends to the shareholders of the Company for the second quarter of 2021 at a rate of SR 1 per share.

The Company will also distribute cash dividends to the shareholders of the Company for the third quarter of 2021 at a rate of SR 1 per share.


F-24

22- DIVIDENDS (Continued)

Treasury shares allocated to the employee long-term incentives program are not entitled for any dividends during the period while the shares still under the Company's possession (See note 21).

The Board of Directors, in their meeting held on 20 Safar 1443 AH (corresponding to 27 September 2021)have approved the Company’s dividends policy for the next three years starting from the fourth quarter of 2021 at a rate of SR 1 per share, which will be presented in the General Assembly for approval.

23- IMPACT OF CORONAVIRUS (COVID-19) OUTBREAK

The Group’s operations and financial results have not incurred significant impact from the virus outbreak, taking into consideration the lower impact of the pandemic over the operations and activities ofcompanies operating in telecom sector.

24- APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

At its meeting held on 21 October 2021, the audit committee delegated by the Company`s Board of Directorsapproved the interim condensed consolidated financial statements for the three and nine months periods ended 30 September 2021.


INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS PERIODS ENDED 30 June 2021 (Unaudited)

Second Quarter 2021

F-25

Saudi Telecom Company (A Saudi Joint Stock Company) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND SIX MONTHS PERIODS ENDED 30 JUNE 2021

INDEX Pages

Independent auditor’s review report F-27

Interim condensed consolidated statement of financial position F-28

Interim condensed consolidated statement of profit or loss F-29

Interim condensed consolidated statement of comprehensive income F-30

Interim condensed consolidated statement of cash flows F-31

Interim condensed consolidated statement of changes in equity F-32

Notes to the interim condensed consolidated financial statements F-33

F-27


INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2021


ASSETS NON-CURRENT ASSETS Property and equipment Investment properties Intangible assets and goodwi11 Right of use assets Investments in associates and joint ventures Contract costs Contract assets Financial assets and others TOTAL NON-CURRENT ASSETS CURRENT ASSETS Inventories Contract assets Trade and other receivables Financial assets and others Short term murabahas Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Issued capital Statutory reserves Treasury shares Other reserves Retained earnings Equity attributable to the equity holders of the Parent Company Non-controlling interests TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Long term borrowings End of service benefit provision Lease liabilities Provisions Contract liab11ities Financial liabilities and others TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables Provisions Contract liabilities Zakat and income tax Lease \iab11ities Short term borrowings Financial liabilities and others TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL

� AND LIABILITIES

�s,'":>:) Chief Financial Officer

5

6

7

8

9

11,12 9

20-2

17

13 14

15

16 14

15

30June2021

(Unaudited)

46,795,190 61.388

10,187,699 2,657,336 6,762,349

564,011 654,225

7,126,899 74,809,097

1,015,306 5,938,893

23,222,076 2,934,540 2,859,260 8,493,090

44,463,165 119,272,262

20,000,000 10,000,000

(300,000) (3,075,363) 37,290.278 63,914,915

1,252.193 65.167.108

8,188,063 5,143,616 2,175,885

661,278 771,915

5,804,933 22,745,690

17,140,130 3,891,347 2,333.073 1,381,304

724.379 530,689

5,358,542 31,359,464 54,105,154

31 December 2020

fAuditedJ

47,847,623 36,980

10,466.408 2,892,814 6,704,947

637,470 457,657

7,069.285 76,113.184

1,008,645 6,059,440

16,084,416 3,268.280

10,433,849 9,004,286

45,858.916 121,972,100

20,000,000 10,000,000

(300,000) (3,262,245)

37,508.027 63,945,782

1,321,233 65.267,015

8,637,605 5,239,313 2,237,853

725,625 771.915

6,201,591 23,813.902

20,296,791 4,158,923 1,901.237 1,903,791

742,185 318,485

3,569.771 32,891,183 56,705,085

'"�'-'j;' = u oard Member

The accompanying notes from 1 to 24 form an integral part of these interim condensed consolidated financial statements·.

F-28


INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS (UNAUDITED)

FOR THE THREE AND SIX MONTHS PERIODS ENDED 30 JUNE 2021

(All amounts in Saudi Riyals thousands unless otherwise stated)

Note For the three months period ended For the six months period ended 30 June 30 June

2021 2020 2021 2020

Revenues 4 15,898,770 14,920,233 31,594,267 28,855,085 Cost of revenues 17,546.5721 (6,579,241) 114,684,9681 (12,318,212) GROSS PROFIT 8,352,198 8,340,992 16,909,299 16.536.873

OPERATING EXPENSES

Selling and marketing (1,519,889) (1,592,991) (2,870,088) (2,997,963)

General and administration (1,205,797) (1,406,463) (2,571,504) (2,867,480}

Depreciation and amortisation 5,7,8 12,376,226} (2,279,364} (4,735,814) (4,605,229) TOTAL OPERATING EXPENSES (5,101,912) (5,278.818) (10,177.4061 (10,470.672)

OPERATING PROFIT 3.250.286 3,062,174 6,731,893 6,066,201

OTHER EXPENSES AND INCOME

Cost of early retirement program (81,323) (100,983) (161,642) (300,000) Finance income 90,804 104,637 192,668 236,096 Finance cost (148,072) (158,449) (291,812) (331,214) Net other expenses (50,288) (30,432) (54,404) (24,716) Net share in results of investments in

associates and joint ventures 39,244 6,780 61,164 (11,939)

Net other (losses) gains (8,7881 130,724 !30,7141 561,535 TOTAL OTHER (EXPENSES) INCOME (158,423) (47,723) (284,740) 129,762

NET PROFIT BEFORE ZAKAT AND INCOME

TAX 3,091,863 3,014,451 6,447,153 6,195,963 Zakat and income tax 16 (219,591) (235,351) (574,921) (465,734) NET PROFIT 2.872.272 2,779,100 5,872.232 5,730,229


Equity holders of the Parent Company 2.821,209 2,724,215 5,773,303 5,636,960 Non-controlling interests 51.063 54,885 98,929 93,269

2,872,272 2,779,100 5,872.232 5,730.229

Earnings per share, based on net profit attributable to equity holders of the Parent Company (fo Saudi Riyals):

- Basic 17 1.41 1.36 2.89 2.82 - D11uted 17 1.41 1.36 2.89 2.82

-

� � j'� ::::,

Chief Financial Officer Delegate Authorized Board Member


F-29

Saud; Telecom Company (A Saudi Joint Stock Company)

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS PERIODS ENDED 30 JUNE 2021


NET PROFIT

OTHER COMPREHENSIVE INCOME

(OTHER COMPREHENSIVE LOSS):

Item that wlll not be reclassified

subsequently to consolidated statement

of profit or loss: Re-measurement of end of service benefit provision

Items that may be reclassified


of profit or loss: Foreign currency translation differences Fair value changes from cash flow hedges Net share of (other comprehensive loss)/ other comprehensive income of associates and joint ventures Total items that may be reclassified


of profit or loss

TOTAL OTHER COMPREHENSIVE

INCOME (OTHER COMPREHENSIVE

LOSS)

TOTAL COMPREHENSIVE INCOME

Total comprehensive income

attributable to:

Equity holders of the Parent Company

Non-controlling interests

Chief Financial Officer

Note

13

For the three months period ended 30 June

2021

2,872,272

21,412

15,132

(3,712)

11,420

32,832

2,905,104

2,849,146

55,958

2,905,104

2020

2,779,100

{698,509)

37,762

6,784

(2,585)

41,961

(656,548)

2,122,552

2,053,548 69,004

2,122,552

For the six months period ended 30 June

2021

5,872,232

168,730

29,985

7,111

37,096

205,826

6,078,058

5,965,673

112,385

6,078,058

2020

5,730,229

(403,895)

{42,793)

1,820

(65,504)

(106,477)

(510,372)

5,219.857

5,152.336 67,521

5,219,857

�Auth�


F-30


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2021

(All amounts in Saudi Riyals thousands unless otherwise stated}

CASH FLOWS FROM OPERATING ACTIVITIES Net profit before zakat and income tax Adjustments for;

Notes

Depreciation and amortisation 5,7,8 Impairment loss and amortisation of contract costs and contract assets Impairment loss on trade receivables Allowance for slow moving inventories Finance income Finance costs Provision for end of service benefit and other provisions Net share in results of investments in associates and joint ventures Share- based payment expenses 21 Net other losses (gains)

Movements in: Trade receivables and others Inventories Contract costs Contract assets Other assets Trade payables and others Contract liab11ities Provisions and other liab11ities

Cash generated from operations less; Zakat and income tax paid Less; Provision for end of service benefit paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment Additions to intangible assets Proceeds from sale of property and equipment Proceeds from sale of an associate Proceeds from finance income Proceeds related to financial assets, net Net cash generated from (used fo) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to the equity holders of the Parent Company Dividends paid to non-controlling interests Repayment oflease liab11ities Repayment of borrowings Proceed from borrowings Finance costs paid Net cash used in financing .ietivities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD Net foreign exchange difference

16

5 7

�

AND CASH EQUIVALENTS AT END OF THE.:,P�IO

;_D::;...-'"'2"!::11>20-2

- �s;��':':>

For the six months period ended

30June

2021 2020

6,447,153 6,195,963

4,735,814 4,605,229

285,813 345,977 389,047 422,814

39,376 21,630 (192,668) (236,096)

291,812 331,214 442,479 246,371

(61,164) 11,939 7.483

30,714 (561,535)

(7,526,708) (4,828.234) (46,035) 378,227

(149,100) (94,278) (151,980) 613,879

32,593 (325.293) (3,126,413) (855,708)

431,830 546,672 772,126 {503,261)

2,652,172 6,315,510 (1,101,333) (84,689)

(208,342) (394,298) 1,342,497 5,836,523

(2,234,253) (3,243,760) (594,493) (588,024)

5,376 13,328 755,651

165,019 314,286 7,737,671 1,133,889 5,079,320 (1,614,630)

(5,972,504) (3,980,099) (178,998) (85,095) (460,637) {385,226) (195,272) (201,826)

20.000 (134,924) {172,468)

(6,942,335) (4,804,714) (520,518) (582,821) 9,004,286 8,031,010

9,322 (10,307) 8,493,090 7,437,882

t ��rize�Member


F-31

_;;.,


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2021


Total egui� attributable to the eguit,l holders of the Parent Comeani

Issued Statutory Treasury Other Retained Notes caeital reserves shares reserves earnings Total

Balance as at 1 January 2020 20,000,000 10,000,000 . (2,745,608) 34,508,202 61,762,594 Net profit 5,636,960 5,636,960 Other comprehensive loss (484,624) {484,624) Total comprehensive income {484,624) 5,636,960 5,152,336

Dividends to the equity holders of the Parent Company (4,000,000) (4,000,000) Dividends to non-controlling interests

Share of changes in other reserves 8 118 8 118 Balance as at 30 June 2020 20,000,000 10,000,000 - (3,222,114) 36,145,162 62,923.048

Balance as at 1 January 2021 20,000,000 10,000,000 (300,000) (3,262,245) 37,508,027 63,945,782 Net profit 5,773,303 5,773,303 Other comprehensive income 192 370 192 370 Total comprehensive income 192

1370 517731303 5,965,673

Dividends to the equity holders of the Parent Company 22 (5,991,052) (5,991,052) Dividends to non-controlling interests

Share-based payment transactions 21 12,231 12,231 Share of changes in other reserves {17,719} (17z719) Balance as at 30 June 2021 20,000,000 10,000,000 (300,000) 3,075,363 37,290,278 63,914,915

-D�

Non-

controlling interests

1,292,452 93,269

(25,748) 67,521

(144,327)

1.215,646

1,321,233 98,929 13456

112,385

(181,425)

1,252,193

Chief Financial Officer Authorized Board Member


F-32

Total eguitt

63,055,046 5,730,229 (510,372) 5,219,857

(4,000,000) (144,327)

8,118 64,138,694

65,267,015 5,872,232

205 826 6

1078

1058

(5,991,052) (181,425)

12,231 {17z719)

65,167,108

Saudi Telecom Company (A Saudi Joint Stock Company) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND SIX MONTHS PERIODS ENDED 30 JUNE 2021 (All amounts in Saudi Riyals thousands unless otherwise stated)

F-33

1- GENERAL INFORMATION

A) ESTABLISHMENT OF THE COMPANY Saudi Telecom Company (the “Company”) was established as a Saudi Joint Stock Company pursuant toRoyal Decree No. M/35 dated 24 Dhul Hijja 1418H (corresponding to 21 April 1998) that authorised thetransfer 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, andin 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”). Pursuant to the Council of MinistersResolution No. 171 dated 2 Rajab 1423H (corresponding to 9 September 2002), the Government sold 30% of its shares. The ultimate controlling party of the Company is the Government through the PublicInvestment Fund (PIF), which owns 70% of the total shares of the Company.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, ImamMohammed Bin Saud Street Al Mursalat Area, Riyadh, Kingdom of Saudi Arabia (the “Kingdom”).

B) GROUP ACTIVITIES The main activities of the Company and its subsidiaries (the “Group”) comprise the provision andintroduction of telecommunications, information, media services and digital payments, which include,among other things:1) Establish, manage, operate and maintain fixed and mobile telecommunication networks, systems and

infrastructure.2) Deliver, provide, maintain and manage diverse telecommunication and information technology (IT)

services to customers. 3) Prepare the required plans and necessary studies to develop, implement and provide the telecom and

IT services covering all technical, financial and administrative aspects. In addition, prepare andimplement training plans in the field of telecommunications and IT, and provide consultancy services.

4) Expand and develop telecommunication networks, systems, and infrastructure by utilizing the mostcurrent devices and equipment in telecom technology, especially in the fields of providing andmanaging services, applications and software.

5) Provide integrated communication and information technology solutions which include among otherthings (telecom, IT services, managed services, and cloud services, etc.).

6) Provide information-based systems and technologies to customers including providingtelecommunication means for the transfer of internet services.

7) Wholesale and retail trade, import, export, purchase, own, lease, manufacture, promote, sell, develop,design, setup and maintain of devices, equipment, components and executing contracting works thatare related to different telecom networks including fixed, moving and private networks. In addition,computer programs and the other intellectual properties.

8) Real estate investment and the resulting activities, such as selling, buying, leasing, managing,developing and maintenance.

9) Acquire loans and own fixed and movable assets for intended use.10) Provide financial and managerial support and other services to subsidiaries. 11) Provide development, training, assets management and other related services.12) Provide solutions for decision support, business intelligence and data investment.13) Provide supply chain and other related services. 14) Provide digital payment services. 15) Providing cybersecurity services. 16) Construction, maintenance and repair of telecommunication and radar stations and towers.

Moreover, the Company is entitled to set up individual companies as limited liability or closed joint stock. It may also own shares in or merged with other companies, and it has the right to partner with others toestablish joint stock, limited liability or any other entities whether inside or outside the Kingdom.

Saudi Telecom Company (A Saudi Joint Stock Company) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND SIX MONTHS PERIODS ENDED 30 JUNE 2021 (CONTINUED) (All amounts in Saudi Riyals thousands unless otherwise stated)

F-34

2- BASIS OF PREPARATION These interim condensed consolidated financial statements have been prepared in accordance withInternational Accounting Standard 34 “Interim Financial Reporting” that is endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are issued by the Saudi Organization forChartered and Professional Accountants (“SOCPA”).The interim condensed consolidated financial statements do not include all the information anddisclosures required in the annual consolidated financial statements in accordance with InternationalFinancial Reporting Standards and should be read in conjunction with the Group’s annual consolidatedfinancial statements as at 31 December 2020.

3- THE GROUP’S ACCOUNTING POLICIES

The accounting policies adopted in the preparation of the interim condensed consolidated financialstatements are consistent with those followed in the preparation of the Group’s annual consolidatedfinancial statements for the year ended 31 December 2020.

There are no new standards or interpretations with application date effective on 1 January 2021. There areamendments to the standards that come into effect at 1 January 2021, but they do not have any materialimpact on the Group interim condensed consolidated financial statements.

4- SEGMENT INFORMATION

The Group is engaged mainly in providing telecommunication services and related products. Majority ofthe Group’s revenues, income and assets relate to its operations within the Kingdom (Saudi TelecomCompany and Channels by stc). Outside of the Kingdom, the Group operates through its subsidiaries,associates and joint ventures in several countries.

Revenue is distributed to an operating segment based on the entity of the Group reporting the revenue.Sales between segments are calculated at normal business transaction prices.

The disclosed operating segments exceeded 75% of total revenue and therefore all other operatingsegments are combined and disclosed as “Other segments”.


F-35

4- SEGMENT INFORMATION (CONTINUED)

The following is an analysis of the Group's revenues and results based on segments:



2021 2020 2021 2020 Revenues (1) Saudi Telecom Company 11,223,506 10,283,060 22,481,879 20,616,102 Channels by stc 5,327,799 4,966,193 10,257,636 9,261,403 Other operating segments (2) 4,289,774 3,779,314 8,410,864 7,389,502 Eliminations / adjustments (4,942,309) (4,108,334) (9,556,112) (8,411,922) Total revenues 15,898,770 14,920,233 31,594,267 28,855,085 Cost of operations (excluding depreciation and amortisation) (10,272,258) (9,578,695) (20,126,560) (18,183,655)

Depreciation and amortisation (2,376,226) (2,279,364) (4,735,814) (4,605,229) Cost of early retirement (81,323) (100,983) (161,642) (300,000) Finance income 90,804 104,637 192,668 236,096 Finance cost (148,072) (158,449) (291,812) (331,214) Net other expenses (50,288) (30,432) (54,404) (24,716) Net share in results of investments in associates and joint ventures 39,244 6,780 61,164 (11,939)

Net other (losses) gains (8,788) 130,724 (30,714) 561,535 Zakat and income tax (219,591) (235,351) (574,921) (465,734) Net profit 2,872,272 2,779,100 5,872,232 5,730,229

Net profit attributable to: Equity holders of the Parent Company 2,821,209 2,724,215 5,773,303 5,636,960

Non-controlling interests 51,063 54,885 98,929 93,269 2,872,272 2,779,100 5,872,232 5,730,229

Following is the gross profit analysis on a segment basis:



2021 2020 2021 2020 Saudi Telecom Company 6,635,563 6,443,517 13,506,882 12,952,103

Channels by stc 373,703 326,066 776,128 656,796

Other operating segments (2) 1,740,424 1,635,310 3,392,450 3,110,643

Eliminations / adjustments (397,492) (63,901) (766,161) (182,669)

Gross profit 8,352,198 8,340,992 16,909,299 16,536,873

Information about geographical segmentation:

Following is the geographical segmentation of revenues:



2021 2020 2021 2020 Kingdom of Saudi Arabia 14,693,348 13,774,738 29,215,186 26,658,763

Others (*) 1,205,422 1,145,495 2,379,081 2,196,322

15,898,770 14,920,233 31,594,267 28,855,085

(*) Includes State of Kuwait and Kingdom of Bahrain


F-36

4- SEGMENT INFORMATION (CONTINUED)

The following is an analysis of the assets and liabilities of the Group on a segment basis as at:

30 June 2021 31 December 2020

Assets Saudi Telecom Company 126,405,763 129,915,566

Channels by stc 6,966,436 5,527,646

Other operating segments (2) 39,571,743 37,788,535

Eliminations / adjustments (53,671,680) (51,259,647)

Total assets 119,272,262 121,972,100

Liabilities Saudi Telecom Company 48,612,163 52,654,060

Channels by stc 5,495,147 3,943,509

Other operating segments (2) 26,397,174 24,302,252

Eliminations / adjustments (26,399,330) (24,194,736)

Total liabilities 54,105,154 56,705,085

(1) Segment revenue reported above represents revenue generated from external and internal customers. There were SR 4,942 million and SR 9,556 million of inter-segment sales and adjustments (between theGroup’s Companies) for the three months and six months periods ended 30 June 2021, respectively (forthe three months and six months periods ended 30 June 2020: SR 4,108 million and SR 8,412 million,respectively) which were eliminated at consolidation.

(2) Other operating segments include: stc Kuwait, stc Bahrain, Solutions by stc, Specialized by stc, stc Gulf, Sapphire, Aqalat, Telecommunications Towers Company, Saudi Digital Payments Company (stc pay) ,Advanced Technology and Cybersecurity Company , Gulf Digital Media Model Company and STC GCCCable Systems Company (See note 20).

5- PROPERTY AND EQUIPMENT

During the six months period ended 30 June 2021, the Group acquired property and equipment with totalcost of SR 2,364 million, including non-cash additions with an amount of SR 130 million (30 June 2020: SR3,540 million, including non-cash additions with an amount of SR 296 million)

During the six months period ended 30 June 2021, the Group disposed of property and equipment with anet book value of SR 31 million (30 June 2020: SR 28 million) resulting in a loss on sale of property andequipment for the three months and six months periods ended 30 June 2021 with an amount of SR 14 million and SR 26 million, respectively (for the three months and six months periods ended 30 June 2020 with anamount of SR 9 million and SR 15 million, respectively).

The following table shows the breakdown of depreciation expense if allocated to operating costs items: For the three months period

ended 30 June For the six months period

ended 30 June

2021 2020 2021 2020

Cost of revenues 1,353,097 1,249,937 2,706,814 2,537,041

Selling and marketing expenses 1,489 1,559 3,230 3,296

General and administration expenses 292,937 279,290 587,838 574,151

1,647,523 1,530,786 3,297,882 3,114,488


F-37

6- INVESTMENT PROPERTIES

During the fourth quarter of 2020, the Group transferred a land with a book value of SR 37 million fromproperty and equipment to investment properties for the purpose of real estate development andinvestment.

During the six months period ending 30 June 2021, the Group added projects in progress amounting to SR24 million (30 June 2020: nil).

The fair value of the land amounted to SR 148 million as at 31 December 2020, which was valued by Century 21 Saudi Company License No. (752/18/323) appointed as an independent, professionally qualified valueraccredited by the Saudi Authority for Accredited Valuers (Taqeem). There are no significant changes infair value of the land as at 30 June 2021. The fair value measurement is classified within level 3 based onvaluation techniques applied (i.e. residual and market comparable approaches).

7- INTANGIBLE ASSETS AND GOODWILL

During the six months period ended 30 June 2021, the net additions in intangible assets amounted to SR693 million, including non-cash additions with an amount of SR 99 million (30 June 2020: SR 785 million,including non-cash additions with an amount of SR 197 million).

The following table shows the breakdown of amortisation expense if allocated to operating costs items:



2021 2020 2021 2020

Cost of revenues 141,913 165,790 278,111 337,651

Selling and marketing expenses 783 429 1,565 1,086


512,357 512,945 1,016,577 1,034,635

8- RIGHT OF USE ASSETS

During the six months period ended 30 June 2021, the net additions in right of use assets amounted to SR354 million (30 June 2020: SR 622 million).

The following table shows the breakdown of depreciation expense if allocated to operating costs items:



2021 2020 2021 2020 Cost of revenues 166,279 186,267 324,833 358,692

Selling and marketing expenses 3,772 3,185 6,593 3,800


216,346 235,633 421,355 456,106


F-38

9- FINANCIAL ASSETS AND OTHERS

9-1 Financial assets


Financial assets measured at FVTPL 972,994 1,119,413 Financial assets at amortised cost: Sukuk 5,323,225 5,371,446Loans to employees 385,614 411,665Others 131,970 167,498

5,840,809 5,950,609

6,813,803 7,070,022

Current 154,007 180,397Non-current 6,659,796 6,889,625

6,813,803 7,070,022

9-2 Other assets


Advances 2,031,974 2,366,620

Prepaid expenses 618,412 498,020

Deferred expenses 125,422 128,578

Others 471,828 274,325

3,247,636 3,267,543

Current 2,780,533 3,087,883

Non-current 467,103 179,660

3,247,636 3,267,543

10- FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

The Group has assessed that fair values of the financial instruments comprising of trade and otherreceivables, short-term murabahas, cash and cash equivalents, and trade and other payables approximate their carrying values significantly due to the short maturities of these financial instruments. The fair value of financial assets and liabilities is recognised as the amount for which the instrument canbe exchanged in an existing transaction between willing parties, other than a forced sale or liquidation.The Group uses valuation techniques appropriate to current circumstances that provide sufficient data to measure fair value. In addition, for the financial reporting purposes, fair value measurements arecategorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which aredescribed as follows: a- Level “1” inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that

the Group can access at the measurement date;b- Level “2” inputs are inputs, other than quoted prices included within Level 1, that are observable for

the asset or liability, either directly or indirectly; andc- Level “3” inputs are unobservable inputs either directly or indirectly.


F-39

10- FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (CONTINUED)

The following table shows the fair values of the Group's financial assets and liabilities that were measuredat fair value:

Financial instruments categories Fair value as at


hierarchy 30 June 2021 31 December 2020

Financial assets

At fair value through profit or loss: stc Ventures Fund and STV LP Fund Level 3 972,994 1,119,413

Financial liabilities At fair value through profit or loss: Derivative liabilities Level 2 2,154 9,882

The fair value of the Group’s investment in the units of stc Ventures Fund and STV LP Fund (the Funds) is obtained from the net asset value (NAV) reports received from the Funds’ managers. The funds’ managers deploy various techniques (such as discounted cash flow models and multiples method) for the valuation of underlying financial instruments classified under level 3 of the respective fund's fair value hierarchy. Significant unobservable inputs embedded in the models used by the funds’ managers include risk adjusted discount rates, marketability and liquidity discounts and control premiums.

The following is a reconciliation of the Group’s investment in these Funds, which are categorised within Level “3” of the fair value hierarchy:

30 June 2021 31 December 2020 Net assets value as at beginning of the period 1,119,413 1,550,869

Contributions paid to the funds during the period - 375,700

Distributions received from the funds during the period (136,214) (723,767)

Net unrealised loss recognised in the interim condensed consolidated statement of profit or loss (*) (10,205) (83,389)

Net assets value as at ending of the period 972,994 1,119,413

(*) The net unrealized loss recognised was included within net other (losses) gains item in the interim condensed consolidated statement of profit or loss.

The Group believes that the other financial assets and liabilities carried at cost in the interim condensed consolidated financial statements approximate their fair value.

There are no transfers between levels of the fair value hierarchy during the six months period ended 30 June 2021.


F-40

11- TRADE AND OTHER RECEIVABLES



22,059,236 14,800,722

Non trade receivables 1,162,840 1,283,69423,222,076 16,084,416

12- RELATED PARTY TRANSACTIONS

12-1 Trading transactions and balances with related parties (Associates and Joint Ventures) The Group trading transactions with related parties were as the following:



2021 2020 2021 2020

Telecommunication services provided 83,769 76,506 181,394 131,246

Telecommunication services received 25,019 30,132 52,228 43,989

The following balances are outstanding with related parties:


30 June 2021 31 December 2020 30 June 2021 31 December 2020

Associates 393,156 354,554 43,250 63,820Joint ventures

23,410 47,249 131,325 157,830

416,566 401,803 174,575 221,650

The sale and purchase transactions are carried out by the relevant parties in accordance with the normal terms of trade. The outstanding balances are unguaranteed, without commission and no guarantees have been provided or received in relation to the balances due or from the related parties.

12-2 Trade transactions and related parties’ balances (government and government related entities) Revenues from transactions with government and government related entities for the three months and six months periods ended 30 June 2021 amounted to SR 2,815 million and SR 5,625 million, respectively (for the three months and six months periods ended 30 June 2020 amounted to SR 2,120 million and SR 4,145 million, respectively). Expenses related to transactions with government and government related entities for the three months and six months periods ended 30 June 2021 (including government charges) amounted to SR 1,457 million and SR 2,778 million, respectively (for the three months and six months periods ended 30 June 2020 amounted to SR 1,388 million and SR 2,459 million, respectively).

As at 30 June 2021, debit balances with government entities amounted to SR 20,349 million (31 December 2020: SR 13,889 million). And as at 30 June 2021, credit balances with government entities amounted to SR 2,166 million (31 December 2020: SR 1,058 million).

As at 30 June 2021, debit balances with government related entities amounted to SR 1,726 million (31 December 2020: SR 912 million). And as at 30 June 2021, credit balances with government related entities amounted to SR 624 million (31 December 2020 : SR 345 million)


F-41

12- RELATED PARTY TRANSACTIONS (CONTINUED)

12.2 Trade transactions and related parties’ balances (government and government related entities) (continued)

Receivable aging from government entities is as follows:


Less than a year 12,680,173 10,275,707 More than one year to two years 6,827,000 3,153,841 More than two years 842,131 459,707

20,349,304 13,889,255

13- END OF SERVICE BENEFIT PROVISION

Calculation of end of service benefit provision was done using the most recent actuarial valuation as at 30 June 2021. During the period, the actuarial assumptions relating to the discount rate and salary increaserate have been updated, resulting in recording of net actuarial gain included in the interim condensedconsolidated statement of comprehensive income for the three and six months periods ended 30 June 2021amounting to SR 21 million and SR 169 million, respectively (net actuarial loss included in the interimcondensed consolidated statement of comprehensive income for the three and six months periods ended30 June 2020 amounting to SR 699 million and SR 404 million, respectively).

14- LEASE LIABILITIES 30 June 2021 31 December 2020

Current 724,379 742,185

Non-current 2,175,885 2,237,853

2,900,264 2,980,038

The interest expense on lease liabilities for the three months and six months periods ended 30 June 2021 amounted to SR 23 million and SR 45 million, respectively, were included in finance costs (for the three months and six months periods ended 30 June 2020 amounted to SR 26 million and SR 53 million, respectively)

15- FINANCIAL LIABILITIES AND OTHERS

15-1 Financial liabilities30 June 2021 31 December 2020

Dividends payable 2,204,122 2,151,116

Financial liabilities related to frequency spectrum licenses 2,026,503 2,276,505

Others (See note 20-2) 798,892 61,9575,029,517 4,489,578

Current 3,009,488 2,208,687

Non-current 2,020,029 2,280,8915,029,517 4,489,578


F-42

15- FINANCIAL LIABILITIES AND OTHERS (CONTINUED)



Deferred income 3,777,767 3,814,889

Government charges 2,197,675 1,085,873

Statutory dues and others 158,516 381,0226,133,958 5,281,784

Current 2,349,054 1,361,084

Non-current 3,784,904 3,920,7006,133,958 5,281,784

16- ZAKAT AND INCOME TAX

The Group submitted all zakat returns until the end of 2020, with payment of zakat due based on thosereturns, and accordingly the Group received zakat certificates for those years. Effective from year 2009,the Group started the submission of consolidated zakat return for the Company and its wholly ownedsubsidiaries whether directly or indirectly in accordance with the executive regulations for collectingzakat.

The Group received final zakat assessments for all years up to 2007 and the years ended as at 31 December 2010, 2011, 2014 and 2018.

The decision of the First Appeals Committee for Income Tax Violations and Disputes was issued in supportof the Group’s position not to consider the adjusted net profit as a basis for zakat for the years 2008 and2009. The financial impact of this decision will be determined after receiving the final assessment by theZakat, Tax and Customs Authority (“ZATCA”) for the mentioned years.

The Group also received zakat assessments that include differences related to the zakat declarationssubmitted for the years from 2015 to 2017, amounting to SR 865 million, and the Group objected to themwithin the statutory period. A partial settlement agreement was reached with ZATCA, which resulted in the payment of an amount of SR 433 million, while the Group submitted objections for the years from 2015 to2017 in the amount of SR 134 million, and these objections are still being considered by the GeneralSecretariat of the Tax Committees until the date of preparing these interim condensed consolidatedfinancial statements. The Group believes that its zakat position will be in its favour and that it will not result in any material additional provisions.


F-43

17- EARNINGS PER SHARE

The following is the calculation of basic and diluted earnings per share:For the three months period ended

30 June For the six months period

ended 30 June 2021 2020 2021 2020

Net profit attributable to equity holders of the Parent Company 2,821,209 2,724,215 5,773,303 5,636,960

Number of shares (in thousands): Weighted average number of ordinary shares for the purposes of calculating basic earnings per share 1,999,207 2,000,000 1,999,207 2,000,000

Weighted average number of repurchased ordinary shares 793 - 793 -

Weighted average number of ordinary shares for the purposes of calculating diluted earnings per share 2,000,000 2,000,000 2,000,000 2,000,000


- Basic 1.41 1.36 2.89 2.82 - Diluted 1.41 1.36 2.89 2.82

The following is the number of outstanding shares (in thousands) during the six months period ended 30 June 2021:

1,997,017The number of outstanding shares at beginning of the period -The number of treasury shares purchased during the period

1,997,017 The number of outstanding shares at end of the period

The following is the number of treasury shares (in thousands) during the six months period ended 30 June 2021:

2,983The number of treasury shares at beginning of the period -The number of treasury shares purchased during the period

2,983 The number of treasury shares at end of the period

18- CAPITAL COMMITMENTS

One of the subsidiaries has an agreement to invest in a fund aimed to drive innovation in thecommunications and information technology sector in the Kingdom of Bahrain and other GCC Countrieswith an amount of SR 1,125 million (equivalent to USD 300 million) as at 30 June 2021 (31 December 2020: SR1,125 million (equivalent to USD 300 million) (See note 20-1).


F-44

19- CONTINGENT ASSETS AND LIABILITIES

(a) The Group has outstanding letters of guarantee on behalf the parent and the subsidiaries as at 30 June2021 amounting to SR 4,990 million (31 December 2020: SR 4,222 million).

(b) The Group has outstanding letters of credit as at 30 June 2021 amounting to SR 1,137 million (31December 2020: SR 977 million).

(c) On 21 March 2016, the Company received a letter from a key customer requesting a refund for paidbalances amounted to SR 742 million related to construction of a fibre optic network. Based on theindependent legal opinions obtained, the management believes that the customer’s claim have nomerit and therefore this claim has no material impact on the financial results of the Group.

(d) The Group, in its ordinary course of business, is subject to proceedings, lawsuits and other claims.However, these matters are not expected to have any material impact on the Company’s financialposition or on the results of its operations as reflected in these interim condensed consolidatedfinancial statements.

(e) The Group has submitted an objection to the appeal committee with respect to the Zakat, Tax andCustoms Authority (“ZATCA”) withholding tax assessment on international operators’ networks rentals for the years from 2004 to 2015 for an amount of SR 2.9 billion. The Group believes that Saudi taxregulations do not impose withholding tax on the rental of international operators’ networks since the source of income did not occur inside the Kingdom, therefore this service should not be subject towithholding tax. Based on the opinions of tax specialists in this matter, the nature of the services andexisting similar cases where the decision was in the favour of the companies in the telecom sector,the Group believes that this assessment will not result into any additional provisions.

(f) The Group received claims from the Communications and Information Technology Commissionrelated to imposing government fees for selling devices in installments for the period from 2018 untilthe end of the first quarter of 2021, totalling SR 782 million. The Group objected within the statutorydeadline. Based on the opinions of the specialized consultants in this regard and the nature of thesesales, the Group believes that the result will be in its favour and no material additional provisions arerequired.

(g) In April 2017, Kuwait’s Cassation Court invalidated a portion of the regulatory tariff decree levied onmobile telecommunication companies in Kuwait since 26 July 2011 by Kuwait’s Ministry ofCommunications. Accordingly, stc Kuwait had filed a claim for the recovery of the excess amount paid from change in regulation date till date. On 30 June 2020, the Court of appeal of Kuwait has issued averdict in favor of stc Kuwait obliging the appellant to pay amount of KD 18.3 million (equivalent to SR225 million).

20- SUBSIDIARIES

1. During the second quarter of 2021, the Group established stc Gulf Cable Systems Company - a limitedliability company in the Kingdom of Bahrain with a capital of SR 188.6 million (equivalent to BHD 18.9 million) wholly owned by the Group as part of the agreement to invest in a fund aimed to drive innovation in thecommunications and information technology sector in the Kingdom of Bahrain and other GCC Countries(See note 18). stc Gulf Cable Systems Company main activities include the sale and installation oftelecommunications equipment and the construction of utilities projects.

2. On 21 November 2020, the Group signed an agreement with Western Union (WU) to sell 15% of the Group’sshare in the Saudi Digital Payments Company (stc pay) - a wholly owned subsidiary company of the Groupwith a share capital of SR 948 million as at 30 June 2021 - for a total of SR 750 million (equivalent to USD 200 million).


F-45

20- SUBSIDIARIES (CONTINUED)

During the second quarter of 2021, the Council of Ministers approved granting stc pay a digital bankingservices license to become a digital bank with a share capital of SR 2.5 billion. Completion of all theregulatory requirements stipulated by the Saudi Central Bank (SAMA) and the relevant authorities tofinalize the agreement with Western Union is in progress and expected to be completed during the year2021. Accordingly, and for the purpose of raising the share capital of stc pay, WU and the Group deposited an amount of SR 750 million and SR 802 million, respectively, in a restricted bank account by the SaudiCentral Bank (SAMA) until the completion of the regulatory requirements. Therefore, cash and cashequivalents include an amount of SR 1,552 million, which represents cash balances restricted by the SaudiCentral Bank (SAMA), with corresponding amount received from WU, amounting to SR 750 million, isclassified under other financial liabilities (see Note 15-1).

21- EMPLOYEES LONG-TERM INCENTIVES PROGRAM

On 20 April 2020, the Extraordinary General Assembly voted to approve the purchase of a number of theCompany's shares, with a maximum of 5.5 million shares, with an amount not to exceed SR 300 million to be allocated for the employees long-term incentives program (the Program). The shares to be purchased willnot have the right to vote in the Company’s shareholders general assemblies, and will not be entitled toany dividends while the shares still under the Company's possession.

The Program intends to attract, motivate and retain the executive employees responsible for theachievement of the Group’s goals and strategy. The Program provides a share-based payment plan foreligible executives participating in the Program by granting them shares in the Company upon completing the duration of service and performance requirements and achieving the targets determined by the Group.

During the year of 2020, the Group granted the first tranche of the Program as follows:1 July 2020Grant date785 thousand sharesTotal number of shares grantedSR 94.4 Fair value per share on grant date (*) 1 July 2021/2022/2023 Vesting date Equity-basedSettlement method

Total expenses related to the Program for the three and six months periods ended 30 June 2021 amounted to SR 4.4 million and SR 7.5 million respectively (for the three and six months periods ended 30 June 2020: Nil), which were included as part of employees benefits expense in the interim condensed consolidated profit or loss statement, with the corresponding amount recorded under other reserves within equity in accordance with the requirements of International Financial Reporting Standard (2): Share-based Payment. (*) The fair value was calculated based on the market price after deducting the expected dividends per share on the grant date.

22- DIVIDENDS

On 9 Rabi Thani 1440H (corresponding to 16 December 2018) the Board of Directors have approved theCompany’s dividends policy for the next three years starting from the fourth quarter of 2018, which wasapproved by the General Assembly on 19 Sha`ban 1440H (corresponding to 24 April 2019). The objective ofthe dividends policy is based on maintaining a minimum level of dividend of SR 1 per share on quarterlybasis. The Company will consider and pay additional dividend subject to the Board of Directorsrecommendation after assessment and determination of the Company's financial situation, outlook andcapital expenditure requirements.

It is probable that additional dividends are likely to vary on quarterly basis depending on the Company’sperformance.


F-46

22- DIVIDENDS (CONTINUED)

The dividends policy will remain subject to: a- Any material changes in the Company's strategy and business (including the commercial environment

in which the Company operates).b- Laws, regulations and legislations governing the sector at which the Company operates.c- Any banking, other funding or credit rating covenants or commitments that the Company may be

bound to follow from time to time. On April 26, 2021, the General Assembly approved, during its meeting, the recommendation of the Board of Directors to distribute additional cash dividends for the year 2020 at the rate of SR 1 per share.

In accordance with dividends policy, the Company distributed cash dividends to the shareholders of the Company for the first quarter of 2021 at a rate of SR 1 per share. In addition, the Company will distribute cash dividends to the shareholders of the Company for the second quarter of 2021 at a rate of SR 1 per share.

Treasury shares allocated to the employee long-term incentives program are not entitled for any dividends during the period while the shares still under the Company's possession (See note 21).

23- IMPACT OF CORONAVIRUS (COVID-19) OUTBREAK

The Group’s operations and financial results have not incurred significant impact from the virus outbreak, taking into consideration the lower impact of the pandemic over the operations and activities ofcompanies operating in telecom sector.

The impact of the pandemic on the Group’s operations and financial results was assessed using somejudgments, estimates and assumptions that contain sources of uncertainty as it depends on several future factors and developments that cannot be reliably forecasted.

24- APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

At its meeting held on 02 August 2021, the audit committee delegated by the Company`s Board of Directors approved the interim condensed consolidated financial statements for the three and six months periodsended 30 June 2021.


CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

F-47

Saudi Telecom Company A Saudi Joint Stock Company CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

2

INDEX PAGES

Independent Auditor’s Report

Consolidated statement of financial position

Consolidated statement of profit or loss

Consolidated statement of comprehensive income

Consolidated statement of cash flows

Consolidated statement of changes in equity

F-57

F-58

F-59

F-60

F-61

F-62Notes to the consolidated financial statements

F-48

F-49

Ernst & Young & Co. (Certified Public Accountants)General PartnershipHead OfficeAl Faisaliah Office Tower, 14th FloorKing Fahad RoadP.O. Box 2732Riyadh 11461Kingdom of Saudi Arabia

Registration No. 45/11/323C.R. No. 1010383821

Tel: +966 11 215 9898+966 11 273 4740

Fax: +966 11 273 4730

[email protected]/mena

Independent auditor’s report

To the Shareholders of Saudi Telecom Company


Opinion

We have audited the accompanying consolidated financial statements of Saudi Telecom Company (the “Company”) and itssubsidiaries (collectively referred to as the “Group”), which comprise the consolidated statement of financial position as at

31 December 2020, and the consolidated statement of profit or loss, consolidated statement of comprehensive income,

consolidated statement of cash flows and consolidated statement of changes in equity for the year then ended, and notes to

these consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated

financial position of the Group as at 31 December 2020, and its consolidated financial performance and its consolidated cash

flows for the year then ended in accordance with International Financial Reporting Standards that are endorsed in the Kingdom

of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi Organization for Certified Public

Accountants.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi

Arabia. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the

Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the professional

code of conduct and ethics endorsed in the Kingdom of Saudi Arabia that are relevant to our audit of the consolidated financial

statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the

audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the

consolidated financial statements of the current year. These matters were addressed in the context of our audit of the

consolidated financial statements as a whole, and in forming auditor’s opinion thereon, and we do not provide a separateopinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that

context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial

Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of

procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial

statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the

basis for our audit opinion on the accompanying consolidated financial statements.

F-49



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To the Shareholders of Saudi Telecom Company (continued)


Key Audit Matters (continued)

Key audit matter How our audit addressed the key audit matter

Revenue recognition

The Group’s revenue consists primarily of subscription fees

for telecommunication, data packages and use of the

network totalling SR 59 billion for the year ended 31

December 2020.

We considered this a key audit matter as the application of

accounting standard for revenue recognition in the

telecommunication sector includes number of key judgments

and estimates.

Additionally, there are inherent risks about the accuracy of

revenues recorded due to the complexity associated with the

network environment, dependency on IT applications, large

volumes of data, changes caused by price updates and

promotional offers affecting the various products and

services offered during the accounting period, as well as the

materiality of the amounts involved.

Refer to note 4.5 for the accounting policy related to revenuerecognition and note 35 for the related disclosures.

Our audit procedures included, among others, the following:

· Involved our IT specialists in testing the design,

implementation and operating effectiveness of system

internal controls related to revenue recognition.

· Evaluated the appropriateness of revenue recognition

policies.

· Reviewed a sample of revenue reconciliations prepared by

management between the primary billing system and the

general ledger.

· Tested the accuracy of customer invoice generation on a

sample basis and tested a sample of the credits and discounts

applied to customer invoice.

· Tested cash receipts for a sample of customers back to the

invoice.

· Performed analytical procedures by comparing expectations

of revenue with actual revenue and analysing variances.

· Assessed the appropriateness of the relevant disclosures in

the consolidated financial statement.

F-50



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Accounting for zakat and withholding tax claims from the General Authority of Zakat and Tax (GAZT)

As at 31 December 2020, the Group received the

following claims from GAZT, relating to Zakat and

withholding tax:

Zakat:

The Group received zakat assessments for the years ended

31 December 2008, 2009 and from 2015 to 2017 with

additional zakat claimed by GAZT which was challenged

by the Group.

Withholding Tax:

The Group received withholding tax assessments from

GAZT for the service of renting international operators’

networks outside the Kingdom of Saudi Arabia for the

years from 2004 to 2015. The Group’s management

believes that this service should not be subject to

withholding tax and has objected against such assessments

which are still underway before the relevant committee.

We considered this as a key audit matter as accounting for

zakat and withholding tax involves management estimates

in addition to the materiality of the additional amounts

claimed.

Refer to note 4.10 for the accounting policy related tozakat and withholding taxes and notes 34 and 45-E for therelated disclosures.

Our audit procedures performed included, among others, the

following:

· Reviewed correspondences between the Group and GAZT to

determine the amount of the additional assessments made by

GAZT.

· Attended meetings with those charged with governance and

the Group’s management to obtain an update on the zakat and

withholding tax matters and the results of their interactions

with the relevant committees.

· Involved our specialist to assess the appropriateness of the

exposures disclosed for both zakat and withholding tax for

the years assessed by GAZT and judgements made by

management in this matter.

· Reviewed prior year’s decisions from the relevant committee

on zakat assessment.

· Assessed the appropriateness of the relevant disclosures

included in the consolidated financial statements.

F-51



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Allowance for impairment of trade receivable

As at 31 December 2020, the Group’s trade receivables

amounted to SR 17.6 billion against which an impairment

allowance of SR 2.9 billion is maintained.

The Group uses the expected credit loss model (ECL) as

required by International Financial Reporting Standard 9

(Financial Instrument) (IFRS 9) to calculate allowance

for impairment in trade receivable. Further, the Group

perform an assessment based on a set of relevant

qualitative factors for some of the customers categories.

We considered this as a key audit matter as it involves

complex calculations and use of assumptions by

management in addition to the materiality of the amounts

involved.

Refer to notes 4.18.3 and 5.2.5 for the accounting andcritical judgements policies related to allowance forimpairment of trade receivable and note 17 for the relateddisclosures.


following:

· Assessed the design, implementation, and operating

effectiveness of the key controls over the following:

- Recording of trade receivables and settlements.

- Trade receivables aging reports.

· Tested a sample of trade receivables to assess whether ECL

has been recorded on a timely manner.

· Assessed significant assumptions, including collection rates,

recovery rates, impairment ratios and those relating to future

economic events that are used to calculate the expected credit

loss.

· Tested the mathematical accuracy of the ECL model.

· Tested on sample basis, the calculation performed by

management of allowances done for some of the customers

categories. Also obtained an understanding of the latest

development and the basis of measuring the allowance and

considered whether key judgments were appropriate given

the circumstances.



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Capitalization and useful lives of property, plant and equipment (PPE)

The Group has a substantial capital expenditure plan and

therefore incurs significant annual expenditure in relation to

the development and maintenance of both infrastructure assets

and assets in relation to network and related equipment.

Costs related to upgrading or enhancing networks are treated

as capital expenditures. Expenses spent to maintain the

network's operating capacity are recognized as expenses in the

same year in which they are incurred. Capital projects often

contain a combination of enhancement and maintenance

activities that are difficult to separate, and therefore the

distribution of costs between capital and operation depends

heavily on management assumptions.

Further, there are a number of areas where management

judgments impacts the carrying values and depreciation of

PPE which include:

- Decision to capitalize or expense costs;

- Review of the useful lives of PPE including the impact

of changes in the Group’s strategy; and

- The timing of commencement of depreciation based on

when they are ready for their intended use.

We considered this as a key audit matter since it involves

management's assumptions and estimates as well as the


Refer to note 4.11 for the accounting policy related toproperty, plant and equipment and note 9 for the relateddisclosures.


following:

· Tested the effectiveness of the key controls in place over

the capitalization and depreciation of PPE and assessed

the Group’s policies.

· Performed analytical procedures on depreciation of PPE

by comparing actual depreciation rates with expected

rates and analysed variances.

· Tested, on a sample basis, the reasonableness of useful

lives estimation performed by the management.

In addition to the above, we also performed the following

procedures on the capitalized cost:

· Assessed the Group's capitalisation policy for

compliance with relevant accounting standards;

· Tested, on a sample basis, the implementation of

expenditure policy during the year, including the review

of minutes of meetings where capital expenditure plan

was approved.

· Tested, on a sample basis, capitalisation of project

expenses in compliance with the Group’s capitalisation

policy including instances where actual costs differed

from the expenditure plan.



F-53



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Valuation of property, plant and equipment and intangible assets

As at 31 December 2020, the Group’s consolidated financial

position included property, plant and equipment amounting to

SR 47.9 billion and intangible assets amounting to SR 10.5

billion.

At each reporting date, the Group perform an assessment of

the recoverable value of these assets, or relevant cash-

generating units ('CGUs') for any indication of impairment.

This involves significant judgment in respect of factors such

as technological changes, challenging economic conditions,

changing regulatory environment and restrictions, operating

or capital costs and other economic assumptions used by the

Group.




Refer to notes 4.14 and 5.1.2 for the accounting and criticaljudgements policies related to valuation of property, plantand equipment and intangible assets.


following:

· Reviewed management’s impairment indicator

testing.

· Assessed management’s assumptions and estimates

used to determine the recoverable value of the assets

based on our knowledge of the Group and the industry

it operates in.

· Assessed management’s methods of identifying

individual CGUs.

· Assessed mathematical accuracy of cash flow models.

· Assessed the appropriateness of the relevant

disclosures included in the consolidated financial

statements.

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Other Information Included in the Group’s 2020 Annual Report

Other information consists of the information included in the Group’s 2020 annual report, other than the consolidated financial

statements and our auditor’s report thereon. Management is responsible for the other information in its annual report. The

Group’s 2020 annual report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form

of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information

identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent

with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially

misstated.

When we read the Group’s 2020 annual report, if we conclude that there is a material misstatement therein, we are required to

communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance

with International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia and other standards and

pronouncements that are endorsed by the Saudi Organization for Certified Public Accountants and the provisions of

Companies’ Law and Company’s By-laws, and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as

a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting

unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from

material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable

assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standardson Auditing that are endorsed in the Kingdom of Saudi Arabia will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably

be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia,

we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud

or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient

and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from

fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

F-55

F-56

Saudi Telecom Company A Saudi Joint Stock Company

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 (All Amount in Saudi Riyal thousands unless olflerwisc! stnted)

ASSETS

NON-CURRENT ASSETS Properly ,111cl equipment lnvcslmcnl properLies Intangible nsscts and goodwill RighL of LISC ilSSCb lnvcstrnenls in nssucinLcJ i.lnrljoint vcnuircs Contrncl cos Ls Contrm;L ilS�ClS Financial usscl s .incl other_, TOTAL NON-CURREN ASSETS CURRENT ASSETS lnvcntorie Trncle anrl 011·,cr rccciv:il1lcs

hort tcm1 mur.:ibalms C<l h and ca -11 r.q, 1iv11lents Con I met assel 5 Fimmcial .i:,sets ;ind others

/\ssels held for -,ile TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY ANO LIABILITIES EQUITY Issued c;ipilnl Sliilutory reserve";; Trca. ury sll.irr.s OLhcr reserves Retnined earning$

No C"i

9 10 11 12

13 14 15

16 17 18 19 14 15

20

22 23 24 25

47,847,623 36,980

10,466,408 2,892,814 6,704,947

637,470 457,657

7,069,285 76,113,184

1,008,645 16,084,416 10,433,849

9,004,286 6,059,440 3,268,280

45,858,916

45,858,916 121,972,100

20,000,000 10,000,000

(300,000) {3,262,245) 37,508,027

Equity attributable to the equity holders of the Parent Company Non-conlrolling interesLo; 26

6'3,945,782 1,321,233

65,267,015 TOTAL EQUITY LIABILITIES NON-CURRENT LIABILI IES Long tr.rm Ii rrowings End of l:rvicc benefits provision Lease linbililies f'rovio;ions Conlrnct liabililies Fimmcifll liahililies ,md others TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES Trncl im,1 olhcr p,1y11blcs Provi ions Contrnct liabilities Zilkat i'lnd income tax Le, se linhilitics Short Lcrm borrowin9s Financial liilhililics ilnd others TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY ANO LIABILITIES

�[.?::e� Chief Financial

Officer Chief Executive

Officer

27 28 29 30 31 32

33 30 31

8,637,605 5,239,313 2,237,853

725,625 771,915

6 201 591 23,813,902

20,296,791 4,158,923 1,901,237

34 1,903,791 29 742,185 27 318,485 32 3,569,771

32,891,183 56,705,085

121,972,100

Authorized Board Member

45,085.342

9,906,688 2.887.9 33 6,618,526

922.922 648,069

7,415,284 73,464.764

1,721,530 21,372,368

2,181,416 8,031,010 6,793,755 4,473,685

44,573,764 267,728

44 ,8'11 .492 118,326,256

20,000,000 10,000,000

(2,745,608) 34,508,202 61,762,594

1,292,452 63,055,046

8,923,476 4.812.805 2,164,415

891,210 771,915

5,100,617 22,664,438

Hl,242,158 5,411,404 2,917,989 1,482,278

716.762 389.339

3,446,842 32,606,772 55,271,210

118,326,256

Chainnan

11,c �ccomp;myrnq 1101,i� rrnm 1 ln 51 rorm nn integral part or 111n:;1i cunsolit.latcd rinancial $lirt.emcm1 .-

F-57


CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2020


� 2020

Revenues Cost of revenues GROSS PROFIT

OPERATING EXPENSES

Selling and marketing General and administration Depreciation and amortisation TOTAL OPERATING EXPENSES

OPERATING PROFIT

OTHER INCOME AND EXPENSES Cost of early retirement program

35 36

37 38

9, 11,12

Finance income 39 Finance cost 40 Net other expenses Net share in results of investments in associates and

joint ventures Net other gains (losses) 41 TOTAL OTHER EXPENSES

NET PROFIT BEFORE ZAKAT AND INCOME TAX

Zakat and income tax NET PROFIT

Net profit attributable to: Equity holders or tl1e Parent Company Non-controlling Interests

34

58,953,318 (24,998,923)

33,954,395

(6,053,632) (5,810,763) (9,358,875)

(21,223,270)

12,731,125

(600,000) 413,873

(623,925) (42,995)

52,953 424,612

(375,482)

12,355,643

(1,170,446)

11,185,197

10,994,875 190,322

11,185,197

20/9

54,367,531 (21,976,306)

32,391,225

{5,581,969) (5,544,276) (8,784,587)

(19,910,832)

12,480,393

(600,000) 639,161

(765,154) (76,062)

49,597 (40,960)

(793,418)

11,686,975

(762,144) 10,924,831

10,664,666 260,165

10,924,831

Earnings per share, based on net profit attributable to equity holders of the Parent Company (in Saudi Riyals):

Basic 42 5.50 5.33 Diluted 42 5.50 5.33

� )f !;;�"'� ,,.-- ---

Chief Financial Chief Executive Authorized Board Chairman Officer Officer Member

fhc accompanying notes from I Lo 51 form an integral part of these consolidated financial statements

F-58

--


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE VEAR ENDED 31 DECEMBER 2020


NET PROFIT

OTHER COMPREHENSIVE INCOME (LOSS)

Item that will not be reclassified subsequently to consolidated statement of profit or loss: Re-measurement of end of service benefit provision

Items that may be reclassified subsequently to

consolidated statement of profit or loss: Foreign currency translation differences Fair value changes from cash flow hedges Net share of other comprehensive income of associates and

joint ventures

Total items that may be reclassified subsequently to

consolidated statement of profit or loss

TOTAL OTHER COMPREHENSIVE LOSS


Total comprehensive income attributable to: Equity holders of the Parent Company Non-controlling interests

Chief Financial

Officer

Chief Executive

Officer

NQm ___ 2_0_'2_0 __ _

11,185,197

28 (568,893)

(16,542) 1,820

52,531

37,809

{531,084)

10,654,113

10,478,455 175,658

10,654,113

Authorized Board

Member

2019

10,924.831

(710,054)

(1,479) (484)

214.013

212,050

(498,004}

10,426,827

10,163,477 263.350

10.426.827

Chairman

The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements

F-59


CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE VEAR ENDED 31 DECEMBER 2020


2020 N.QJfi -------'=-=-==

CASH FLOWS FROM OPERATING ACTIVITIES Net profit before zakat and income tax Adjustments for:

Depreciation and amortisation Impairment loss and amortis.ition of contract costs and contract assets

9, 11,12

Impairment loss on trade receivables 37 Allowance for slow moving inventories 16 Finance income 39 Finance costs 40 Provision for end of service benefits and other provisions Net share in results of investments in associates and joint ventures Share- based payment expenses 4 7 Net other (gains) losses 41

Movements in:

Trade receivables and others Inventories Contract costs Contract assets Other assets Trade payables and others Contract liabilities Other liabilities

Cash generated from operations Less: Zakat and income tax paid Less: Provision ror end of service benefits paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment Additions to intangible assets Proceeds from sale of property and equipment Proceeds from sale of an associate Dividends from associates Acquisition or a new subsidiary Proceeds from finance income Proceeds and payments related lo financial assets. net Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to the equity holders of the Parent Company Dividends paid to non-controlling interests Purchase of treasury shares Repayment or lease liabilities

34 28

Repayment or borrowings 27 Proceeds from borrowings 27 Finance costs paid Net cash used in financing activities NET INCREASE (DECREASE) IN CASH ANO CASH EQUIVALENTS CASH ANO CASH EQUIVALENTS AT BEGINNING OF THE VEAR Net foreign exchange difference CASH ANO CASH EQUIVALENTS AT ENO OF THE VEAR

�

19

12,355,643

9,358,875

623,652 1,072,959

3,433 (413,873)

623,925 560,627

(52,953) 6,116

(424,612)

4,215,494 709,452

(220,515) 807,042 921,405 605,602

(564,499) (434,684)

29,753,089 (750,643) (677,Z!'!)

28,324,705

(9,150,117) (1,690,470)

16,748 760,862

516,006 (7,882,206)

(17,429,177)

(7,973,418) (102,781) (300,000) (831,642) (402,386)

21,363 (330,354)

(91919,218) 976,310

8,.031,010 (3,034)

9,004,286


Chief Exccuti� Officer


2019

11,686,975

8,784,587

506,951 662,043

57,086 (639,161)

765,154 935,304

(49,597)

40,960

(7,574,857) (988,430) (296,936)

(1,573,106) (2,317,470)

4,714,301 (130,160)

p,469,086) 11,114,558

(742,882) (451

1050)

9,920,626

(9,426,711) (1,941,453)

140,307

37,931 (232,669)

642,431 8,803,038

(1,977,126)

(12,001,610) (104,104)

(712,467) (350,948) 5,381,417 (279,933)

(8,067 ,645l (124,145) 8,153,865

1,290 8,031,010

Chairman

The accompanying notes from 1 to 51 forrn an integral part of these consolidated financial stmernents

F-60


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 (All amounts in Saudi Ri;Lals thousands unless otherwise stated)

Issued

� capital

Balance as at 1 January 2019 20,000,000

Net profit Other comprehensive loss Total comprehensive income

Dividends to the equity holders of the Parent Company 49

Dividends to non-controlling interests Share of changes in other reserves of a joint venture·s equity Transfers Balance as at 31 December 2019 20,000,000

Balance as at 1 January 2020 20,000,000

Net profit Other comprehensive loss Total comprehensive income

Dividends to the equity holders of the Parent Company 49

Dividends to non-controlling interests Share-based payment transactions 47

Purchase of treasury shares 24

Acquisition of a share in non-controlling interest Share of changes in other reserves of a joint venture·s equity Balance as at 31 December 2020 20,000,000

Total equity attributable to the equity holders of the Parent

Company

Statutory Treasury Other Retained Non-controlling

reserves shares reserves earnings Total interests Total equity

10,000,000 (1,903,878) 37,417,562 65,513,684 1,147,914 66,661,598

10,664,666 10,664,666 260,165 10,924,831

(501,189) (501,189) 3,185 (498,004)

(501,189) 10,664,666 10,163,477 263,350 10,426,827

(14,000,000) (14,000,000) (14,000,000)

(118,812) (118,812)

85,433 85,433 85,433

(425,974) 425,974

10,000,000 - (2,745,608) 34,508,202 61,762,594 1,292,452 63,055,046

10,000,000 - (2,745,608) 34,508,202 61,762,594 1,292.452 63,055,046 10,994,875 10,994,875 190,322 11,185,197

(516,420) (516,420) (14,664) (531,084) !516,420) 10,994,875 10,478,455 175,658 10,654,113

(7,995,050) (7,995,050) (7,995,050) (144,327) (144,327)

6,116 6,116 6,116 (300,000) (300,000) (300,000)

(4,369) (4,369) (2,550) (6,919) (1,964) (1,964) (1,964)

10,000,000 (300,000) (3,262,245) 37,508,027 63,945,782 1,321,233 65,267,015

� r .---:v� � �-===.-=-..

��

Chief Financial Officer Chief Executive Officer Authorized Board Member Chairman


F-61,


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

(All Amounts in Saudi Riyals thousands unless otherwise stated) 1. GENERAL INFORMATION

A) 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 Htija 1418H (corresponding to 21 April 1998) that authorised 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 Htija 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"). Pursuant to the council of Ministers Resolution No. 171 dated 2 Rajab 1423H (corresponding to 9 September 2002), the Government sold 30% of its shares. The ultimate controlling party of the Company is the Government through the Public Investment Fund (PIF) which owns 70% of the total shares of the Company. 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 Awai 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.

B) GROUP ACTIVITIES

The main activities of the Company and its subsidiaries (the "Group") comprise the provision and introduction of telecommunications. information. media services and digital payments, which include. among other things: 1) Establish. manage. operate and maintain fixed and mobile telecommunication networks. systems

and infrastructure. 2) Deliver. provide. maintain and manage diverse telecommunication and information technology (IT)

services to customers. 3) Prepare the required plans and necessary studies to develop, implement and provide the telecom

and IT services covering all technical. financial and administrative aspects. In addition, prepare andimplement training plans in the field of telecommunications and IT, and provide consultancy services.

4) Expand and develop telecommunication networks. systems. and infrastructure by utilizing the most current devices and equipment in telecom technology. especially in the fields of providing andmanaging services. applications and software.

5) Provide integrated communication and information technology solutions which include among other things (telecom, IT services, managed services. and cloud services. etc.).

6) Provide information-based systems and technologies to customers including providing telecommunication means for the transfer of internet services.

7) Wholesale and retail trade, import. export. purchase. own. lease. manufacture. promote, sell, develop. design. setup and maintain of devices, equipment. and components of different telecomnetworks including fixed. moving and private networks. In addition. computer programs and theother intellectual properties. in addition to providing services and executing contracting works that are related to different telecom networks.

8) Real estate investment and the resulting activities. such as selling. buying. leasing. managing. developing and maintenance.

9) Acquire loans and own fixed and movable assets for intended use. 10) Provide financial and managerial support and other services to subsidiaries. 11) Provide development. training. assets management and other related services. 12) Provide solutions for decision support. business intelligence and data investment. 13) Provide supply chain and other related services. 14) Provide digital payment services. 15) Construction. maintenance and repair of telecommunication and radar stations and towers. Moreover, the Company is entitled to set up individual companies as limited liability or closed joint stock. It may also own shares in or merged with other companies. and it has the right to partner with others to establish joint stock, limited liability or any other entities whether inside or outside the

ingd � �

__ _ )'I. c:::::Y-�� -- -

Chief Executive Officer


F-62

Chairman

Saudi Telecom Company (A Saudi Joint Stock Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2020 (All Amounts in Saudi Riyals thousands unless otherwise stated)

F-63

2. BASIS OF PREPARATION AND CONSOLIDATION2.1 Basis of preparation

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi Organization for Certified Public Accountants (“SOCPA”) (“IFRS endorsed by SOCPA”).

The consolidated financial statements have been prepared on a historical cost basis, unless stated otherwise, in the below accounting policies.

The consolidated financial statements are presented in Saudi Riyals (“SR”), which is the functional currency for the Group, and all values are rounded to the nearest thousand Saudi Riyals, except when otherwise indicated.

The preparation of the consolidated financial statements in accordance with IFRS as endorsed by SOCPA requires the use of certain significant accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

The significant accounting policies (See Note 4) applied in preparing these consolidated financial statements are consistent with those applied in comparative periods presented.

2.2 Basis of consolidation

The consolidated financial statements of the Group comprises the financial information of the Company and its subsidiaries (see Note 6).

Subsidiaries are companies controlled by the Group, control is achieved when the Group has: - Power over the investee (i.e. existing rights that give the Group the current ability to direct the

relevant activities of the investee) - Exposure, or rights, to variable returns from its involvement with the investee - The ability to use its power over the investee to affect its returns

In general, there is a presumption that a majority of voting rights result in control. In support of this assumption, when the Group has less than a majority of the voting rights or similar rights in the investee, the Group takes into consideration all relevant facts and circumstances when determining whether it exercises control over the investee, including:

- Arrangement(s) with other voting rights holders in the investee company.- Rights arising from other contractual arrangements.- Group’s voting rights and potential voting rights

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control mentioned above.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired (or disposed) of during the year are included (or derecognised) in the consolidated financial statements from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the equity holders of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies.

All intragroup assets and liabilities, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.


F-64

2. BASIS OF PREPARATION AND CONSOLIDATION (CONTINUED)2.2 Basis of consolidation (continued)

Changes in the Group's ownership interests in subsidiaries that do not result in losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognised in the consolidated statement of profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets and liabilities of the subsidiary (i.e. reclassified to the consolidated statement of profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. 3. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP3.1 NEW IFRS STANDARDS, ISSUED AND ADOPTED Amendments to IFRS and IFRIC that were applied by the Group with effective date on 1 January 2020 and had no material impact as follows:

Amendments and interpretations Amendments on some references to the Conceptual Framework for Financial Reporting Amendments to IAS 39, IFRS 7 and IFRS 9 - Interest Rate Benchmark Reform Amendments to IFRS 3 – Definition of a Business Amendments to IAS 1 and IAS 8 – Definition of Material Amendments to IFRS 16 – Covid-19 Related Rent Concessions (effective 1 June 2020)

3.2 Other Amendments of relevant IFRS’s issued but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group at their effective dates.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4.1 Business combinations

Business combinations are accounted for using the acquisition method upon transfer of control to the Group. The consideration transferred is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in the consolidated statement of profit or loss as incurred. When the Group acquires a business, it assesses the identifiable assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree. At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value with limited exceptions. Goodwill is initially measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value at the acquisition-date of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts recognised at the acquisition date.


F-65

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

4.1 Business combinations (continued)

If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then a gain on bargain purchase at a differential price is recognised in the consolidated statement of profit or loss After initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing for goodwill acquired from the business combination and from the date of acquisition, it will be allocated to cash-generating units (CGU) that are expected to benefit from the consolidation regardless of whether the other assets or liabilities acquired have been allocated to those units. If goodwill is not allocated to designated cash-generating units because of an incomplete initial calculation, the initial impairment loss will not be tested unless impairment indicators are available to enable the Group to distribute the carrying amount of the goodwill on the cash generating units or the group of cash generating units expected to benefit of the benefits of business combination. Where goodwill is allocated to the cash generating unit and part of the operations of that unit is disposed of, goodwill associated with the discontinued operation will be included in the carrying amount when determining the gain or loss on disposal of the operation. The goodwill in such circumstances is measured on the basis of a value of similar disposed operation and the remaining portion of the cash-generating unit. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. Any contingent consideration to be paid (if any) will be recognised at fair value at the acquisition date and classified as equity or financial liability. Contingent consideration classified as financial liability is subsequently remeasured at fair value with the changes in fair value recognised in the consolidated statement of profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in the consolidated statement of profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the consolidated statement of profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for the business combination is not completed by the end of the reporting period which constitutes the period in which the combination occurred, the Group present the items whose value calculation has not been completed in a temporary manner in the consolidated financial statements. During the measurement period, which is not more than one year from the acquisition date, the temporary value recognized on the acquisition date is retroactively adjusted to reflect the information obtained about the facts and circumstances that existed at the date of acquisition and if it is determined that this will affect the measurement of amounts recognized as of that date. The Group recognizes additional assets or liabilities during the measurement period if new information about facts or circumstances existed at the date of the acquisition and if it will result in recognition of assets or liabilities from that date. The measurement period ends once the group obtains those information existed at the acquisition date or as soon as it becomes sure of the lack of access to more information.

4.2 Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence but does not have control or joint control over it. Significant influence is the Group ability to participate in the financial and operating policies decisions of the investee but is not control or joint control over those policies.


F-66


4.2 Investments in associates and joint ventures (continued)

A joint venture is a joint arrangement whereby the Group has joint control of the arrangement and has rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of governing body of the investee, participation in policy-making, including participation in decisions about dividends or other distributions; material transactions between the Group and its investee; interchange of managerial personnel; or provision of essential technical information. The investment in associates or joint ventures are accounted for in the consolidated financial statement of the Group using the equity method of accounting. The investment in associates or joint ventures in the consolidated statement of financial position is initially recognized at cost and adjusted thereafter to recognise the Group’s share of the profit and loss and other comprehensive income of the associate or joint venture adjusted for any impairment in the value of net investment. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised and recorded as liabilities only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. Unrealised gain or losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in the consolidated statement of profit or loss in the acquisition year. The requirements of IFRSs are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. The carrying amount of the investment in an associate or a joint venture is tested for impairment in accordance with the policy described in Note (5.1.2). The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale. When the Group reduces its ownership interest in an associate or a joint venture but the Group continues to use the equity method, the Group reclassifies to the consolidated statement of profit or loss the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss includes the disposal of the related assets or liabilities. When any entity within the Group transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group's consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

4.3 Shared-based payment transactions

The Company’s executive employees receive remuneration in the form of share-based payments under the employee long term incentives program, whereby employees render services as consideration for Company’s shares (equity-settled transactions). The cost of equity-settled transactions is determined by the fair value of the equity instrument at the grant date. The grant date is the date on which the Company and the employee agree on the share-based agreement, so that, a common understanding of the terms and conditions of the agreement exists between the parties.


F-67


4.3 Shared-based payment transactions (continued)

Share-based payment expense is included as part of employees benefits expense over the period in which the service and the performance conditions are fulfilled (the vesting period), with the corresponding amount recorded under other reserves within equity in accordance with the requirements of the International Financial Reporting Standard (2): Share-based Payment. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of shares that will ultimately vest. The expense or credit in the consolidated statement of profit or loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

4.4 Treasury shares

Own equity instruments that are repurchased (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statement of profit or loss on the purchase, sale, issue or cancellation of the shares. Any difference between the carrying amount of the shares and the consideration, if reissued, is recognized in other reserves within equity.

4.5 Revenue recognition

The Group recognizes revenue from contracts with customers based on a five-step model as set out in IFRS 15. Revenue is recognized based on the consideration specified in a contract with a customer and excludesamount collected on behalf of third parties. The Group recognizes revenue when it transfers control over aproduct or services to a customer. The timing of revenues recognition is either at a point in time or over time depending upon the satisfaction of the performance obligation by transferring control of goods or services to the customer. When there is a high degree of uncertainty about the possibility of collection from certain customers, the Group recognizes revenue only upon collection. The Group principally earns revenue from airtime usage, messaging, data services, interconnect fees, connection fees and device sales. Products and services may be sold separately or in bundled packages.

Products and services Nature and timing of satisfaction of performance obligation

Telecommunication services Telecommunication services include voice, data and text services. The Group recognizes revenues as and when these services are provided (i.e. actual usage by the customer).

Bundled packages Arrangements involving multiple products and services are separated into individual items and revenues is recognized on the basis of fair value (standalone selling prices) of the individual items by allocating the total arrangement consideration to the individual items on the basis of the relative value of the selling prices of the individual items. Items are separable if they are of separate value to the customer.

Devices The Group recognizes revenues when the control of the device is transferred to the customer. This usually occurs at the contract inception when the customer takes the possession of the device.

In determining the transaction price, the Group considers the effects of variable consideration. If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the products and services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.


F-68


4.6 Lease contracts

The Group as a lessee

At the commencement date, the Group recognizes a right of use asset representing the Group’s right to use the underlying asset and a lease liability representing the Group’s obligation to make lease payments. At commencement date, the right of use asset is initially measured at cost (based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, as per lease terms). The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. After the commencement date, the right of use asset is measured using the cost model (cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the related lease liability).


At commencement date, the lease liability is measured at the present value of the lease payments that are not paid at that date, discounted using the interest rate implicit in the lease, if that rate can be readily determined; otherwise the Group’s incremental borrowing rate is used instead. After the commencement date, the lease liability is measured by:

(a) increasing the carrying value to reflect interest on the lease liability.(b) reducing the carrying value to reflect the lease payments made.(c) remeasuring the carrying value to reflect any reassessment or lease modifications, or to reflectrevised in-substance fixed lease payments.

The amount of the remeasurement of the lease liability is recorded as an adjustment to the right of use asset. However, if the carrying amount of the right of use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, then any remaining amount of the remeasurement is recognized in the consolidated statement of profit or loss. The Group has elected to apply the practical expedient not to recognize right of use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation on related right of use assets is calculated using the estimated useful life of the leased asset.

The Group as a lessor

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. The group as a Lessor will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 does not have an impact for leases where the Group is the lessor. Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Operating lease income is recognized in the consolidated statement of profit or loss on a straight-line basis over the lease term. Any benefits granted as an incentive to enter into an operating lease, are distributed in a straight-line basis over the lease term. Total benefits from incentives are recognized as a reduction in rental income on a straight-line basis, unless there is another basis that better represents the period of time in which the economic benefits of the leased asset are exhausted.


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4.6 Lease contracts (continued)

The amounts due from the finance leases are recorded as lease receivables at an amount equal to the net investment of the Group in the lease. The lease payments to be received are distributed into two components: (1) a reimbursement of the original amount (2) a financing income to compensate the Group for its investment and services. The additional costs directly attributable to negotiating the lease contract are included in theamounts due, which in return, will reduce the finance income portion from the contract.

4.7 Foreign currencies

The information and disclosures are presented in Saudi Riyals (the functional currency of Saudi Telecom Company – the Parent Company). For each subsidiary, the Group determines the functional currency, which is defined as the currency of the primary economic environment in which the entity operates, and items included in the financial statements of each subsidiary are measured using that functional currency. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item to which it relates. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment in a foreign operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognised in OCI.

For the purposes of presenting the consolidated financial statement, the assets and liabilities of the Group's foreign operations are translated into Saudi Riyals using exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the reporting period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (and attributed to non-controlling interests as appropriate). Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in a joint venture or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to the Company’s shareholders are reclassified to the consolidated statement of profit or loss. For all partial disposals of associates or joint ventures that do not result in the Group losing significant influence or joint control, the proportionate share of the accumulated exchange differences is reclassified to the consolidated statement of profit or loss.

4.8 Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the attached conditions and that the grants will be received. Government grants are recognised in the consolidated statement of profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to the consolidated statement of profit or loss on a systematic and rational basis over the useful lives of the related assets.


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4.8 Government grants (continued)

When the Group receives government grants as compensation for expenses or losses already incurred or immediate financial support with no future related costs are recognised in the profit or loss in the period in which they become receivable.

4.9 Employee benefits

4.9.1 Retirement benefit costs and end of service benefits Payments to defined contribution schemes are charged as an expense as they fall due. Payments made to state-managed pension schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution scheme. Employee’s end of service benefits provision is calculated annually by actuaries in accordance with the projected unit credit method as per (IAS 19) Employee Benefits, taking into consideration the labour law of the respective country in which the subsidiary operates. The provision is recognised based on the present value of the defined benefit obligations. The present value of the defined benefit obligations is calculated using assumptions on the average salary incremental rate, average employees years of service and an appropriate discount rate. The assumptions used are calculated on a consistent basis for each period and reflect management’s best estimate. Due to the fact that the Kingdom does not have a deep market in high quality corporate bonds, the discount rate is determined based on available information of Saudi Arabia sovereign bond yields with a term consistent with the estimated term of the defined benefit obligation as at the reporting date. Re-measurement of net liabilities that includes actuarial gains and losses arising from the changes in assumptions used in the calculation, is recognized directly in other comprehensive income. Re-measurements are not reclassified to the consolidated statement of profit and loss in subsequent periods. The cost of past services (if any) is recognized in the consolidated statement of profit or loss before:

- Date of modification of the program or labour downsizing; and- The date on which the Group recognizes the related restructuring costs.

Net interest cost is calculated using the discount rate to net defined benefit assets or liabilities. The Group recognizes the following changes in the net benefit obligation identified under "cost of revenue", "general and administrative expenses" and "selling and marketing expenses" in the consolidated statement of profit or loss (by function):

- Service costs that include the current service costs, past service costs, profits and losses resultingfrom labour downsizing and non-routine payments.

- Net interest cost or income.4.9.2 Other short and long -term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period in which the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

4.10 Zakat and Taxation

4.10.1 Zakat The Group calculates and records the zakat provision based on the zakat base in its consolidated financial statements in accordance with Zakat rules and principles in the Kingdom of Saudi Arabia. Adjustments arising from final zakat assessment are recorded in the reporting period in which such assessment is approved by the General Authority of Zakat and Tax (“GAZT”).


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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.10 Zakat and Taxation (continued)

4.10.2 Current and deferred taxes Tax related to subsidiaries located outside the Kingdom is calculated in accordance with tax laws applicable in those countries. Deferred income tax provision for foreign entities is calculated using the liability method, and it is used for the temporary differences at the end of the financial year between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities and deferred tax assets are measured at the tax rates expected to be applied in the reporting period in which the obligation is settled, or the assets is realized. Deferred tax assets of foreign entities are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized. This involves a judgement relating to the future financial performance of the foreign entity in which the deferred tax assets have been recognised. Deferred tax liabilities are generally recognized for all temporary differences that are taxable. The current income tax is recognized in the consolidated statement of profit or loss. 4.10.3 Value Added Tax (“VAT”) Expenses, and assets are recognized net of the amount of VAT, except: • When the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, inwhich case, the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and/or • When receivables and payables are stated with the amount of VAT included.The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position.

4.11 Property and equipment

Property and equipment are stated in the consolidated statement of financial position at their cost, less any accumulated depreciation and accumulated impairment losses.

Cost of telecommunication network and equipment comprises all expenditures incurred up to the customer connection point, including contractors’ charges, direct materials and labour costs till the date the relevant assets are placed into service. Assets under construction are carried at cost, less any recognised impairment loss. Depreciation of these assets commences when the assets are ready for their intended use. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items. When significant parts of property and equipment are to be replaced (except land), the Group recognises such parts as individual assets with specific useful life. All other repairs and maintenance costs are charged to the consolidated statement of profit or loss during the reporting period in which they are incurred, except to the extent that they increase productivity or extend the useful life of an asset, in which cases they are capitalized.

Depreciation is charged and reduces the cost of assets, other than land, using the straight-line method, over their estimated useful lives. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of profit or loss within other operating income or expenses. The residual values, useful lives and methods of depreciation of property and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.


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4.12 Investment properties

Investment properties are non-current assets (land or building - or part of it - or both) for the purpose of achieving rental income or capital development or both. These investment properties are not for sale in the normal course of the Group business, or for use in providing services or for administrative purposes. In addition. Investment property is recognized as an asset when it is probable that future economic benefits will flow to the Group, associated with the property and can be measured reliably. Investment properties are initially measured at cost, including transaction costs. It is subsequently measured after recognition according to the "cost model", i.e. at cost minus accumulated depreciation and accumulated impairment losses, if any. Except for land, it is not depreciated. Regular repair and maintenance costs that do not materially exceed the estimated useful life of the asset are recognized in the consolidated statement of profit or loss when incurred. Investment properties are derecognised upon disposal (that is, on the date of losing control over them) and no future economic benefit is expected upon disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the consolidated statement of profit or loss during the period of disposal. Transfers from / to investment property to / from property and equipment are made only when the company changes the purpose of using the property. The Group appoints an independent external valuer approved by the Saudi Authority for Accredited Valuers (Taqeem) to obtain fair value estimates for investment properties annually for the purpose of determining if there is a decrease in the value and also for the purpose of related disclosures in the consolidated financial statements of the Group.

4.13 Intangible assets other than goodwill

Intangible assets are presented in the consolidated financial position at cost less accumulated amortisation and accumulated impairment losses. The cost of intangible assets acquired in a business combination represents their fair value as at the date of acquisition. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and the estimated useful life and amortisation method are reviewed at the end of each financial year end, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite lives are not amortized, but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. 4.13.1 Software Computer software licenses are capitalised based on the cost incurred to acquire the specific software and bring it into use. Amortisation is charged to the consolidated statement of profit or loss on a straight line basis over the estimated useful life from the date the software is available for use. 4.13.2 Licence and frequency spectrum fees Amortisation periods for licence and frequency spectrum fees are determined primarily by reference to the unexpired licence period, the conditions for licence renewal and whether licences are dependent on specific technologies. Amortisation is charged to the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives when the related network services are available for use. 4.13.3 Indefeasible Rights of Use (“IRU”) IRUs correspond to the right to use a portion of the capacity of a terrestrial or submarine transmission cable granted for a fixed period. IRUs are recognised at cost as an asset when the Group has the specific indefeasible right to use an identified portion of the underlying asset, generally optical fibres or dedicated wavelength bandwidth, and the duration of the right is for the major part of the underlying asset’s economic life. They are amortised on a straight line basis over the shorter of the expected period of use and the life of the contract which ranges between 10 to 20 years.


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4.13 Intangible assets other than goodwill (continued)4. 13.4 Derecognition of intangible assetsAn intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the consolidated statement of profit or loss.

4.14 Impairment of tangible and intangible assets other than goodwill

At the end of each finical year, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of other assets (cash-generating unit).

Recoverable amount is the higher of fair value less costs of disposal and the present value of the estimated future cash flows expected to be derived from the asset (value in use). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated statement profit or loss. An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of profit or loss. Tangible and intangible assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each financial year.

4.15 Inventories

Inventories are stated at the lower of cost or net realisable value. Costs of inventories are determined using the weighted average method of costing. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

4.16 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and the obligation can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial year, after taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost in the consolidated statement of profit or loss. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.


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4.17 Assets’ decommissioning liabilities

The Group recognizes obligations on decommissioning of assets when there is a legal or constructive obligation arising from past events and is likely to result in an outflow of resources to settle the obligation and if the obligation can be reliably measured.

The Group calculates a provision with the value of future costs related to the removal and decommissioning of the network and other assets. Upon initial recognition of the obligation, the present value of the expected costs (using a discount rate for future cash flows) is added to the value of the concerned network and other assets. Changes in the discount rate, timing and cost of removing and decommissioning assets are accounted prospectively by adjusting the carrying amount of the provision and the carrying amount of the network and other assets.

4.18 Financial instruments

4.18.1 Classification, recognition, and presentation Financial instruments are recognised in the consolidated financial position when and only when the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial instruments at initial recognition. The Group classifies its financial assets within the following categories:

a) at fair value (either through other comprehensive income, or through profit or loss) b) at amortised cost.

The classification depends on the entity’s business model for managing the financial assets (for debt instruments) and the contractual terms of the cash flows. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.

Derivatives embedded in host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the consolidated statement of profit or loss. 4.18.2 Measurement

4.18.2.1 Initial measurement

Financial assets and financial liabilities are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of financial assets and issue of financial liabilities or, where appropriate, deducted from them. (Except for financial assets and financial liabilities classified at fair value where transaction costs directly attributable to the acquisition of financial assets or financial liabilities are recognized directly in the consolidated statement of profit or loss). Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

4.18.2.2 Subsequent measurement of financial assets The subsequent measurement of the non-derivative financial assets depends on their classification as follows: a. Financial assets measured at amortised cost: Assets that are held to collect contractual cash flows are measured at amortised cost using the effective interest rate (‘EIR’) method where those cash flows represent solely payments of principal and interest. Interest income from these financial assets is included in finance income.


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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.18.2 Measurement (continued)

4.18.2.2 Subsequent measurement of financial assets (continued)b. Financial assets measured at fair value through profit or loss The financial assets measured at fair value through profit or loss (“FVTPL”) are measured at each reporting date at fair value without the deduction of transaction costs that the Group may incur on sale or disposal of the financial asset in the future. c. Financial assets measured at fair value through other comprehensive income The financial assets measured at fair value through other comprehensive income (“FVOCI”) are measured at each reporting date at fair value without the deduction of transaction costs that the Group may incur on sale or disposal of the financial asset in the future. When the financial asset is derecognised, the accumulated gain or loss recognised previously in the consolidated statement of comprehensive income are reclassified to the consolidated statement of profit and loss. However, there is no subsequent reclassification of fair value gains and losses to consolidated statement of profit and loss in case of equity instruments. The recognition and presentation of gains and losses for each measurement category are as follows:

Measurement category Recognition and presentation of gains and losses

At amortised cost The following items are recognised in the consolidated statement of profit or loss:

finance income using the effective interest method expected credit losses (or reversals of such losses) foreign exchange gains and losses. When the financial asset is derecognised, the gain or loss isrecognised in consolidated statement of profit or loss.

At FVOCI Gains and losses are recognised in the consolidated statement of comprehensive income, except for the following items, which are recognised in consolidated statement of profit or loss in the same manner as for financial assets measured at amortised cost:

finance income using the average effective interest method expected credit losses (or reversals of such losses) foreign exchange gains and losses.

Equity instruments – gain or loss – presented in consolidatedstatement of comprehensiveincome

Gains and losses are recognised in the consolidated statement of comprehensive income. Dividends are recognised in consolidated statement of profit or loss unless they clearly represent a repayment of part of the cost of the investment. The amounts recognised in the consolidated statement of comprehensive income are not reclassified to consolidated statement of profit or loss under any circumstances.

At FVTPL Gains and losses, both on subsequent measurement and derecognition, are recognised in consolidated statement of profit or loss.

The Group considers a financial asset in default at various past due days depending on the classification of financial assets and their contractual payments terms, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.


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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.18.2 Measurement (continued) 4.18.2.3 Subsequent measurement of financial liabilities a. Amortised costThe Group should classify all financial liabilities at amortised cost and remeasured subsequently as such, except for:

financial liabilities at FVTPL financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or is

accounted for using the continuing involvement approach commitments to provide a loan at a below-market interest rate and not measured at fair value though

profit or loss financial guarantee contracts contingent consideration recognised at fair value by the Group in a business combination to which IFRS

3 applies (shall subsequently be measured at fair value with changes recognised in the consolidatedstatement of profit or loss).

Financial liabilities classified at amortized cost are measured using the effective interest rate method. When the financial liabilities are derecognised, the gain or loss is recognised in consolidated statement of profit or loss. b. Liabilities at fair value through profit or loss

Financial liabilities falling under this category include:- liabilities held for trading- derivative liabilities not designated as hedging instruments - those designated as at FVTPL

After initial recognition, the Group measures financial liabilities at fair value with changes recognised in theconsolidated statement of profit or loss.

Gains or losses on a financial liability designated as at FVTPL are generally split and presented as follows:

1- the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that financial liability is presented in the consolidated statement of comprehensive income

2- the remaining amount of change in the fair value of the financial liability is presented in the consolidatedstatement of profit or loss

4.18.3 Impairment of financial instruments

With respect to impairment of financial assets, IFRS 9 requires the use of the expected credit loss (ECL) model instead of the incurred credit loss model under IAS 39, whereby, the Group assesses the expected credit losses associated with its assets carried at amortised cost and debt instrument carried at FVOCI. The impairment methodology applied depends on whether there has been a significant increase in the credit risk of the financial instrument since initial recognition. Accordingly, the provision for impairment of financial instruments is measured by the amount of the expected credit losses over the life of the financial instrument. If credit risk of the financial instrument has not increased significantly since initial recognition, then 12 month ECL is used to provide for impairment loss. For trade receivables and contact assets, the Group applies a simplified approach to measure the provision for impairment loss in an amount equal to the expected credit loss over the life of the financial instrument. 4.18.4 Derecognition of financial assets The financial assets are derecognised from the consolidated statement of financial position when the rights to receive cash flows from the financial assets have expired, or when the financial assets or all its risks and rewards of ownership have been transferred to another party. The difference between the financial asset’s book value and its transferred proceeds will be recorded in the consolidated statement of profit or loss. 4.18.5 Derecognition of financial liabilities The financial liabilities are derecognised when and only when the underlying obligations are extinguished, cancelled or expires.


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4.18 Financial instruments (continued)

4.18.6 Offsetting between financial assets and financial liabilities A financial asset and a financial liability are offsetted and presented as a net amount in the consolidated statement of financial position when, and only when, both of the following conditions are satisfied:

1- The Group currently has a legal enforceable right to offset the recognised amounts of the asset andliability; and

2- The Group intends to settle on a net basis exists, or to realise the asset and settle the liabilitysimultaneously.

4.18.7 Modifications of financial assets and financial liabilities

Financial assets

If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognized and a new financial asset is recognized at fair value. If the cash flows of the modified asset carried at amortized cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset and recognizes the amount arising from adjusting the gross carrying amount as a modification gain or loss in the consolidated statement of income. If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as financing income. Financial liabilities

The Group derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognized at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognized in consolidated statement of income. 4.18.8 Derivative financial instruments and hedge accounting

The Group uses profit rate swaps to hedge its profit rate risks. These derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised assets or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. A hedging relationship qualifies for hedge accounting if it meets the effectiveness requirements. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the consolidated statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. The amount accumulated in other comprehensive income is reclassified to profit or loss as a reclassification adjustment in the period or periods during which the hedged cash flows affect profit or loss. If the cash flow hedge accounting is discontinued, the amount that has been accumulated in other comprehensive income must remain in accumulated other comprehensive income if the hedged future cash flows are still expected to occur. Otherwise, the amount will be immediately reclassified to profit or loss as a reclassification adjustment.


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4.19 Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and short term murabahas with a maturity of three months period or less, which are subject to an insignificant risk of changes in value.

4.20 Fair values

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics, nature and risks of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure in the consolidated financial statements purposes is determined on such a basis, except for leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. The Group uses valuation techniques appropriate to current circumstances that provide sufficient data to measure fair value, providing the maximum limit for the use of relevant inputs that are observable and the minimum use of inputs that can be not observable. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: a- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the

Group can access at the measurement date; b- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the

asset or liability, either directly or indirectly; andc- Level 3 inputs are unobservable inputs for valuing the asset or liability, either directly or indirectly.For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

4.21 Asset held for Sale Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. When the Group is committed to a sale plan involving disposal of an investment in an associate or, a portion of an investment in an associate, the investment, or the portion of the investment in the associate, that will be disposed of is classified as held for sale when the criteria described above are met. The Group then ceases to apply the equity method in relation to the portion that is classified as held for sale. Any retained portion of an investment in an associate that has not been classified as held for sale continues to be accounted for using the equity method. Property and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement of financial position. 4.22 Segmental Information

The specific operating segments of the Group are identified based on internal reports, which are regularly reviewed by the Group's main decision makers (chief operating decision maker) for the purpose of resource allocation among segments and performance assessment.


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4.23 Cash dividends The Company’s dividends policy is approved by the General Assembly and the Company recognises a liability to pay a dividend when the distribution is authorised. A corresponding amount is recognised directly in equity.

4.24 Current versus non-current classification

The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is current when it is:

Expected to be realised or intended to be sold or consumed in the normal operating cycle Held primarily for the purpose of trading Expected to be realised within twelve months after the reporting period; or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting periodAll other assets are classified as non-current. A liability is current when:

It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period; or There is no unconditional right to defer the settlement of the liability for at least twelve months after

the reporting period The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. The Group classifies all other liabilities as non-current. 5. SIGNIFICANT ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group's accounting policies, which are described in Note 4, the management of the Group are required to make judgements about the carrying amounts of assets and liabilities and the accompanying disclosures that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods.

5.1 Significant estimates in applying accounting policies

The following are the significant estimates, apart from those involving uncertain estimations (See Note 5.2 below), that the management have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statement.

5.1.1 Revenue recognition

Gross versus net presentation

When the Group sells goods or services as a principal, revenue and payments to suppliers are reported on a gross basis in revenue and operating costs. If the Group sells goods or services as an agent, revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin earned. Whether the Group is considered to be the principal or an agent in the transaction depends on analysis by management of both the legal form and substance of the agreement between the Group and its business partners; such judgements impact the amount of reported revenue and operating expenses but do not impact reported assets, liabilities or cash flows.


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5. SIGNIFICANT ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)5.1.2 Impairment of non-financial assets An impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow (DCF) model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.

5.2 Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 5.2.1 Arrangements with multiple deliverables

In revenue arrangements where more than one good or service is provided to the customer, customer consideration is allocated between the goods and services using relative fair value principles. The Group generally determines the fair value of individual elements based on prices at which the deliverable is regularly sold on a stand-alone basis. Revision to the estimates of these fair values may significantly affect the allocation of total arrangement consideration among the individual elements.

5.2.2 Customer activation service fees

Customer activation service fees are deferred and recognised over the average of customer retention period (period of contract or anticipated contract). The estimation of the expected average duration of the relationship is based on historical turnover. If the Group’s estimates are revised, material differences may result in the amount of revenue and timing of revenue for any period.

5.2.3 Provisions

In respect of provisions including decommissioning provision, the Group provides for anticipated outflows of resources considered probable. Estimates are used in assessing the likely amount of the settlement. The ultimate liability may vary from the amounts provided and would be dependent on the eventual outcome. See Note 30 for details. Provisions are recorded by discounting the future cash flows at a current pre-tax rate that reflects the risks specific to the liability. The unwinding of the discount is recognised in the consolidated statement of profit or loss as a finance cost. 5.2.4 Useful lives for property and equipment, software and other intangible assets

The annual depreciation and amortisation charge is sensitive to the estimated lives allocated to each type of asset. Assets lives are assessed annually and changed where necessary to reflect current circumstances in light of technological change, network investment plans and physical conditions of the assets concerned. 5.2.5 Provision for impairment losses on trade receivables and contract assets

The Group uses a provision matrix to calculate expected credit loss on trade receivables and contract assets. The provision matrix is initially based on Group’s historical observed defaults rates. The Group calibrates the matrix to adjust the historical loss experience with forward looking information. At the end of each reporting date, the Group updates its historical default rates and reflects that on future estimates. The Group recognizes an allowance for impairment loss of 100% against all trade receivables that are aged over 365 days, except for balances with related parties and balances of which credit quality did not deteriorate based on historical experience of the Group. 5.2.6 Determining the lease term of contracts with renewal and termination options – Group as lessee

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.


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5. SIGNIFICANT ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)5.2.7 Leases - Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates. 5.2.8 Fair value measurement of financial instruments

When the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and market volatility.


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6. SUBSIDIARIES

Subsidiaries owned directly by the Company are as follows:

Name of subsidiary Country of

incorporation Effective shareholding

percentage 31 December

2020 31 December

2019

Arabian Internet and Communications Services Company Limited (“Solutions by stc”) (1) Kingdom of Saudi Arabia 100% 100%

Telecom Commercial Investment Company Limited (“TCIC”) (2) Kingdom of Saudi Arabia 100% 100%

stc Bahrain BSC (C) (“stc Bahrain) (3) Kingdom of Bahrain 100% 100%

Aqalat Company Limited (“Aqalat”) (4) Kingdom of Saudi Arabia 100% 100%

Saudi Telecom Specialized Company (“Specialized by stc”) (5) Kingdom of Saudi Arabia 100% 100%

Sapphire Company Limited (“Sapphire”) (6) Kingdom of Saudi Arabia 100% 100%

stc Turkey Holdings Ltd (“stc Turkey”) (7) British Virgin Islands 100% 100%

stc Asia Telecom Holdings Ltd (“stc Asia”) (8) British Virgin Islands 100% 100%

stc Gulf Investment Holding S.P.C. (“stc Gulf”) (9) Kingdom of Bahrain 100% 100%

Saudi Telecom Channels Company (Channels by stc) (10) Kingdom of Saudi Arabia 100% 100%

Kuwait Telecommunications Company (“stc Kuwait”) (11) Kuwait 51.8% 51.8%

Telecommunications Towers Company Ltd. (“TAWAL”) (12) Kingdom of Saudi Arabia 100% 100%

Saudi Digital Payments Company (“stc Pay”) (13) Kingdom of Saudi Arabia 100% 100%

Smart Zone Real Estate Company (14) Kingdom of Saudi Arabia 100% 100%

Advanced Technology and Cybersecurity Company (15) Kingdom of Saudi Arabia 100% -

1. Arabian Internet and Communications Services Company Limited (“Solutions by stc”) was establishedin the Kingdom in April 2002 and is engaged in providing internet services, operation of communicationsprojects and transmission and processing of information in the Saudi market. In December 2007, theGroup acquired 100% of share capital of the Arabian Internet and Communications Services CompanyLimited for SR 100 million. During the year 2020, the share capital of Solutions by stc was increased toSR 1,200 million.

2. Telecom Commercial Investment Company (TCIC) was established in the Kingdom in October 2007 with a capital of SR 1 million with the purpose of operating and maintaining of telecommunication networks, organizing computer systems’ networks and internet networks, maintenance, operation and installation of telecommunication and information technology systems and programs in the Saudi market.


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6. SUBSIDIARIES (CONTINUED) 3. stc Bahrain was established in the Kingdom of Bahrain in February 2009 with a capital of BD 75 million

equivalent to about SR 746 million at the exchange rate as of that date. stc Bahrain provides all mobiletelecommunication services, international telecommunications, broadband and other related servicesin the Bahraini market, and commenced its commercial operation on 3 March 2010. During the firstquarter of 2018, stc Bahrain has fully acquired “MENA Telecom Company Limited” in the Kingdom ofBahrain (as a subsidiary). The main activity is to provide Internet services.

4. Aqalat was established in the Kingdom in March 2013 with a capital of SR 70 million fully owned by theCompany with the purpose of establishing, owning, investing, managing of real estate and contracting, and providing consulting services, and importing and exporting services to the benefit of the Company.

5. Saudi Telecom Specialized Company (Specialized by stc) was established in February 2002 in theKingdom. The Company acquired 100% of the SR 252 million share capital in January 2014. Specialized by stc operates in the electrical business and communication networks, wholesale and retail trade in fixed telecommunications equipment, electrical appliances, import, marketing, installation and maintenance of fixed and mobile telecommunications and information technology licensed devices.

6. Sapphire was established in the Kingdom in June 2014 with a capital of SR 100 million fully owned by the Company to operate in the retail and wholesale trade of computer systems and devices, fixed andmobile telecommunication, internet equipment, advertising and publicity material, spare parts,electrical equipment, advance payment devices, points-of-sale devices, telecom operator services,establish telecom sales and service centres. In November 2017, the Group’s Board of Directors hasdecided to wind up Sapphire and integrating its business with Saudi Telecom Company starting from 1January 2018. The legal procedures for the liquidation of the company is expected to be completedduring 2021.

7. stc Turkey is a limited liability company which was established under the Commercial Companies Lawin the British Virgin Islands on 8 April 2007. It is a special purpose vehicle established to provide services and support required in respect of investment activities of the Group.In April 2008, stc Turkey acquired 35% of Oger Telecom Limited’s (“OTL”) USD 3.6 billion share capital,equivalent to approximately SR 13.5 billion, at the exchange rate as at that date. During 2016, and due to the continuing losses and the depletion of the Group's entire investmentbalance in OTL, the Group has stopped recognizing its share in OTL additional losses. (See Note 7.1)

8. stc Asia is a limited liability company which was established under the Commercial Companies Law inthe British Virgin Islands on 24 July 2007 and is a special purpose vehicle that invests in companiesoperating primarily in the Malaysia. It holds an investment in stc Malaysia Holdings Ltd (“stc Malaysia”),(a wholly owned subsidiary by stc Asia), which was incorporated under the Commercial Companies Law in the British Virgin Islands.stc Malaysia Holdings Ltd in turn holds the Group’s 25% stake in Binariang GSM Holdings (“BGSM”) (SeeNote 7.2). The principal activity of both stc Asia and its subsidiary is to provide services and supportrequired in respect of investment activities of the Group.

9. stc Gulf was incorporated in the Kingdom of Bahrain on 12 March 2008 and has wholly-ownedsubsidiaries in the Kingdom of Bahrain, as listed below. The primary objective of this company and itsfollowing subsidiaries is to provide services and support required in respect of investment activities of the Group:

1- stc Gulf Investment Holding 1 S.P.C.2- stc Gulf Investment Holding 2 S.P.C.3- stc Gulf Investment Holding 3 S.P.C.

stc Gulf Investment Holding 3 S.P.C. and stc Gulf Investment Holding 2 S.P.C. holds 100% (2019: 100%) in Intigral Holding BSC (C) (“Intigral Holding”). Intigral Holding was established in the Kingdom of Bahrain in June 2009 with a share capital amounting to BD 28 million which is equivalent to approximately SR 281 million at the exchange rate as at that date. Intigral Holding is a holding company which owns shares in companies operating in the field of content services and digital media in Gulf countries. During 2018, the company increased its capital to reach BD 101 million equivalent to SR 1.008 million at the exchange rate as at 31 December 2018.


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6. SUBSIDIARIES (CONTINUED)

10. Saudi Telecom Channels Company (“Channels by stc”) was established in the Kingdom in January 2008and operates in the wholesale and retail trade of recharge card services, telecommunication equipmentand devices, computer services, sale and re-sale of all fixed and mobile telecommunication services, andcommercial centres’ maintenance and operation. The Company operates in Saudi Market withsubsidiaries in Bahrain and Oman whom are working in the same field. Saudi Telecom Company acquired60% of Channels SR 100 million share capital in December 2011. On January 2017, the Company acquiredthe remaining shares in Channels by stc by SR 400 million. Accordingly, Channels by stc became a wholly-owned subsidiary of Saudi Telecom Company.

11. In December 2007, the Company acquired 26% share capital of stc Kuwait for an amount of Kuwaiti Dinar(“KD”) 50 million, equivalent to approximately SR 687 million at the exchange rate as at that date. stc Kuwait operates in the field of mobile services in the Kuwaiti market and commenced its commercial operationon 4 December 2008 and was listed as a joint stock company on the Kuwait Stock Exchange on 14December 2014. In November 2015, the Company has submitted a voluntary offer to acquire the issued shares of stc Kuwait not already owned by the Company, which represented 74% of stc Kuwait issued shares. The offerpresented by the Company to stc Kuwait’s shareholders amounted to KD 1 per share (equivalent to SR 12.37 at the exchange rate as at that date).The offer ended on 31 January 2016 and the number of shares accepted under the offer amounted to128,860,518 shares which representing 25.8% of total issued shares to stc Kuwait. Saudi Telecom Company has thus become owning 51.8% of the total issued shares of stc Kuwait. (See Note 26)In May 2019, stc Kuwait acquired 99% of Qualitynet General Trading and Contracting Company W.L.L.(QualityNet), which operates in Kuwait providing internet services.

12. During the first quarter of 2018, the Company established Telecommunications Towers Company Ltd.(TAWAL), a limited liability company and 100% owned by stc, with a share capital of SR 200 million. TAWAL is responsible for owning, constructing, operating, leasing and commercializing telecom towers in theKingdom. During the first quarter of 2019, TAWAL obtained the necessary operating license from theCommunications and Information Technology Commission (CITC). During the fourth quarter of 2019, theCompany increased the capital of TAWAL with an amount of SR 2,300 million, for a total capital to reachSR 2,500 million.

13. During the fourth quarter of 2017, Solutions by stc established Saudi Digital Payments Company (stc Pay) in the Kingdom with a capital of SR 100 million and its main activity is to provide digital payments services. During the third quarter of 2019, stc Pay ownership was transferred from stc Solutions to the Companywith no financial impact at the group level. During the fourth quarter of 2019, the Company increased thecapital of the stc Pay with an amount of SR 300 million, stc Pay for a total capital to reach SR 400 million.In January 2020, the Saudi Arabian Monetary Authority (SAMA) licensed stc Pay as an electronic walletcompany.On 21 November 2020, the Group signed an agreement with Western Union to sell a stake in stc Pay with a value of SR 750 million (equivalent to USD 200 million) and the proceeds to be used to finance the capitalof stc Pay. The transaction is expected to be completed during 2021 as follows:

- Upon completion of the transaction, Western Union will pay SR 500 million (equivalent to USD133.3 million) for a 10% stake in stc Pay.

- Western Union will pay an amount of SR 250 million (equivalent to USD 66.67 million), in case stcPay obtains a digital banking services license, increasing the shareholding of Western Union to15%.

- The Group will inject an additional amount of SR 802 million into the capital of stc Pay in case stcPay obtains a digital banking services license.

During the fourth quarter of 2020, the Company increased the share capital of stc Pay by an amount of SR 548 million (including the transfer of its shareholder’s loan amounting to SR 148 million into capital) resulting into a total share capital of stc Pay reaching SR 948 million.


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6. SUBSIDIARIES (CONTINUED) 14. During the fourth quarter of 2019, the Company established a special purpose vehicle subsidiary (Smart

Zone Real Estate Company) in the kingdom with a share capital of approximately SR 107 million and itsmain activity is the development, financing and management of real estate projects, the establishment of facilities, complexes, commercial, office and residential buildings.

15. During the fourth quarter of 2020, the Company established Advanced Technology and Cyber SecurityCompany - a limited liability company 100% owned by Saudi Telecom Company, with a cash capital of SR120 million to provide cybersecurity services.

7. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

7.1 Investments in associates

Investments in all associates are accounted below in the Group's consolidated financial statements in accordance with the equity method.

7.1.1 Details of associates

Details of each of the Group’s associates at the end of the year are as follows:

Name of Associates Country of incorporation Proportion of

ownership interest / voting rights 31 December 2020 31 December 2019

Arab Satellite Communications Organisation (“Arabsat”) 1 Kingdom of Saudi Arabia 36.66% 36.66% Virgin Mobile Saudi Consortium (“VMSC”) 2 Kingdom of Saudi Arabia 10% 10% Oger Telecom Limited (“OTL”) 3 United Arab Emirates 35% 35%

1) Arab Satellite Communications Organisation (“Arabsat”) was established on April 1976 by the members ofthe League of Arab States. Arabsat offers a number of services to these member states, as well as to allpublic and private sectors within its coverage area, and principally in the Middle East. Current servicesoffered include: Regional telephony (voice, data, fax and telex), television broadcasting, regional radiobroadcasting, restoration services and leasing of capacity. In April 1999, Saudi Telecom Company acquired 36.66% of Arabsat’s USD 500 million share capital (equivalent to approximately SR 1,875 million at theexchange rate as of that date).

2) Virgin Mobile Saudi Consortium (“VMSC”) was established during 2013 as a mobile virtual networkoperator and started its operations during the year of 2014. The Company owns 10% of VMSC’s sharecapital. The Group’s ability to exercise significant influence is evidenced by the material transactionsbetween VMSC and the Company through the reliance of VMSC’s on the Company’s technical network.

3) Oger Telecom Limited (“OTL”) is a holding company registered in Dubai, the United Arab Emirates. In April 2008, Saudi Telecom Company through one of its subsidiaries (stc Turkey Holding Ltd) acquired 35% ofOTL’s share capital amounting to approximately USD 3.6 billion, equivalent to approximately SR 13.5 billion at the exchange rate as at that date. On 1 January 2016, the Group’s investment in OTL was completelyextinguished and the Group discontinued recognising its share of further losses. OTL was facing financialdifficulties to settle its borrowings dues and its ability to comply with the financial covenants agreed with lenders. During 2018, OTL has completed necessary procedures to liquidate its main subsidiaries andrestructure its investments in Turkey and South Africa in order to meet the financial obligations of thelenders. During 2019, liquidation of OTAS (subsidiary of OTL in Turkey) commenced while the liquidationof OTL commenced in 2020.


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7. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)7.1 Investments in associates (continued)

7.1.2 Financial information of material associates

Summarised financial information of the Group’s material associate is set out below:

For the year ended 31 December 2020 2019

Statement of income and other comprehensive income Revenue 846,166 945,228

Profit for the year 56,211 182,622

Other comprehensive income (loss) for the year 71,153 (28,294)

Total comprehensive income for the year 127,364 154,328

The following is the reconciliation of the above-summarised financial information to the carrying amount of the Group's interest in Arabsat:

31 December 2020 31 December 2019

Net assets of the associate 4,955,014 4,995,887 Proportion of the Group’s ownership interest in Arabsat 36.66% 36.66%

Carrying amount of the Group’s interest in Arabsat 1,816,508 1,831,492

7.1.3 Financial information on not individually material associates

The following is the aggregate information of associates that are not individually material for the year ended:

2020 2019

The Group’s share of gain from continued operations 722 1,301

Aggregate carrying amount of the Group’s interests in these associates 4,104 3,382

Carrying amount of the Group’s interest in associates:


Material associate (7.1.2) 1,816,508 1,831,492 Not individually material associates (7.1.3) 4,104 3,382 Total carrying amount of the Group’s interest in associates 1,820,612 1,834,874

Arabsat 31 December 2020 31 December 2019

Statement of financial position Current assets 1,504,156 1,605,861

Non-current assets 6,035,861 5,665,128

Current liabilities (466,154) (441,864)

Non-current liabilities (2,118,849) (1,833,238)


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7. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)7.2 Investments in joint ventures

Investments in all joint ventures mentioned below are accounted for in the Group's consolidated financial statements in accordance with the equity method

7.2.1 Details of joint ventures

Below is the detail of joint ventures as at:

Name of joint venture Country of

incorporation

Proportion of ownership interest/ voting

rights 31 December

2020 31 December

2019

Arab Submarine Cables Company Limited

1 Kingdom of Saudi Arabia 50% 50%

Contact Centres Company (“CCC”) 2 Kingdom of Saudi Arabia 49% 49% Binariang GSM Holding (“BGSM”) 3 Malaysia 25% 25%

1) Arab Submarine Cables Company Limited was established on September 2002 for the purpose ofconstructing, leasing, managing and operating a submarine cable connecting the Kingdom and theRepublic of Sudan for the telecommunications between them and any other country.The operations of the Company started in June 2003 and Saudi Telecom Company acquired 50% of its SR75 million share capital in September 2002. In November 2016, the company's capital was reduced to SR 25 million.

2) Contact Centres Company was established to provide call centre services and answer directory querieswith Aegis Company at the end of December 2010 in the Kingdom, with a share capital of SR 4.5 million.The Company acquired 50% of its share capital. During the fourth quarter of 2015, the Company sold 1% of its stake in CCC to the other partners according to the terms of the partners’ agreement. Thus making the Company's share 49%.

3) Binariang group GSM is an investment holding group registered in Malaysia which owns 62% of MaxisMalaysian Holding Group (“Maxis”), a major telecom operator in Malaysia. BGSM also had indirectinvestments in India, Aircel Limited (“Aircel”) which were eliminated in 2018.In September 2007, the Company acquired (through its subsidiaries stc Asia holding and stc Malaysiaholding) 25% of Binariang group GSM MYR 20.7 billion share capital, equivalent to approximately SR 23billion at the exchange rate as at that date.During 2013, the Company conducted a review of its foreign investment in Binariang group holding GSM(joint venture), including the manner in which this investment is being managed and how joint control has been effectively exercised. As a result, the Company signed an amendment to the shareholders’agreement with other shareholders of Binariang group GSM with respect to certain operational mattersof Aircel (one of Binariang group subsidiaries at that time). Consequently, the group ceased to accountfor its investment in Aircel using the equity method effective from the second quarter 2013.

7.2.2 Financial information of material joint ventures

Summarised financial information in respect of the Group’s material joint venture is set out below:

Binariang group Holding GSM 31 December 2020 31 December 2019

Statement of financial position Current assets 3,085,413 3,794,720 Non-current assets 27,709,097 27,175,812

Current liabilities (5,055,081) (5,769,520) Non-current liabilities (13,690,970) (13,671,417)


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7. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)

7.2 Investments in joint ventures (continued)

7.2.2 Financial information of material joint ventures (continued) Binariang group Holding GSM (continued) The above amounts of assets and liabilities include the following:


Cash and cash equivalents 939,249 1,342,939 Current financial liabilities (excluding trade and other payables and provisions) (1,159,860) (1,057,839) Non-current financial liabilities (excluding trade and other payables and provisions) (12,919,626) (13,067,091)


2020 2019

Statement of income and other comprehensive income Revenues 8,502,456 8,338,076


Other comprehensive loss for the year (8,985) (5,306)


Depreciation and amortisation (1,294,595) (1,292,642)

Finance income 88,900 85,337

Finance cost (911,640) (945,861) Income tax expense (436,868) (451,076)

The following is the reconciliation of the above summarised financial information to the carrying amount of the Group's interest in Binariang group GSM Holding (“BGSM”):


Net assets of BGSM (excluding non-controlling interest share and share of other shareholders in Aircel) 376,046 364,400

Proportion of the Group’s ownership interest in the joint venture 94,012 91,100 Goodwill and fair value adjustments, net 1,184,070 1,184,070

Adjustments: the carve-out of Aircel Group and others 3,535,414 3,443,422

Carrying amount of the Group’s interest in the joint venture 4,813,496 4,718,592

7.2.3 Financial information on not individually material joint ventures

The following is the aggregate information of joint ventures that are not individually material for the year ended 31 December:

2020 2019 The Group’s share of profit from operations 12,208 6,060 The Group’s share of other comprehensive (loss) income (6,428) 1,341 The Group’s share of total comprehensive income 5,780 7,401

Aggregate carrying amount of the Group’s interests in these joint ventures 70,839 65,060


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Carrying amount of the Group's share in the joint ventures


Material joint venture (7.2.2) 4,813,496 4,718,592 Not individually material joint ventures (7.2.3) 70,839 65,060 Total carrying amount of the Group's share in the joint ventures 4,884,335 4,783,652

8. SEGMENT INFORMATIONThe Group is engaged mainly in providing telecommunication services and related products. Majority of the Group’s revenues, income and assets relate to its operations within the Kingdom (Saudi Telecom Company and Channels by stc). Outside of the Kingdom, the Group operates through its subsidiaries, associates and joint ventures in several countries. Revenue is distributed to an operating segment based on the entity of the Group reporting the revenue. Sales between segments are calculated at normal business transaction prices. The disclosed operating segments exceeded the 75% threshold and therefore all other operating segments are combined and disclosed as “Other segments”.

The following is an analysis of the Group's revenues and results based on segments for the year ended 31 December:

2020 2019 Revenues (1) Saudi Telecom Company 42,898,826 40,259,106 Channels by stc 17,527,801 17,409,802 Other operating segments (2) 15,733,883 12,628,185 Eliminations / adjustments (17,207,192) (15,929,562) Total revenues 58,953,318 54,367,531 Cost of operations (excluding depreciation and amortisation) (36,863,318) (33,102,551) Depreciation and amortisation (9,358,875) (8,784,587) Cost of early retirement program (600,000) (600,000) Finance income 413,873 639,161 Finance cost (623,925) (765,154) Net other expenses (42,995) (76,062) Net share in results of investments in associates and joint ventures 52,953 49,597 Net other gains (losses) 424,612 (40,960) Zakat and income tax (1,170,446) (762,144) Net profit 11,185,197 10,924,831

Net profit attributable to: Equity holders 10,994,875 10,664,666

Non-controlling interests 190,322 260,165

11,185,197 10,924,831

Following is the gross profit analysis on a segment basis for the year ended 31 December:

2020 2019

Saudi Telecom Company 26,736,799 26,299,935 Channels by stc 1,384,058 1,418,463 Other operating segments (2) 6,401,124 4,910,725 Eliminations / adjustments (567,586) (237,898) Gross profit 33,954,395 32,391,225


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8. SEGMENT INFORMATION (CONTINUED) The following is an analysis of the assets and liabilities on a segment basis as at:


Assets Saudi Telecom Company 129,915,566 125,104,941Channels by stc 5,527,646 4,560,238Other operating segments (2) 37,788,535 34,355,695Eliminations / Adjustments (51,259,647) (45,694,618)Total Assets 121,972,100 118,326,256

Liabilities Saudi Telecom Company 52,654,060 49,484,795Channels by stc 3,943,509 3,122,999Other operating segments (2) 24,302,252 22,438,203Eliminations / Adjustments (24,194,736) (19,774,787)Total Liabilities 56,705,085 55,271,210

Additions to Property and equipment, intangible assets and goodwill

Following are the additions to Property and equipment and Intangible assets with goodwill (See Notes 9 and 11) based on the segments for the year ended 31 December:

2020 2019

Saudi Telecom Company 10,104,014 9,109,544

Channels by stc 185,082 116,352

Other operating segments (2) 1,646,304 2,535,992 11,935,400 11,761,888

(1) Segment revenue reported above represents revenue generated from external and internalcustomers. There were SR 17,207 million for the year ended 31 December 2020 (2019: SR 15,930 million,)inter-segment sales and adjustments (between the Group’s Companies) which were eliminated atconsolidation.

(2) Other operating segments include: stc Kuwait, stc Bahrain, Solutions by stc, Specialized by stc, stcGulf, Sapphire, Aqalat, Telecommunications Towers Company, Saudi Digital Payments Company (stc pay) and advanced technology and cybersecurity Company. (See Note 6).

For the purpose of monitoring the performance of segments, assets/liabilities are allocated to segments and no assets and liabilities are used mutually between segments. Information about major customers

Included in revenues arising from sales to major customers are revenues of approximately SR 9,252 million for the year ended 31 December 2020 (2019: SR 6,873 million) resulting from sales to the Government and Government entities (See Note 21.2). No other single customers contributed 10% or more to the Group's revenues. Information about geographical segmentation Geographical segmentation of revenues (See Note 35) and non-current assets are as follows:

Revenues for the year ended Non-current assets as at 31 December 2020 31 December 2019 31 December 2020 31 December 2019

Kingdom of Saudi Arabia 54,166,010 49,970,303 64,689,191 62,160,408 Others (*) 4,787,308 4,397,228 11,423,993 11,324,356

58,953,318 54,367,531 76,113,184 73,484,764

(*) “Others” includes: state of Kuwait and kingdom of Bahrain.


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9. PROPERTY AND EQUIPMENT

Lands and buildings

Telecommunication network and equipment Other assets (3)

Capital work in progress Total

Cost As at 1 January 2020 15,324,054 90,480,495 8,894,524 4,790,492 119,489,565 Additions 184,558 224,868 113,668 8,717,317 9,240,411 Disposals / transfers 97,605 7,338,364 (2,444) (9,087,094) (1,653,569) Effect of foreign currency exchange differences 12 (20,888) (414) (1,747) (23,037) As at 31 December 2020 15,606,229 98,022,839 9,005,334 4,418,968 127,053,370

Accumulated depreciation As at 1 January 2020 8,813,521 59,916,331 5,674,371 - 74,404,223Depreciation for the year 412,413 5,648,627 228,309 - 6,289,349Disposals / transfers (269,161) (1,087,313) (118,802) - (1,475,276)Effect of foreign currency exchange differences 3 (12,172) (380) - (12,549) As at 31 December 2020 8,956,776 64,465,473 5,783,498 - 79,205,747

Net book value as at 31 December 2020 6,649,453 33,557,366 3,221,836 4,418,968 47,847,623


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9. PROPERTY AND EQUIPMENT (CONTINUED)

Lands and buildings

Telecommunication network and equipment Other assets (3)


Cost As at 1 January 2019 14,892,365 83,769,469 8,461,774 3,672,535 110,796,143 Additions 82,187 192,850 72,192 8,921,089 9,268,318 Additions related to the acquisition of a new subsidiary - 127,979 17,593 7,589 153,161 Disposals / transfers 349,868 6,385,512 342,993 (7,811,160) (732,787) Effect of foreign currency exchange differences (366) 4,685 (28) 439 4,730 As at 31 December 2019 15,324,054 90,480,495 8,894,524 4,790,492 119,489,565

Accumulated depreciation As at 1 January 2019 8,524,319 54,880,178 5,471,237 - 68,875,734Additions related to the acquisition of a new subsidiary - 119,262 3,739 123,001 Depreciation for the year 373,337 5,363,373 340,838 - 6,077,548Disposals / transfers (84,075) (449,106) (141,437) - (674,618)Effect of foreign currency exchange differences (60) 2,624 (6) - 2,558As at 31 December 2019 8,813,521 59,916,331 5,674,371 - 74,404,223

Net book value as at 31 December 2019 6,510,533 30,564,164 3,220,153 4,790,492 45,085,342

Property and equipment are depreciated using the following estimated useful lives:

Buildings 10 - 50 years Telecommunication network and equipment 3 - 30 years Other assets 3 - 20 years


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9. PROPERTY AND EQUIPMENT (CONTINUED) 1. Lands and buildings include lands with total value of SR 2,204 million as at 31 December 2020 (2019:

SR 2,203 million). This includes lands with ongoing ownership transfer to the Company with a value of SR 187 million (2019: SR 200 million).

2. Pursuant to Royal Decree No. M/35 Dated 24 Dhu al-Hijjah 1418 (corresponding to 21 April 1998),referred to in Note 1-A, the ownership of the assets was transferred to the Company on 2 May 1998, but the transfer of legal title for some lands are still ongoing. The value of lands with legal titlestransferred to the Company up to 31 December 2020 amounted to SR 1,895 million (2019: SR 1,879million). Ownership transfer of the remaining lands with total value of SR 128 million (2019: SR 144million) is ongoing, which constitutes part of the amount referred to in paragraph (a) above.

3. Other assets include furniture, fixtures, motor vehicles, computers and tools.4. During the year, the Group disposed of assets with a net book value of SR 167 million (2019: SR 465

million) resulting in a loss amounting to SR 150 million (2019: SR 325 million) (See Note 41).5. Non-cash additions amounted to SR 90 million (2019: 18 million).6. Property and equipment include land and building owned by stc Bahrain that are pledged against

murabaha borrowings amounting to SR 27 million (2019: SR 54 million). (See Note 27)7. The following table shows the breakdown of depreciation expense if allocated to operating costs

items for the year ended 31 December:

2020 2019

Cost of revenues 5,127,663 4,931,664 Selling and marketing expenses 6,500 16,239 General and administrative expenses 1,155,186 1,129,645

6,289,349 6,077,548

10. INVESTMENT PROPERTIES


Lands (*) 36,980 -

(*) During the fourth quarter of 2020, the Group transferred a land with a book value of SR 37 million from property and equipment to investment properties for the purpose of real estate development and investment.

For the purpose of disclosure requirements in accordance with International Accounting Standard No. (40) “Investment properties”, the Group has appointed Century 21 Saudi Company License No.(752/18/323) as an independent, professionally qualified valuer accredited by the Saudi Authority forAccredited Valuers (Taqeem) for the purpose of estimating the fair value of this land as at 31 December 2020, which amounted to SR 148 million. The fair value measurement is classified into level 3 based onvaluation techniques applied i.e. residual and market comparable approaches.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2020 (All Amounts in Saudi Riyals thousands unless otherwise stated)

F-94

11. INTANGIBLE ASSETS AND GOODWILL

Computer software

Telecommunication Licenses Goodwill (1) Others (2) Total

Cost As at 1 January 2020 11,648,737 7,975,574 143,038 2,773,783 22,541,132 Additions 155,836 18,677 - 2,520,476 2,694,989 Disposals/Transfers 1,341,983 870,753 - (2,385,393) (172,657) Effect of foreign currency exchange differences (61) (1,032) (315) (476) (1,884) As at 31 December 2020 13,146,495 8,863,972 142,723 2,908,390 25,061,580

Accumulated amortisation As at 1 January 2020 8,832,150 2,668,854 - 1,133,440 12,634,444 Amortisation for the year 1,390,056 448,658 - 296,282 2,134,996 Disposals/Transfers (14,415) - - (159,439) (173,854) Effect of foreign currency exchange differences (53) 21 - (382) (414) As at 31 December 2020 10,207,738 3,117,533 - 1,269,901 14,595,172

Net book value as at 31 December 2020 2,938,757 5,746,439 142,723 1,638,489 10,466,408


F-95

11. INTANGIBLE ASSETS AND GOODWILL (CONTINUED)

Computer software


Cost As at 1 January 2019 10,410,881 7,695,620 75,613 1,994,841 20,176,955 Additions 103,182 43,705 - 1,859,295 2,006,182 Additions related to the acquisition of a new subsidiary - 238,141 67,425 28,661 334,227 Disposals/Transfers 1,134,674 - - (1,109,051) 25,623 Effect of foreign currency exchange differences - (1,892) - 37 (1,855) As at 31 December 2019 11,648,737 7,975,574 143,038 2,773,783 22,541,132

Accumulated amortisation As at 1 January 2019 7,497,478 2,277,146 - 842,212 10,616,836 Amortisation for the year 1,309,535 392,398 - 249,138 1,951,071 Disposals/Transfers 25,137 - - 42,021 67,158Effect of foreign currency exchange differences - (690) - 69 (621)

As at 31 December 2019 8,832,150 2,668,854 - 1,133,440 12,634,444

Net book value as at 31 December 2019 2,816,587 5,306,720 143,038 1,640,343 9,906,688


F-96

11. INTANGIBLE ASSETS AND GOODWILL (CONTINUED) 1) Goodwill pertains to the Company acquisition of Solutions by stc amounting to SR 75.6 million (2019:

SR 75.6 million) and stc Kuwait acquisition of Qualitynet amounting to SR 67.1 million (2019: SR 67.4million).

2) Others includes contractual intangible assets such as submarine cable networks, content agreements, indefeasible rights of use (IRU) and computer software under development.

3) Non-cash additions amounted to SR 1,005 million (2019: SR 399 million).Intangible assets are amortized using the following estimated useful lives:

Computer software 5 – 7 years Telecommunication licenses 15 – 25 years Others 3-20 years

The following is the net book value and expiry dates of the mobile operating licenses and frequency spectrum as at:

Country End of amortisation period 31 December 2020 31 December 2019

Saudi Arabia 2026 / 2030 / 2032 / 2033 / 2034 3,149,093 2,540,590 Kuwait 2021 / 2033 / 2039 1,890,077 2,033,350 Bahrain 2025/2031/2034/2038 707,269 732,780

5,746,439 5,306,720

The following table shows the breakdown of amortisation expense if allocated to operating costs items for the year ended 31 December:

2020 2019

Cost of revenues 634,581 641,036 Selling and marketing expenses 2,429 3,493 General and administrative expenses 1,497,986 1,306,542

2,134,996 1,951,071

12. RIGHT OF USE ASSETS

Lands and Buildings Motor Vehicles Leased Towers Total At 1 January 2020 2,551,155 202,947 133,831 2,887,933 Additions 1,139,274 7,463 - 1,146,737Depreciation (842,254) (55,609) (36,667) (934,530)Disposal and others (203,572) (3,754) - (207,326)At 31 December 2020 2,644,603 151,047 97,164 2,892,814

At 1 January 2019 2,375,639 8,281 171,604 2,555,524 Additions 1,012,209 212,075 - 1,224,284Depreciation (700,786) (17,409) (37,773) (755,968)Disposal and others (135,907) - - (135,907)At 31 December 2019 2,551,155 202,947 133,831 2,887,933


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12. RIGHT OF USE ASSETS (CONTINUED)Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

Buildings 2 – 31 years Motor Vehicles 3 – 5 years Others 2-10 years

The Group elected not to recognize right-of-use assets for short-term and low-value leases, and hence the lease payments associated with these contracts were recognized as expenses during the year in the consolidated statement of profit or loss amounted to SR 148 million (2019: SR 329 million). The following table shows the breakdown of depreciation expense if allocated to operating costs items for the year ended 31 December:

2020 2019 Cost of revenues 733,622 562,514 Selling and marketing expenses 10,798 7,539 General and administrative expenses 190,110 185,915

934,530 755,968

13. CONTRACT COSTS Contract costs consist of the following:


Costs to obtain the contracts (1) 145,878 299,118

Costs to fulfil the contracts (2) 491,592 623,804 637,470 922,922

(1) Costs to obtain contracts relate to incremental commission fees and additional incentives paid tointermediaries, dealers and employees as a result of obtaining contracts with customers. These costsare amortised on a straight line basis over the period of contract/anticipated contract.

(2) Costs to fulfil contracts are installation costs and are amortised on a straight line basis over theperiod of contract/anticipated contact.

The following table shows the allocation of contract costs amortization and impairment losses among operating costs items for the year ended 31 December:

2020 2019 Cost of revenues (See Note 36) 268,352 315,797 Selling and marketing expenses (See Note 37) 237,614 88,346

505,966 404,143

14. CONTRACT ASSETS


Unbilled revenue 6,701,324 7,596,729

Less: Allowance for impairment losses (184,227) (154,905)6,517,097 7,441,824

Current (1) 6,059,440 6,793,755

Non-current (2) 457,657 648,069 6,517,097 7,441,824


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14. CONTRACT ASSETS (CONTINUED)(1) Contract assets are initially recognized for revenue earned from rendering of telecom services, sale

of devices, and networks installation contracts unbilled yet. Upon completion of a billing cycle, theamounts recognized as contract assets are reclassified to trade receivables. Majority of balances are billed within 31 days except for balances subject for settlement agreements with telecom operatorswhich could be extended to one year.

(2) Non-current contract assets represents balances related to unbilled receivables on sold devices. Theterm of the contracts for the sold devices ranges between 18 and 24 months.

15. FINANCIAL ASSETS AND OTHERS15-1 Financial assets


Financial assets measured at FVTPL (1) 1,119,413 1,550,869 Financial assets at amortised cost Sukuk (2) (3) 5,371,446 5,355,659Loans to employees (4) 411,665 438,481Others (5) 167,498 355,013

5,950,609 6,149,153

7,070,022 7,700,022

Current 180,397 376,589Non-current 6,889,625 7,323,433

7,070,022 7,700,022

1) During 2019, the Group reclassified its investment in the units of stc Ventures Fund and STV LP Fundfrom financial assets measured at fair value through OCI (FVOCI) to financial assets measured at fairvalue through profit or loss (FVTPL).

- stc Ventures Fund is a fund investing in emerging, small and medium-sized companies operating in thefield of Communications and Information Technology in Saudi and other global markets. Investment units were valued at SR 186 million as at 31 December 2020 (2019: SR 724 million).

- STV LP Fund is a fund investing in internationally in high-growth pioneer private technology companieswith total value of SR 1,875 million (equivalent to USD 500 million) financed in five equal instalments ofSR 375 million (equivalent to USD 100 million) each. During 2018, the first and second instalments werepaid by the Company in total of SR 750 million (equivalent to USD 200 million). During 2020, the thirdinstalment was paid by the Company amounted to SR 375 million (equivalent to USD 100 million).Investment units were valued at SR 934 million as at 31 December 2020 (2019: SR 846 million).

2) The Group invested in Sukuk that issued by the Ministry of Finance during the first quarter of 2019 asthe following:

Tranche I Tranche II Nominal Investment value 1,762,000 2,140,000 Investment duration 5 years 10 years

Yield 3.17% 3.9%

3) On 31 December 2007, stc Asia Holding Company Limited (a subsidiary) invested in Sukuk issued byBinariang GSM Holding (“BGSM”) in the amount of RM 1,508 million (equivalent to SR 1,383 million) for aperiod of 50 years (callable after 10 years) with an annual profit margin of 10.75% up to 28 December 2017and then a profit margin of 9.25% for subsequent periods. These sukuk are not past due or low in valuewith a book value of SR 1,408 million as of 31 December 2020 (2019: SR 1,383 million).

4) The Company has provided its employees interest-free loans to acquire residential housing and motorvehicles for a period of 25 years and 4 years, respectively. The repayment is made in equal instalmentsover the term of the loan duration while the employee remains in service, otherwise, they are required to be repaid in full upon the employee leaving the Company. Any new housing loans provided to anemployee after June 2016 are being funded through a local commercial bank and are guaranteed by theCompany. The Company bears loans’ finance cost.

5) Mainly represent a Group subsidiary customers retentions amounting to SR 80 million as at 31 December 2020 (2019: SR 80 million).


F-99

15. FINANCIAL ASSETS AND OTHERS (CONTINUED)

15-2 Other assets



3,267,543 4,188,947


3,267,543 4,188,947

16. INVENTORIES


Goods held for resale 1,370,361 2,113,405

Less: Allowance for slow moving inventories (361,716) (391,875) 1,008,645 1,721,530

The following is an analysis of the allowance for slow moving inventories for the year ended 31 December:

2020 2019

Balance at 1 January 391,875 340,998

Reversal/adjustment during the year (33,592) (6,209) Charged during the year 3,433 57,086Balance at 31 December 361,716 391,875

17. TRADE AND OTHER RECEIVABLES



14,800,722 19,557,579

- Non trade receivables 1,283,694 1,814,78916,084,416 21,372,368


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17. TRADE AND OTHER RECEIVABLES (CONTINUED)17.1 Trade receivables

Ageing analysis of trade receivables as follows: 31 December 2020 31 December 2019

Gross amount Allowance for

impairment loss Gross amount

Allowance for impairment loss

Not past due 1,857,114 (93,817) 3,249,052 (105,185)

Past due: 1 – 30 days 1,741,599 (86,989) 1,437,935 (104,748)

31 – 90 days 1,915,619 (176,347) 1,473,426 (221,096)

91 – 150 days 1,347.984 (260,365) 1,194,900 (395,545)

151 – 365 days 5,961,701 (451,239) 4,232,337 (518,467)

>365 days 4,836,271 (1,790,809) 10,787,985 (1,473,015)

17,660,288 (2,859,566) 22,375,635 (2,818,056)

Movement of trade receivables’ allowance for impairment loss during the year ended 31 December as follows:

2020 2019 Balance at 1 January 2,818,056 2,475,741 Allowance for impairment loss for the year (Note 37) 1,072,959 662,043 Amounts written off (760,045) (128,647) Amounts recovered (271,404) (191,081) Balance at 31 December 2,859,566 2,818,056

The average expected credit loss during the year ended 31 December 2020 was 16.2% (31 December 2019: 12.6%). The expected credit loss is estimated as per approved accounting policies which consider, in determining the recoverability of a trade receivable, any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the financial year. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. The impairment assessment on customers accounts is done on a collective basis. While the assessment for impairment in relation to key customers and related parties is done on an individual basis.

17.2 Government and government related entities

Trade receivables balance from Government entities amounted to SR 13,889 million as at 31 December 2020 (2019: SR 18,508 million) (See Note 21.2). No other clients represent more than 10% of the total balance of trade receivables. Receivable aging from government entities and government related entities is as follows:


Less than a year 10,275,707 7,903,051 More than one year to two years 3,153,841 6,393,629 More than two years 459,707 4,211,395

13,889,255 18,508,075

18. SHORT TERM MURABAHAS

The Group invests part of its excess cash in Murabahas that have maturity of 91 days or more but less than a year with several banks, with an annual profit rate ranging from 0.53% to 2.63 % (2019: 2.00% to 5.00%).


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19. CASH AND CASH EQUIVALENTS


Short term murabaha (with 3 months maturity or less) 7,350,738 6,476,407 Cash at banks 1,616,677 1,494,694 Cash in hand and checks under collections 36,871 59,909

9,004,286 8,031,010

The Group invests a part of its surplus cash in murabahas three months or less with several banks with a profit rate ranging between 0.05 % -2.52 % (2019: 1.00%-3.70%).

20. ASSETS HELD FOR SALEOn 26 March 2019, Uber Technologies (Uber) signed an assets purchase agreement with Careem (the Group holds a direct share of 8.88%) to acquire the net assets of Careem for about SR 11.6 billion (equivalent up to USD 3.1 billion) subject to modifications.

The total financial consideration of the agreement consists of the following:

- About SR 6.4 billion (equivalent up to USD 1.7 billion) of convertible bonds, unsecured and withoutinterest.

- About SR 5.2 billion (equivalent up to USD 1.4 billion) in cash.

The acquisition was completed by Uber on 2 January 2020 after obtaining the approval of most of the regulatory authorities in the relevant countries with a holdback of an equivalent of 25% of the deal value until all regulatory and indemnity requirements accomplished. The impact of this acquisition on the Group's results from the sale of its direct investment in Careem was recognized during the first quarter of 2020 that resulted in a profit of SR 496 million (equivalent to approximately USD 132 million) excluding the holdback. Based on the information received by the Group during the second quarter of 2020 related to the holdback amount that is related to regulatory, tax and indemnity requirements necessary to finish the acquisition deal, the Group has assessed the recoverability of the holdback amount and recognized an amount of SR 152 million (equivalent to USD 41 million) as profit during the second quarter of 2020.

The profit recognized is included within net other gains (losses) item in the consolidated statement of profit or loss (see Note 41).

21. RELATED PARTY TRANSACTIONS 21.1 Trading transactions and balances with related parties (Associates and Joint Ventures – See Note 7)

The Group trading transactions with related parties during the year ended 31 December were as the following:

2020 2019 Telecommunication services provided 309,161 430,682

Telecommunication services received 71,119 29,050

The sale and purchase transactions are carried out by the relevant parties in accordance with the normal terms of dealing. The outstanding balances are unguaranteed, without commission and no guarantees have been provided or received in relation to the balances due or from the related parties.The following balances were outstanding as at the end of the financial year:

Amounts due from related parties Amounts due to related parties 31 December

2020 31 December

2019 31 December

2020 31 December

2019


401,803 304,235 221,650 207,083


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21. RELATED PARTY TRANSACTIONS (CONTINUED) 21.2 Trade transactions and related parties’ balances (government and government related entities)

Revenues related to transactions with government and government entities for the year ended 31 December 2020 amounted to SR 9,646 million (2019: SR 7,154 million) and expenses related to transactions with government and government entities for the year ended 31 December 2020 (including government charges) amounted to SR 3,753 million (2019: SR 2,759 million). As at 31 December 2020, accounts receivable from government entities totalled SR 13,889 million (2019: SR 18,508 million) (See Note 17.2) and as at 31 December 2020, accounts payable to government entities SR 1,058 million (2019: SR 953 million). Among the commercial transactions with government entities, the Group invested to SR 3,902 million in the Sukuk issued by the Ministry of Finance during the first quarter of 2019. (See Note 15.1).

The total balance of receivables with government related entities as of 31 December 2020: SR 657 million (2019: SR 513 million). The total balance of accounts payable with government related entities as of 31 December 2020: SR 305 million (2019: SR 79 million). 21.3 Loans to related parties


Loans to senior executives 4,598 5,358

21.4 Benefits, remuneration and compensation of board members and senior executives

The remuneration and compensation of board members and senior executives during the year ended 31 December were as follows:

2020 2019

Short-term benefits and remunerations 311,146 280,381

Provision for leave and end of service benefits 88,794 60,061

Share-based payments 6,116 -

Termination and other benefits 1,535 2,884

22. ISSUED CAPITAL

31 December 2020 31 December 2019 Issued and fully paid capital comprises 2 billion fully paid ordinary shares 20,000,000 20,000,000

23. STATUTORY RESERVE In accordance with the companies law in the Kingdom of Saudi Arabia and the Company’s By-law, 10% of the net income was taken as statutory reserve until it reached 50% of the share capital. Based on the approval of the Ordinary General Assembly of Shareholders at its meeting on 23 Rabi Thani 1432H corresponding to 28 March 2011 it was resolved to cease the transfer to statutory since it reached half of the capital. Although the recent change in the companies law, include the cease of transfer to statutory reserve when it reaches 30% as minimum instead of 50% of the share capital, the Company maintained the accumulated reserve at 50%. This reserve is not available for distribution to the Company’s shareholders.


F-103

24. TREASURY SHARES During the year the Company completed the purchase of 2,982,700 of its own shares with an amount of SR 300million to be allocated to the Employees’ Long-term Incentives Program (see Note 47).The following is the number of outstanding shares (in thousands) during the year ended 31 December 2020:

2,000,000The number of outstanding shares as at 1 January 2020 (2,983)The number of treasury shares purchased during the year

1,997,017 The number of outstanding shares as at 31 December 2020

The following is the number of treasury shares (in thousands) during the year ended 31 December 2020:

-The number of treasury shares as at 1 January 2020 2,983The number of treasury shares purchased during the year 2,983 The number of treasury shares as at 31 December 2020

25. OTHER RESERVES

Foreign currency

translation reserve

Cash flow hedge reserve

Investments at FVOCI reserve

Other reserves Total

As at 1 January 2020 12,924 (143,210) - (2,615,322) (2,745,608)

Re-measurement of the end of service benefit provision (See Note 28) - - - (564,438) (564,438)

Exchange difference on translation of foreign operations (6,333) - - - (6,333)

Net gain on cash flow hedges - 1,820 - - 1,820

Share from associates and joint ventures - - - 52,531 52,531

Acquisition of a share in non-controlling interest - - - (4,369) (4,369)

Share-based payment transactions - - - 6,116 6,116

Share of changes in other reserves of a joint venture’s equity

- - - (1,964) (1,964) As at 31 December 2020 6,591 (141,390) - (3,127,446) (3,262,245)

As at 1 January 2019 14,403 (142,726) 425,974 (2,201,529) (1,903,878) Assets measured at FVOCI - - (425,974) - (425,974)Re-measurement of the end of service benefit provision (See Note 28) - - - (708,582) (708,582) Exchange difference on translation of foreign operations (1,479) - - - (1,479) Net loss on cash flow hedges - (484) - - (484)

Share from associates and joint ventures - - - 294,789 294,789 As at 31 December 2019 12,924 (143,210) - (2,615,322) (2,745,608)


F-104

26. NON-CONTROLLING INTERESTS

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests as at:

Name of Subsidiary

Proportion of ownership and

voting rights acquired by non-


Profit allocated to non-controlling interests for the year ended 31

December

Non-controlling interests as of 31

December

2020 2019 2020 2019 2020 2019

stc Kuwait 48.2% 48.2% 190,067 259,545 1,319,615 1,285,155 Individually immaterial subsidiaries 255 620 1,618 7,297

190,322 260,165 1,321,233 1,292,452

The following is a summary of the financial statements of stc Kuwait which is non- wholly owned by the Group and have material non-controlling interests:

For the year ended in 31 December 2020 2019



Other comprehensive loss for the year (3,986) (3,053)


Group's share of comprehensive income 202,359 277,567

Non-controlling interests of comprehensive income 188,296 258,278


Statement of cash flows Operating activities 801,906 1,168,667

Investing activities (94,577) (1,254,811)

Financing activities (500,318) (74,581)

Net increase (decrease) in cash and cash equivalents 207,011 (160,725)

31 December 2020 31 December 2019 Statement of financial position Current assets 2,131,676 2,345,244

Non-current assets 2,688,227 2,749,547

Current liabilities (1,797,803) (2,114,100)

Non-current liabilities (284,310) (314,393)

Net assets 2,737,790 2,666,298

Group's share of net assets 1,418,175 1,381,143

Non-controlling interests 1,319,615 1,285,155


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27. BORROWINGSTotal loans paid during the year ended 31 December 2020 amounted to SR 402 million (2019: SR 351 million). Total loans received during the year ended 31 December 2020 amounted to SR 21 million (2019: SR 5,381 million). A list of the loans are as follows:

Nature of borrowing

Date of borrowing

Date of final instalment

Currency Profit rate Current portion Non-current portion

Balance as at 31 December 2020




Sukuk (1) June 2014 June 2024 SAR 3 months SAIBOR + 0.7% - - 2,000,000 2,000,000

Sukuk (2) May 2019 May 2029 USD 3.89% - - 4,671,615 4,670,038

Murabaha (3) May 2009 December 2021 BHD 1 month BIBOR + 0.25% 26,829 26,828 - 26,829

Murabaha (4) July 2017 May 2022 BHD 1 month BIBOR + 1.60% 250,447 251,137 254,981 504,623

Murabaha December 2018 November 2025 BHD 2.10% 3,291 3,062 16,167 18,673

Murabaha (5) December 2017 December 2022 MYR 6 months KLIBOR + 0.65% - - 1,407,530 1,383,358

Murabaha (6) February 2019 February 2022 SAR SAIBOR + 0.65% - - 202,000 180,673

Murabaha May 2019 April 2023 KWD 3.75% 37,918 46,427 85,312 139,282

Tawaruq May 2019 February 2020 KWD 3.5% - 61,885 - -

Total 318,485 389,339 8,637,605 8,923,476


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27. BORROWINGS (CONTINUED) (1) The company issued a sukuk program with a maximum of SR 5 billion. Sukuk certificates have a nominal

value of SR 1 million each, and they were issued with a nominal value for a period of 10 years.(2) At the General Assembly meeting on 19 Shaaban of 1440 H (corresponding to April 24, 2019), the Company

approved the establishment of an international sukuk program and the issuance of sukuk in accordancewith directly or by establishing a special purpose vehicles that is established and used to issue primaryor secondary sukuk in one or several parts or one or several stages, or through a series of issues in USdollars, not exceeding the amount of USD 5,000 million for the total value of the sukuk issues and partsof sukuk program referred to above at any time.Based on the above, the Saudi Telecom Sukuk Company Limited during the second quarter of 2019 (acompany established for the purpose of issuing sukuk under the sukuk program referred to above in USdollar) launched the first issue of the sukuk program in the amount of USD 1,250 million (equivalent to SR 4,688 million) For 10 years. This program is an international sukuk in US dollar, with a total number of sukuk 6,250 sukuk with a nominal value of USD 200 thousand for the sukuk with an annual return of 3.89% and amaturity of ten years.

(3) stc Bahrain has murabaha facilities secured by a land and a building. The risk of return has been hedgedfor a large portion of the Murabaha facility. (See Note 9)

(4) stc Bahrain has an unsecured Murabaha facility of BD 84.8 million (equivalent to SR 844 million). stcBahrain has entered into cash flow hedging arrangements to hedge the profit rate risk. The book valueof murabaha facilities is not materially different from their fair value because the effect of discount,credit risk and other market risks are not considered material. The facility is repayable in 13 instalmentsstarting from June 2019 and ending in May 2022.

(5) stc Asia Holding Limited acquired a variable commission loan on 28 December 2017 from several bankson a five year repayment period. These facilities are secured by a letter of guarantee provided by theCompany.

(6) These facilities are secured by a letter of guarantee provided by the Company.

28. RETIREMENT BENEFITES PLANS

End of service benefit provision

The Group provides end of service benefits to its employees. The entitlement is based upon the employees’ final salary and length of service, subject to the completion of a minimum service years, calculated under the provisions of the Labour Law of the respective country and is payable upon resignation or termination of the employee. The expected costs of these benefits are accrued over the years of employment. The Group's plan is exposed to actuarial risks such as discount rate and salary risk.

Discount rate risk A decrease in the discount rate will increase the end of service benefits plan liability.

Change in Salaries risk

The present value of the end of service benefit plan liability is calculated by reference to the estimated future salaries of plan participants. As such, an increase in the salaries of the plan participants will increase the plan’s liability.

Calculation of end of service benefit provision was done using the most recent actuarial valuation as at 31 December 2020. During the financial year, Actuarial assumptions relating to the discount rate have been updated, resulting in an increase in the present value of the defined benefit obligations (DBO). The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method. The significant actuarial assumptions during 2020, used in determining the end of service benefit obligation, represent the discount rate of (2.1 %-3.5 %) and the expected increase in salary (2.0 %-5.0 %) (2019: discount rate of (3.2%-4.3%) and the expected increase in salary (2.7%-5.7%). The change in these assumptions during the year 2020 resulted into a recognition of actuarial losses amounting to SR 569 million (2019: 710 million).


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28. RETIREMENT BENEFITES PLANS (CONTINUED)

End of service benefit provision (continued)

The net expenses recognized in the consolidated statement of profit or loss are as follows for the year ended 31 December:

2020 2019

Services cost 452,615 367,423

Interest cost 100,457 193,490553,072 560,913

Movements of end of service benefit provision for the year ended 31 December is as follow:

The following table shows the change in DBO balance based on increase / decrease in the below assumptions:

2020 Impact on defined benefit obligation

Change in Assumption Base Value Increase in assumption

Decrease in assumption

Discount rate 25 basis points 5,239,313 5,103,985 5,381,525 Salary change rate 25 basis points 5,239,313 5,379,518 5,105,003

2019 Impact on defined benefit obligation

Change in Assumption Base Value Increase in assumption

Decrease in assumption

Discount rate 25 basis points 4,812,805 4,685,595 4,940,015 Salary change rate 25 basis points 4,812,805 4,939,579 4,686,031

The sensitivity analysis presented above may not be representative of the actual change in the end of service benefit provision as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Defined contribution plans

The Group is participating in a pension schemes for its employees which are managed by government institutions in the countries concerned. The amount recognised as an expense for defined contribution plans for the year ended 31 December 2020 is SR 457 million (2019: SR 443 million).

2020 2019 Balance at 1 January 4,812,805 3,919,362

Expenses recognized in the consolidated statement of profit or loss 553,072 560,913

Actuarial losses recognised in the consolidated statement of comprehensive income 568,893 710,054

paid during the year (677,741) (451,050)

Exchange differences and others (17,716) 73,526

Balance at 31 December 5,239,313 4,812,805


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29. LEASE LIABILITIES

Following is the movement on lease liabilities: 2020 2019

Balance as at 1 January 2,881,177 2,367,348

Additions during the year 1,329,097 1,174,990

Payments during the year (831,642) (712,467)

Annual interest costs 99,162 137,576

Other adjustments (497,756) (86,270)

Balance as at 31 December 2,980,038 2,881,177

Current 742,185 716,762

Non-current 2,237,853 2,164,415

2,980,038 2,881,177

30. PROVISIONS


Legal and regulatory provisions (1) 4,672,859 6,064,510 Decommissioning provision (2) 211,689 238,104

4,884,548 6,302,614


4,884,548 6,302,614

2020 2019

Legal and regulatory provision (1) Balance as at 1 January 6,064,510 7,336,057 Additions during the year 121,340 507,825 Payment / settlements during the year (1,512,991) (1,779,372) Balance as at 31 December 4,672,859 6,064,510

Decommissioning provision (2) Balance as at 1 January 238,104 381,205 Additions during the year 64,737 172,226 Reductions / adjustment resulting from re-measurement and others (91,152) (315,327) Balance as at 31 December 211,689 238,104

1) The Company is considered a party of number of legal and regulatory claims. The Group, after takingindependent legal advice, has established provisions after taking into account the facts for each case.The timing of the cash outflows associated with the majority of the legal claims are typically more thanone year, however, for some legal claims the timing of cash flows may be less than one year.

2) In the course of Company’s normal activities, a number of sites and other assets are utilised which areexpected to have costs associated with restoration of the assets to how it was upon removing the assets. The associated cash outflows are expected to occur primarily in years up to ten years from the date when the assets are brought in use.


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31. CONTRACT LIABILITIES


Deferred revenue from services 2,101,996 3,084,836 Customer loyalty programme 571,156 605,068

2,673,152 3,689,904

Current (1) 1,901,237 2,917,989 Non-current (2) 771,915 771,915

2,673,152 3,689,904

(1) The current portion of contract liabilities relates to unearned revenue pertaining to unutilisedprepaid cards units sold and the value of customer loyalty program points not yet redeemed. Revenuerecognized during the year that was included in the contract liability balance at the beginning of theyear amounted to SR 2.917 million (2019: SR 2.538 million).

(2) The non-current portion of contract liabilities relates to amounts received by one of the groupsubsidiaries from a key customer to construct a fibre optic network for which capital work completed amounted to SR 591 million (see Note 45.c) .

32. FINANCIAL LIABILITIES AND OTHERS

32-1 Financial liabilities


Dividends payable 2,151,116 2,111,161

Financial liabilities related to frequency spectrum licenses 2,276,505 1,530,184

Derivative liabilities and others 61,957 95,8424,489,578 3,737,187

Current 2,208,687 2,145,276

Non-current 2,280,891 1,591,9114,489,578 3,737,187



Deferred income (*) 3,814,889 3,341,943

Government charges 1,085,873 956,478

Statutory dues and others 381,022 511,8515,281,784 4,810,272

Current 1,361,084 1,301,566

Non-current 3,920,700 3,508,7065,281,784 4,810,272

(*) The details of deferred income are as follows:


Government grants (*) 3,772,251 3,320,684

Others 42,638 21,2593,814,889 3,341,943

(*) The government grants represent grants provided by Communication and Information Technology Commission (“CITC”) to the Company to build telecommunication network in different areas in the kingdom (See Note 4.8).


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33. TRADE AND OTHER PAYABLES


Accrued expenses 9,225,565 8,364,626 Trade payables 4,398,284 6,550,812

Notes payable 2,626,750 - Other trade payables 1,868,378 993,526

Employee accruals 1,468,512 1,382,581

Capital supplier dues and retentions 678,154 880,864

Customer refundable deposits 31,148 69,749 20,296,791 18,242,158

No interest is charged on the trade payables. The Group has financial risk management policy in place to ensure that all payables are paid within the pre-agreed credit terms.

34. ZAKAT AND INCOME TAX


Zakat (a) 1,878,148 1,452,645

Income taxes (b) 25,643 29,6331,903,791 1,482,278


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34. ZAKAT AND INCOME TAX (CONTINUED)

a. Zakat

The Group calculates and records the zakat provision based on the zakat base in accordance with the zakat rules and principles in the Kingdom:

2020 2019 Share capital – beginning of the year 20,000,000 20,000,000

Additions: Retained earnings, reserves , provisions and others – beginning of the year

78,939,795 78,470,418

Adjusted net profit 10,356,060 10,129,061

Adjusted total shareholders’ equity 109,295,855 108,599,479

Deductions: Net property (adjusted) and investments 62,600,896 58,227,066

Dividends paid 7,973,418 12,000,000

Deferred expenses and other balances 2,932,137 1,962,266

Total adjusted deductions 73,506,451 72,189,332

Zakat base 35,789,404 36,410,147

Zakat on wholly owned companies for the year 922,538 938,538

Zakat adjustments during the year 228,372 (203,893)

Add: zakat on partially owned companies for the year 3,210 6,463

Total zakat provision charged during the year 1,154,120 741,108

Zakat provision 2020 2019

Balance at beginning of the year 1,452,645 1,443,224

Charge during the year 1,154,120 741,108

Settlements during the year (6,457) (3,907)

Amounts paid during the year (722,160) (727,780)

Balance at end of the year 1,878,148 1,452,645

The Group submitted all zakat returns until the end of 2019, with payment of zakat due based on those returns, and accordingly the Group received zakat certificates for those years. Effective from year 2009, the Group started the submission of consolidated zakat return for the Company and its wholly owned subsidiaries whether directly or indirectly this is in accordance with the executive regulations for collecting zakat. The Group submitted objections related to the years 2008 and 2009 and these objections are still being considered by the General Secretariat of Tax Committees (formerly the Appeal Committee) until the date of preparing these consolidated financial statements. These Zakat disputed differences were essentially a result of the comparison between Zakat base and the adjusted profit whichever is higher. The Group believes that the result of these above-mentioned objections will be in its favour and no material additional provisions are required. The Group also reached a final settlement with General Authority of Zakat and Tax (GAZT) in regards with the objections submitted on zakat assessments for the years 2014 and 2018 by paying an amount of SR 205 million. The Group has also received zakat assessments that include differences related to the zakat declarations submitted for the years from 2015 to 2017 amounting to SR 865 million, and the Group objected to them within the statutory deadline. The Group believes that the result of this objection will be in its favour and no material additional provisions are required.


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b. Income tax

The Group's share of income tax payable by subsidiaries is in accordance with the prevailing tax regulations in their countries. Income tax expense incurred for the year ended 31 December 2020 amounts to SR 16 million (2019: SR 21 million). Income tax paid during the year ended 31 December 2020 amounted to 28.5 million (2019: SR 15.1 million).

35. REVENUESFor the year ended 31 December

2020 2019 Rendering of services 49,898,621 45,642,945 Sale of goods 8,820,161 8,556,090

Others 234,536 168,496 58,953,318 54,367,531

Geographical segmentation of revenues is provided in the operating segments note (see Note 8)

36. COST OF REVENUESFor the year ended 31 December

2020 2019 Cost of devices sold 8,712,228 7,492,197 Network access charges 4,740,007 4,515,488

Government charges (*) 3,806,823 3,108,508

Employees costs 3,338,050 3,059,466

Repair and maintenance 2,568,972 2,112,045 Cards recharge and printing cost 955,120 1,302,581

Amortisation and impairment of contract costs (See Note 13) 268,352 315,797 Others 609,371 70,224

24,998,923 21,976,306

“Others” comprises mainly: rent of property, equipment and vehicles, telecommunication services, postage, courier, security and safety expenses, premises expenses, and consultancy.

(*) The details of government charges are as follows:


Commercial service provisioning fees 2,740,751 2,237,983

Frequency spectrum fees 407,022 360,039

License fees 397,859 373,237

Others 261,191 137,249

3,806,823 3,108,508


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37. SELLING AND MARKETING EXPENSES


Employees costs 2,407,936 2,152,253Impairment loss on trade receivables (See Note 17.1) 1,072,959 662,043

Sales commissions 674,488 786,809Advertising and publicity 653,902 769,601

Amortisation and impairment of contract costs (See Note 13) 237,614 88,346

Call centre expenses 194,110 260,898Repairs and maintenance 189,363 320,765Sport activities sponsorship cost 163,056 83,245impairment on contract assets 117,686 102,807

Others 342,518 355,2026,053,632 5,581,969

“Others” comprises mainly: security and safety, telephone and utility expenses.

38. GENERAL AND ADMINISTRATIVE EXPENSES


Employees costs 3,472,104 3,303,365 Repair and maintenance 925,692 880,471 Consultancy, legal and professional fees 322,924 404,776

Sadad service fees 126,839 120,211 Utilities expenses 116,506 99,025 Security and safety expenses 101,140 141,181

Others 745,558 595,247 5,810,763 5,544,276

“Others” comprises mainly: rent of property, equipment and vehicles, insurance premiums, office equipment, freight, handling, postage and courier expenses. 39. FINANCE INCOME


Income from sukuk 295,767 279,025

Income from murabaha 118,106 360,136 413,873 639,161

40. FINANCE COST


Financing costs relating to sukuk 232,838 193,635 Financing costs relating to murabaha 83,596 144,429 Financing cost relating to lease liabilities 99,162 137,576

Unwinding of discounts on provisions and financial liabilities 208,329 289,514 623,925 765,154


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41. NET OTHER GAINS (LOSSES)


Gain on sale of equity investments (see Note 20) 647,804 - Loss on sale/disposal of property and equipment (150,388) (324,546)

Net gain (loss) arising on financial assets measured at FVTPL (83,389) 287,480 Net foreign exchange gain (losses) and others 10,585 (3,894)

424,612 (40,960)

42. EARNINGS PER SHARE The following is the calculation of basic and diluted earnings per share for the year ended 31 December:

2020 2019 Net profit attributable to equity holders of the Parent Company 10,994,875 10,664,666

Number of shares “in thousands”: Weighted average number of ordinary shares for the purposes of calculating basic earnings per share 1,999,207 2,000,000

Weighted average number of repurchased ordinary shares 793 -

Weighted average number of ordinary shares for the purposes of calculating diluted earnings per share 2,000,000 2,000,000


- Basic 5.50 5.33 - Diluted 5.50 5.33


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43. FINANCIAL INSTRUMENTS 43.1 Capital management

The Group manages its capital to ensure that: It will be able to operate as a going concern It efficiently finances its working capital and strategic investment requirements at optimal terms It provides a long-term dividend policy and maintains a stable dividend pay-out It maximises the total return to its shareholders It maintains an appropriate mix of debt and equity capital

The Group reviews its capital structure in light of strategic investment decisions, changing economic environment, and assesses the impact of these changes on cost of capital and risk associated to capital.

The Group is not subject to any externally imposed capital requirements. The Group did not introduce any amendments to the capital management objectives and procedures during the year ended 31 December 2020.

The Group reviews the capital structure on annual basis to evaluate the cost of capital and the risks associated with capital. The Group has the following target ratios:

1- Debt to EBITDA level of 200% or below2- Debt to (Debt + Equity) level of 50% or below

The ratio as at the year ended 31 December was as follows:

2020 2019 Debt (a) 8,956,090 9,312,815

EBITDA (b) 22,090,000 21,264,980

Debt to EBITDA 41% 44%

Debt 8,956,090 9,312,815

Debt + Equity (c) 74,223,105 72,367,861

Debt to (Debt + Equity) 12% 13%

a. Debt is defined as current and non-current borrowings as described in Note 27.b. EBITDA is defined as operating profit for the year adjusted for depreciation and amortization expenses.c. Equity is defined as total equity including issued capital, reserves, retained earnings and non-controlling

interest.


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43. FINANCIAL INSTRUMENTS (CONTINUED)

43.2 Fair value of financial instruments

The Group uses valuation techniques appropriate to current circumstances that provide sufficient data to measure fair value. For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety (See Note 4-20). The fair values of financial instruments represented in trade and other receivables, short-term murabaha, cash and cash equivalents, and trade and other credit balances closely approximate their book value due to their short maturity. The following table shows the fair values of the Group's financial assets and liabilities:

financial instruments Categories 31 December 2020

Carrying amount Fair value


hierarchy

Financial assets

At fair value through profit or loss: stc Ventures Fund and STV LP Fund (See Note 15) 1,119,413 1,119,413 Level 3

Financial liabilities

At fair value through profit or loss: Derivative liabilities (See Note 32) 9,882 9,882 Level 2


Carrying amount Fair value


hierarchy

Financial assets

At fair value through profit or loss: stc Ventures Fund and STV LP Fund (See Note 15) 1,550,869 1,550,869 Level 3


At fair value through profit or loss: Derivative liabilities (See Note 32) 7,373 7,373 Level 2


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43. FINANCIAL INSTRUMENTS (CONTINUED) 43.2 Fair value of financial instruments (continued)

The fair value of the Group’s investment in the units of stc Ventures Fund and STV LP Fund (the Funds) is obtained from the net asset value (NAV) reports received from the Funds’ managers. The funds’ managers deploy various techniques (such as discounted cash flow models and multiples method) for the valuation of underlying financial instruments classified under level 3 of the respective fund's fair value hierarchy. Significant unobservable inputs embedded in the models used by the funds’ managers include risk adjusted discount rates, marketability and liquidity discounts and control premiums. The following is a reconciliation of the Group’s investment in these Funds which are categorised within Level “3” of the fair value hierarchy:

2020 2019 Net asset value as at 1 January 1,550,869 1,394,568

Contributions paid to the funds during the year 375,700 -

Distributions received from the funds during the year (723,767) (97,344)

Net unrealised (loss) gain recognised in the consolidated statement of profit or loss (*) (83,389) 253,645

Net asset value as at 31 December 1,119,413 1,550,869

(*) The net unrealized loss recognised was included within net other gains (losses) item in the consolidated statement of profit or loss.

The Group believes that the other financial assets and liabilities carried at cost in the consolidated financial statements approximate their fair value.

There are no transfers between levels of the fair value hierarchy during year ended 31 December 2020.

43.3 Profit rate risk

The Group’s main profit rate risk arises from borrowings and financial assets with variable profit margin rates. some Group`s companies through the use of profit swap contracts manages the profit rate risk. There has been no change to the Group’s exposure to profit risks or the manner in which these risks are managed and measured. The sensitivity analyses below have been determined based on the exposure to profit rates for non-derivative instruments at the end of the financial year. These show the effects of changes in market profit rates on profit and loss. For floating rate asset and liabilities, the analysis is prepared assuming the amounts outstanding at the end of the year were outstanding for the whole year. A 20-basis point increase or (decrease) represents management’s assessment of the reasonably possible change in profit rates. If profit rates had been 20 basis points higher (lower) and all other variables were held constant, the impact on profit of the Group would have been lower (higher) by SR 13 million (2019: SR 18 million). This hypothetical effect on profit of the Group primarily arises from potential effect of variable profit financial liabilities.

43.4 Foreign currency risk management

Saudi Riyal currency is considered as the functional currency of the Group which is pegged against the United States Dollar. Therefore, the Group is only exposed to exchange rate fluctuations from transactions denominated in foreign currencies other than United States Dollar. Thus, the impact of foreign currency risk is minimal on the Group.


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43. FINANCIAL INSTRUMENTS (CONTINUED) 43.5 Credit risk management

The Group has approved guidelines and policies that allows it to only deal with creditworthy counter parties and limits counter party exposure. The guidelines and policies allow the Group to invest only with those counterparties that have high investment grade credit rating issued by international credit rating agencies and limits the exposure to a single counter party by stipulation that the exposure should not exceed 30% of the counterparty’s shareholders’ equity. Further. The Group’s credit risk is monitored on a quarterly basis. Other than the concentration of credit risk disclosed in Note 17, concentration of credit risk with respect to trade receivables are limited given that the Group’s customer consists of a large number of unrelated customers. Payment terms and credit limits are set in accordance with industry norms. On-going evaluation is performed on the financial condition of trade receivable and management believes there is no further credit risk provision required in excess of the normal provision for impairment loss (See Note 17). In addition, the Group is exposed to credit risk in relation to financial guarantees given to some subsidiaries with regard to financing arrangements. The Group’s maximum exposure in this respect is the maximum amount the Group may have to pay if the guarantee is called on. There is no indication and instance that the Group will incur any loss with respect to its financial guarantees as the date of the preparation of this consolidated financial statement (Note 45). 43.6 Liquidity risk management

The Group has established a comprehensive liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity requirements under the guidelines approved. The Group ensures its liquidity by maintaining cash reserves, short-term investments and committed undrawn credit facilities with high credit rated local and international banks. The Group determines its liquidity requirements by continuously monitoring short and long term cash forecasts in comparison to actual cash flows. Liquidity is reviewed periodically for the Group and stress tested using various assumptions relating to capital expenditure, dividends, trade receivable collections and repayment of loans without refinancing. The following table detail the Group’s remaining contractual maturity for financial liabilities with agreed repayment periods. The table have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

Undiscounted Cash Flows Carrying amount 1 year or less Above 1 – 5 years Above 5 years

31 December 2020 Trade and other payables (Note 33) 20,296,791 20,296,791 - - Borrowings (Note 27) 8,956,090 318,485 3,985,545 4,673,463Dividends payable (Note 32) 2,151,116 2,151,116 - - Lease liabilities (Note 29) 2,980,038 742,185 2,313,448 940,218Other financial liabilities (Note 32) 2,328,580 50,041 1,836,648 1,269,814Derivative liabilities (Note 32) 9,882 7,530 2,353 -

31 December 2019 Trade and other payables (Note 33) 18,242,158 18,242,158 - - Borrowings (Note 27) 9,312,815 389,339 2,931,485 6,053,423Dividends payable (Note 32) 2,111,161 2,111,161 - - Lease liabilities (Note 29) 2,881,177 716,762 2,505,360 483,919Other financial liabilities (Note 32) 1,618,653 28,592 1,078,141 1,068,815Derivative liabilities (Note 32) 7,373 5,523 1,243 607

The Group has unused financing facilities amounting to SR 6,263 million as at 31 December 2020 (2019: SR 4,611 million). The Group expects to meet its obligations from operating cash flows, cash and cash equivalents and proceeds of maturing financial assets. In accordance with the terms of the agreements with the operators, commercial debtors and creditors are settled in connection to call routing and roaming fees and only the net amounts are settled or collected. Accordingly, the net amounts are presented in the consolidated statement of financial position.


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43.6 Liquidity risk management (continued)

The following table presents the recognised financial instruments that are offset or are subject to enforceable master netting agreements and other similar agreements as at:

Gross amounts Amounts set off Net amounts 31 December 2020 Financial assets Trade and other receivables 22,035,748 (5,951,332) 16,084,416

Financial liabilities Trade and other payables 26,248,123 (5,951,332) 20,296,791

31 December 2019 Financial assets Trade and other receivables 26,131,053 (4,758,685) 21,372,368

Financial liabilities Trade and other payables 23,000,843 (4,758,685) 18,242,158

43.7 Changes in liabilities arising from financial activities

Changes in liabilities arising from financial activities are as follows:

1 January 2020

Cash flows Non-monetary changes

31 December 2020

Short-term borrowings 389,339 (402,386) 331,532 318,485

Lease liabilities current 716,762 (831,642) 857,065 (*) 742,185

Long-term borrowings 8,923,476 21,363 (307,234) 8,637,605

Lease liabilities non-current 2,164,415 - 73,438 2,237,853

12,193,992 (1,212,665) 954,801 11,936,128

1 January 2019 Cash flows

Non-monetary changes

31 December 2019

Short-term borrowings 320,533 (242,147) 310,953 (*) 389,339

Lease liabilities - current 1,471,935 (712,467) (42,706) 716,762

Long-term borrowings 3,965,479 5,272,616 (314,619) 8,923,476

Lease liabilities non- current 895,413 - 1,269,002 2,164,415

6,653,360 4,318,002 1,222,630 12,193,992

* Mainly includes reclassification from non-current to current portion.


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44. CAPITAL COMMITMENTS (a) During the fourth quarter of 2018, the Company signed an agreement with the Ministry of Finance, the

Ministry of Communications & Information Technology and the authority of Communications andInformation Technology ("Government Entities") for a comprehensive and final settlement of theoutstanding dispute related to commercial services provisioning fees provided by the Company and thelicences fees granted to the Company for the period from 1 January 2008 to 31 December 2017. In return,the Company is committed to provide capital investments in its infrastructure which is in line with theKingdom's vision to develop the telecommunications infrastructure within a period of three years from 1January 2018 according to the terms and conditions of the comprehensive Settlement Agreement(Referred to as "Target Performance Indicators").

(b) One of the subsidiaries has an agreement to invest in a fund aiming to improve the telecommunicationand internet environment for USD 300 million (equivalent to SR 1,125 million) as at 31 December 2020 (31December 2019: USD 300 million (equivalent to SR 1,125 million).

45. CONTINGENT ASSETS AND LIABILITIES

(a) The Group has outstanding letters of guarantee on behalf the parent and the subsidiaries amounting toSR 4,222 million as at 31 December 2020 (31 December 2019: SR 4,514 million).

(b) The Group has outstanding letters of credit as at 31 December 2020 amounting to SR 977 million (31December 2019: SR 961 million).

(c) On 21 March 2016, the Company received a letter from a key customer requesting a refund for paidbalances amounted to SR 742 million related to construction of a fibre optic network. Based on theindependent legal opinions obtained, the management believes that the customer’s claim have no meritand therefore this claim has no material impact on the financial results of the Group.

(d) The Group, in its ordinary course of business, is subject to proceedings, lawsuits and other claims.However, these matters are not expected to have any material impact on the Company’s financial position or on the results of its operations as reflected in these consolidated financial statements.

(e) The Group has submitted an objection to the appeal committee with respect to GAZT withholding taxassessment on international operators’ networks rentals outside Saudi Arabia for the years from 2004 to2015 for an amount of SR 2.9 billion. The Group believes that Saudi tax regulations do not imposewithholding tax on the rental of international operators’ networks since the source of income did notoccur inside the Kingdom, therefore this service should not be subject to withholding tax. Based on theopinions of tax specialists in this matter, the nature of the services and existing similar cases where thedecision was in the favour of the companies in the telecom sector, the Group believes that thisassessment will not result into any additional provisions.

(f) During the fourth quarter of the year 2020, the group reached a settlement regarding the assessment ofthe value-added tax issued by the General Authority for Zakat and Income for the year 2018 and January of 2019, by paying an amount of SR 15 million with an exemption of fines.

(g) The agreement signed with government entities during the fourth quarter of 2018 includes detailedmechanisms relating to the performance indicators that the Company is required to achieve within threeyears starting from 2018. The Company has re-evaluated the related provisions in line with theexpectations of the target performance indicators which shall be reviewed periodically.

(h) On 28 December 2020, the Group received claims from the Communications and Information TechnologyCommission related to imposing government fees for selling devices in installments for the period from2018 until the end of the third quarter of 2020, totaling SR 641 million. Based on the opinions of thespecialized consultants in this regard and the nature of these sales, The Group believes that the resultwill be in its favour and no material additional provisions are required.

(i) In April 2017, Kuwait’s Cassation Court invalidated a portion of the regulatory tariff decree levied onmobile telecommunication companies in Kuwait since 26 July 2011 by Kuwait’s Ministry ofCommunications. Accordingly, stc Kuwait had filed a claim for the recovery of the excess amount paidfrom change in regulation date till date. On 30 June 2020, the Court of appeal of Kuwait has issued averdict in favor of stc Kuwait obliging the appellant to pay amount of KD 18.3 million (equivalent to SR 225million).


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46. THE ACQUISITION OF A SHARE IN “VODAFONE EGYPT” On 29 January 2020, The Company signed a non-binding Memorandum of Understanding (MoU) with theVodafone Global Group according to which the Company will acquire 55% of the shares of Vodafone Egypt with a value of approximately SR 8,970 million (equivalent to approximately USD 2,392 million). The finalpurchase consideration was to be determined upon signing the final agreements. The MoU expiredwithout reaching an agreement to conclude the transaction.

47. EMPLOYEES LONG-TERM INCENTIVES PROGRAM

The Company’s Board of Directors has approved the purchase of number of Company’s shares with amaximum of 5.5 million shares and an amount not to exceed SR 300 million to be allocated for theemployees long-term incentives program (the Program). The Board raised its recommendation to theextraordinary general assembly (EGM) to approve the Program and to purchase the shares within a period of (8) months starting EGM’s date of approval. The EGM has voted on the approval of this Program duringits meeting held on 27 Shaban 1441 H (corresponding to 20 April 2020). The shares to be purchased will not have the right to vote in the Company’s shareholders general assemblies, and will not be entitled to anydividends while the shares still under the Company's possession. The Program intends to attract, motivate and retain the executive employees responsible for theachievement of the Group’s goals and strategy. The Program provides a share-based payment plan foreligible executives participating in the Program by granting them shares in the Company upon completing the duration of service and performance requirements and achieving the targets determined by theGroup.

During the year of 2020, the Group granted the first tranche of the Program as follows:1 July 2020Grant date785 thousand sharesTotal number of shares grantedSR 94.4 Fair value per share on grant date (*) 1 July 2021/2022/2023 Vesting date Equity-basedSettlement method

Total expenses related to the Program during the year ended 31 December 2020 amounted to SR 6.1 million, which were included as part of employees benefits expense in the consolidated profit or loss statement, with the corresponding amount recorded under other reserves within equity in accordance with the requirements of International Financial Reporting Standard (2): Share-based Payment. (*) The fair value was calculated based on the market price after deducting the expected dividends per

share on the grant date.

48. IMPACT OF CORONAVIRUS (COVID-19) OUTBREAK A novel strain of coronavirus (COVID-19) (“the virus”) was first identified at the end of December 2019,subsequently in March 2020 was declared as a pandemic by the World Health Organization (WHO). The virus continued to spread throughout in nearly all regions around the world including the Kingdom of Saudi Arabia, which resulted in a slowdown of economic and social activities and shutdowns of many sectors at global and local levels.

In response to the rapid spread of the virus and the resulting disruption of some social and economic activities, the group has assessed its impact on its current and future operational activities and has taken a series of preventive and precautionary measures, including activating of remote work to ensure the safety of its employees and their families, and fully activating the technical solutions and providing digital channels with greater capabilities and facilities to ensure the continuity of services provided to the customers and reach them to their location for their own safety. At the end of the second quarter of 2020, the government of the Kingdom of Saudi Arabia has allowed the return of all economic and commercial activities, while observing the implementation of all preventive measures adopted, and commitment to social distancing. During the fourth quarter of 2020, several vaccines which passed the testing phase effectively began to be manufactured and distributed globally to many countries, including the Kingdom of Saudi Arabia.


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48. IMPACT OF CORONAVIRUS (COVID-19) OUTBREAK (CONTINUED)

As of the date of preparing these consolidated financial statements, the Group’s operations and financial results have not incurred significant impact from the virus outbreak, taking into consideration the lower impact of the pandemic over the operations and activities of companies operating in telecom sector.

The impact of the pandemic on the Group’s operations and financial results was assessed using some judgments, estimates and assumptions that contain sources of uncertainty as it depends on several future factors and developments that cannot be reliably forecasted.

49. DIVIDENDS

On 9 Rabi Thani 1440H (corresponding to 16 December 2018) the Board of Directors have approved theCompany’s dividends policy for the next three years starting from the fourth quarter of 2018, which was approved by the General Assembly on 19 Sha`ban 1440H (corresponding to 24 April 2019). The objective of the dividends policy is based on maintaining a minimum level of dividend of SR 1 per share on quarterly basis. The Company will consider and pay additional dividend subject to the Board of Directors recommendation after assessment and determination of the Company's financial situation, outlook and capital expenditure requirements.

It is probable that additional dividends are likely to vary on quarterly basis depending on the Company’s performance.

The dividends policy will remain subject to: 1- Any material changes in the Company's strategy and business (including the commercial

environment in which the Company operates).2- Laws, regulations and legislations governing the sector at which the Company operates.3- Any banking, other funding or credit rating covenants or commitments that the Company may be

bound to follow from time to time. In line with this policy, the Company distributed the following cash dividends during the year ended 31 December 2020 at a rate of:

- SR 1 per share for the fourth quarter of 2019.- SR 1 per share for the first quarter of 2020.- SR 1 per share for the second quarter of 2020.- SR 1 per share for the third quarter of 2020.In addition, in line with the same policy, the Company will distribute cash dividends to the shareholders of the Company for the fourth quarter of 2020 at a rate of SR 1 per share.

On 12 Shaaban 1442H (corresponding to 25 March 2021) the board of directors also recommended to distribute additional cash dividends for the year 2020 at the rate of SR 1 per share, this recommendation is to be presented to the General Assembly at its next meeting for voting.

Treasury shares allocated to the employee long-term incentives program are not entitled for any dividends during the period while the shares still under the Company's possession (See note 47). Therefore, no cash dividends were distributed for the shares that were repurchased during the year of 2020 as follows:

- 182 thousand shares for the second quarter of 2020 were repurchased before the eligibility ofdividend distribution to shareholders

- 1,785 thousand shares for the third quarter of 2020 (including above shares).- 2,983 thousand shares for the fourth quarter of 2020 (including the above shares).


F-123

50. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

At its meeting held on 12 Shabaan 1441 H (corresponding to 25 March 2021), the Board of Directorsapproved the consolidated financial statements for the year ended 31 December 2020.

51. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the classification used for the year ended 31 December 2020.


CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019

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INDEX

PAGES

Independent Auditor’s Report

Consolidated statement of financial position

Consolidated statement of profit or loss

Consolidated statement of comprehensive income

Consolidated statement of cash flows

Consolidated statement of changes in equity

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F-136

F-137

F-138

F-139Notes to the consolidated financial statements

F-125

F-134

F-126

F-126

Ernst & Young & Co. (Certified Public Accountants) General Partnership Head Office Al Faisaliah Office Tower, 14th FloorKing Fahad RoadP.O. Box 2732Riyadh 11461Kingdom of Saudi Arabia


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Fax: +966 11 273 4730



To the Shareholders of Saudi Telecom Company (A Saudi Joint Stock Company)

Opinion

We have audited the accompanying consolidated financial statements of Saudi Telecom Company (the “Company”)

and its subsidiaries (collectively referred to as the “Group”), which comprise of the consolidated statement of

financial position as at 31 December 2019, and the consolidated statement of profit or loss, consolidated statement

of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity for

the year then ended, and notes to these consolidated financial statements, including a summary of significant

accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the

consolidated financial position of the Group as at 31 December 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards

that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the

Saudi Organization for Certified Public Accountants.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of

Saudi Arabia. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for

the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in

accordance with the professional code of conduct and ethics endorsed in the Kingdom of Saudi Arabia that are

relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities

in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the

consolidated financial statements of the current year. These matters were addressed in the context of our audit of the

consolidated financial statements as a whole, and in forming auditor’s opinion thereon, and we do not provide a

separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is

provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the

performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address

the matters listed below, provide the basis for our audit opinion on the accompanying consolidated financial

statements.

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To the Shareholders of Saudi Telecom Company (continued) (A Saudi Joint Stock Company)



Revenue recognition

The Group’s revenue consists primarily of subscription

fees for telecommunication, data packages and use of

the network totalling SR 54 billion for the year ended 31

December 2019.

We considered this a key audit matter as the application

of accounting standard for revenue recognition in the

telecommunication sector includes number of key

judgments and estimates.

Additionally, there are inherent risks about the accuracy

of revenues recorded due to the complexity associated

with the network environment, dependency on IT

applications, large volumes of data, changes caused by

price updates and promotional offers affecting the

various products and services offered during the

accounting period, as well as the materiality of the

amounts involved.

Refer to note 4.3 for the accounting policy related to

revenue recognition and note 34 for the related

disclosures.

Our audit procedures included, among others, the

following:

• Involved our IT specialists in testing the design,

implementation and operating effectiveness of system

internal controls related to revenue recognition.

• Evaluated the appropriateness of revenue recognition

policies.

• Reviewed a sample of revenue reconciliations prepared

by management between the primary billing system and

the general ledger.

• Tested the accuracy of customer invoice generation on

a sample basis and tested a sample of the credits and

discounts applied to customer invoice.

• Tested cash receipts for a sample of customers back to

the invoice.

• Performed analytical procedures by comparing

expectations of revenue with actual revenue and

analysing variances.

• Assessed the relevant disclosures in the consolidated

financial statement.

Allowance for impairment of trade receivable

As at 31 December 2019, the Group’s trade receivables

amounted to SR 22.4 billion against which an

impairment allowance of SR 2.8 billion is maintained.

The Group uses the expected credit loss model (ECL)

as required by International Financial Reporting

Standard 9 (Financial Instrument) (IFRS 9) to calculate

allowance for impairment in trade receivable.

We considered this as a key audit matter as ECL model

involves complex calculations and use of assumptions

by management in addition to the materiality of the

amounts involved.

Refer to notes 4.15.3 and 5.2.5 for the accounting and

critical judgements policies related to allowance for

impairment of trade receivable and note 11 for the

related disclosures.

Our audit procedures performed included, among others,

the following:

• Assessed the design, implementation, and operating

effectiveness of the key controls over the following:

- Recording of trade receivables and settlements.

- Trade receivables aging reports.

• Tested a sample of trade receivables to assess whether

ECL has been recorded on a timely manner.

• Assessed significant assumptions, including collection

rates, recovery rates, impairment ratios and those

relating to future economic events that are used to

calculate the expected credit loss.

• Tested the mathematical accuracy of the ECL model.

• Assessed the disclosures included in the consolidated

financial statements of the Group.

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Accounting for zakat and withholding tax claims from the General Authority of Zakat and Tax (GAZT)

As at 31 December 2019, the Group received following

claims from GAZT, relating to Zakat and withholding

tax:

Zakat:

The Group received zakat assessments for the years

ended 31 December 2008, 2009 and 2018 with

additional zakat claimed by GAZT which was

challenged by the Group.

Withholding Tax:

The Group received withholding tax assessments from

GAZT for the service of renting international operators’

networks outside the Kingdom of Saudi Arabia for the

years from 2004 to 2015. The Group’s management

believes that this service should not be subject to

withholding tax and has objected against such

assessments which are still underway before the relevant

committee.

We considered this as a key audit matter as accounting

for zakat and withholding tax involves management

estimates in addition to the materiality of the additional

amounts claimed.


zakat and withholding taxes and notes 33 and 44-E for

the related disclosures.


the following:

• Reviewed correspondences between the Group and

GAZT to determine the amount of the additional

assessments made by GAZT.

• Attended meetings with those charged with

governance and the Group’s management to obtain an

update on the zakat and withholding tax matters and

the results of their interactions with the relevant

committees.

• Involved our specialist to assess the appropriateness

of the exposures disclosed for both zakat and

withholding tax for the years assessed by GAZT and

judgements made by management in this matter.

• Reviewed prior year’s decisions from the relevant

committee on zakat assessment.

• Assessed the related disclosures included in the

consolidated financial statements of the Group.

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Capitalization and useful lives of property, plant and equipment (PPE)

The Group has a substantial capital expenditure plan and

therefore incurs significant annual expenditure in relation

to the development and maintenance of both infrastructure

assets and assets in relation to network and related

equipment.

Costs related to upgrading or enhancing networks are

treated as capital expenditures. Expenses spent to

maintain the network's operating capacity are recognized

as expenses in the same year in which they are incurred.

Capital projects often contain a combination of

enhancement and maintenance activities that are difficult

to separate, and therefore the distribution of costs between

capital and operation depends heavily on management

assumptions.

Further, there are a number of areas where management,

judgments impacts the carrying values and depreciation of

PPE which include:

- Decision to capitalize or expense costs;

- Review of the useful lives of PPE including the

impact of changes in the Group’s strategy; and

- The timing of commencement of depreciation based

on when they are ready for their intended use.

We considered this as a key audit matter since it involves




property, plant and equipment and note 7 for the related

disclosures.


the following:

• Tested the effectiveness of the key controls in placeover the capitalization and depreciation of PPE andassessed the Group’s policies.

• Performed analytical procedures on depreciation ofPPE by comparing actual depreciation rates withexpected rates and analysed variances.

• Tested, on a sample basis, the reasonableness ofuseful lives estimation performed by themanagement.

In addition to the above, we also performed the

following procedures on the capitalized cost:

• Assessed the Group's capitalisation policy forcompliance with relevant accounting standards;

• Tested, on a sample basis, the implementation ofexpenditure policy during the year, including thereview of minutes of meetings where capitalexpenditure plan was approved.

• Tested, on a sample basis, capitalisation of projectexpenses in compliance with the Group’s capitalisation policy including instances whereactual costs differed from the expenditure plan.

• Assessed the disclosures included in theconsolidated financial statements of the Group.

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Valuation of property, plant and equipment and intangible assets

As at 31 December 2019, the Group’s consolidated

financial position included property, plant and equipment

amounting to SR 45.1 billion and intangible assets

amounting to SR 9.9 billion.

At each reporting date, the Group perform an assessment

of the recoverable value of these assets, or relevant cash-

generating units ('CGUs') for any indication of

impairment.

This involves significant judgment in respect of factors

such as technological changes, challenging economic

conditions, changing regulatory environment and

restrictions, operating or capital costs and other economic

assumptions used by the Group.




Refer to notes 4.11 and 5.1.2 for the accounting and

critical judgements policies related to valuation of

property, plant and equipment and intangible assets.

Our audit procedures performed included, among

others, the following:

• Reviewed management’s impairment indicatortesting.

• Assessed management’s assumptions and estimatesused to determine the recoverable value of theassets based on our knowledge of the Group and theindustry it operates in.

• Assessed management’s methods of identifyingindividual CGUs.

• Assessed mathematical accuracy of cash flowmodels.


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Adoption of International Financial Reporting Standard 16 (Leases) (IFRS 16)

As at 1 January 2019, the Group’s adopted IFRS 16 which

supersedes the requirement of IAS 17 (Leases).

The Group adopted IFRS 16 “Leases” during the year

using the modified retrospective approach; hence, the

comparative information was not restated. The Group

recorded right of use assets amounting to SR 2,556

million, with corresponding lease liability amounting to

SR 2,367, adjusted for any prepaid or accrued lease

payments as of 1 January 2019.

We considered this as a key audit matter due to the nature

and the significance on the Group’s consolidated financial

statement. In addition to the judgments required by

management in the adoption of the standard and the


Refer to note 4.4 for the accounting policy related to lease

contracts, note 3-1 for the impact of adopting IFRS 16 and

notes 9 and 29 for the related disclosures.

Our audit procedures performed included, among

others, the following:

• Assessed management’s procedures in adoptingIFRS 16 as endorsed in the Kingdom of SaudiArabia.

• Assessed management’s estimates used to calculatethe impact of adoption of IFRS 16 as at 1 January2019 (e.g., discount rate and lease terms used todetermine the ROU assets and lease liability forlease contracts).

• Analysed the completeness of the population oflease contracts by reviewing the reconciliation ofthe Group’s operating lease commitments as of 31December 2018 to lease liability recognized as at 1January 2019 and assessed, on sample basis, thecontracts for the appropriateness of inclusion orexclusion from the calculation of ROU assets andlease liabilities.

• Tested, on a sample basis, the accuracy of the leasedata by agreeing them with the signed contract andchecked mathematical accuracy of the calculationof the ROU assets and lease liabilities.


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Other Information Included in the Group’s 2019 Annual Report

Other information consists of the information included in the Group’s 2019 annual report, other than the consolidated

financial statements and our auditor’s report thereon. Management is responsible for the other information. The

Group’s 2019 annual report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not

express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other

information identified above when it becomes available and, in doing so, consider whether the other information is

materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise

appears to be materially misstated.

When we read the Group’s 2019 annual report, if we conclude that there is a material misstatement therein, we are

required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial

Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in

accordance with International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia and

other standards and pronouncements that are endorsed by the Saudi Organization for Certified Public Accountants

and the provisions of Companies’ Law and Company’s By-laws, and for such internal control as management

determines is necessary to enable the preparation of consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern

basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic

alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our

opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in

accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia will always

detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material

if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken

on the basis of these consolidated financial statements.

As part of an audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi

Arabia, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due

to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,

forgery, intentional omissions, misrepresentations, or the override of internal control.

F-133


CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 (Alt Amounts in Saudi Riyals thousands unless otherwise stated)

� 31December2019

ASSETS NON-CURRENT ASSETS Property and equipment 7 Intangible assets and goodwill 8 Right of use assets 9 Investments in associates and joint ventures 21 Contract assets 16 Contract costs 15 Other financial assets 17 Other non-current assets 13 TOTAL NON-CURRENT ASSETS CURRENT ASSETS Inventories 10 Trade and other receivables 11 Short term murabahas 12 Contract assets 16 Other financial assets 17 Other current assets 13 Cash and cash equivalents 19

Assets held for sale 14 TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Issued capital 22 Statutory reserves 23 Other reserves 24 Retained earnings Equity attributable to the equity holders of the Parent Company Non-controlling interests 18 TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Long term borrowings 25 End of service benefits provision 27 Lease liabilities 29 Provisions 26 Contract liabilities 28 Other financial liabilities 30 Other non-current liabilities 31 TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables 32 Provisions 26 Contract liabilities 28 Zakat and income tax 33 Lease liabilities 29 Short term borrowings 25 Other financial liabilities 30 Other current liabilities 31 TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

45,085,342 9,906,688 2,887,933 6,618,526

648,069 922,922

7,323,433 91,851

73,484,764

1,721,530 21,372,368

2,181,416 6,793,755

376,589 4,097,096 8,031,010

44,573,764 267,728

44,841,492 118,326,256

20,000,000 10,000,000 (2,745,608) 34,508,202

61,762,594 1,292,452

63,055,046

8,923,476 4,812,805 1,580,935

891,210 771,915

1,591,911 3,508,706

22,080,958

18,694,412 5,157,110

2,465,735 1,482,278 1,300,242

389,339 2,145,276 1,555,860

33,190,252 55,271,210

118,326,256

31 December 2018

41,920,409 9,560,119

6,581,733 504,042

1,030,129 3,373,016

371,621 63,341,069

787,456 14,493,149 9,685,491 5,468,441 5,488,245 1,952,878 8,153,865

46,029,525

46,029,525 109,370,594

20,000,000 10,000,000 (1,903,878) 37,417,562

65,513,684 1,147,914

66,661,598

3,965,479 3,919,362

891,910 7n,915

1,526,259 2,177,016

13,251,941

14,092,907 6,829,451 2,538,940 1,465,ns

320,533 90,731

4,118,718 29,457,055 42,708,996

109,370,594


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F-134


CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE VEAR ENDED 31 DECEMBER 2019 (AU Amounts in Saudi Riyals thousands unless otherwise stated)

Revenues Cost of revenues

GROSS PROFIT

OPERATING EXPENSES Selling and marketing General and administration Depreciation and amortisation

TOTAL OPERATING EXPENSES

OPERATING PROFIT

OTHER INCOME AND EXPENSES Cost of early retirement program

Finance income Finance cost Net other (expenses) income Net share in results of investments in associates and joint ventures Net other losses

TOTAL OTHER INCOME (EXPENSES)

NET PROFIT BEFORE ZAKAT AND INCOME TAX Zakat and income tax

NET PROFIT



Basic and diluted earnings per share (In Saudi Riyals)

JY.2W.

34

35

36 37

7,8,9

38 39

21 40

33

41

2019

54,367,531 (21,976,306)

32.391.225

(5,581,969) (5,544,276) (8,784,587)

(19,910.832)

12,480,393

(600,000) 639,161

(765,154) (76,062)

49,597 (40,960)

(793,418)

11,686,975 (762,144)

10,924,831

10,664,666 260,165

10,924,831

5.33

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2018

51,963,243 (21,490,161)

30.473.082

(5,480,288) (5,157,039) (7,590,530)

(18,227,857)

12,245,225

(450,000) 551,535

(395,440) 102,943

{10,605) (215,493)

{417,060)

11,828,165 (747,667)

11,080,498

10,779,771 300,727

11,080,498

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F-135

::


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE VEAR ENDED 31 DECEMBER 2019 (All Amounts in Saudi Riyals thousands unless otherwise stated)

NET PROFIT

OTHER COMPREHENSIVE INCOME (LOSS)

Items that wrll not be reclassified subsequently to

consolidated statement of profit or loss: Re-measurement of end of service benefit provision Fair value changes on equity instruments measured at fair value through other comprehensive income (FVOCI)

Total items that wrll not be reclassified subsequently to


Items that may be reclassified subsequently to

consolidated statement of profit or loss: Foreign currency translation differences

Fair value changes from cash flow hedges Share of other comprehensive income/(loss) of associates and joint ventures, net

Total items that may be reclassified subsequently to


TOTAL OTHER COMPREHENSIVE LOSS


Total comprehensive income attributable to:


�. Officer

Chief Executive Officer

27

2019

10,924,831

(710,054)

(710,054)

(1,479) (484)

214,013

212,050

(498,004)

10,426,827

10,163,4n 263,350

10,426,827

2018

11,080,498

13,414

113,543

126,957

(10,739) 736

(247,317)

(257,320)

(130,363)

10,950,135

10,651,283 298,852

10,950,135

The accompanying notes from 1 to 48 form an integral part of these consolidated fina nciat statements

:

F-136


CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE VEAR ENDED 31 DECEMBER 2019 (Alt Amounts in Saudi Riyals thousands unless otherwise stated)

CASH FLOWS FROM OPERATING ACTIVITIES Net profit before za kat and income tax

Adjustments:

Depreciation and amortisation Impairment loss and amortisation of contract costs and contract assets Impairment loss on trade receivables Allowance for slow moving inventories Finance income Finance cost Provision for end of service benefits and other provisions Share in results of investments in associates and joint ventures, net Net other losses

Movements in:

Trade receivables and others Inventories Contract costs Contract assets Other assets Trade payables and others Contract liabilities Other liabilities

Cash generated from operations Less: Zakat and income tax paid Less: Provision for end of service benefits paid

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment Additions to intangible assets Proceeds from sale of property and equipment Dividends from associates Acquisition of a new subsidiary Proceeds from finance income Proceeds related to financial assets Payments related to financial assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Repayment of lease liabilities Repayment of borrowings Proceeds from borrowings Finance cost paid

Net cash used in financing activities

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR Net foreign exchange difference CASH AND CASH EQUIVALENTS AT END OF THE YEAR

twn

7,8,9

11 10 38 39

40

33 27

18

25 25

19

2019 2018

11,686,975 11,828,165

8,784,587 7,590,530 506,951 657,784 662,043 706,935

57,086 31,863 (639,161) (551,535) 765,154 395,440 935,304 1,293,581 (49,597) 10,605

40,960 215,493

(7,574,857) 5,239,857 (988,430) (337,038) (296,936) (4n,7ss>

(1,573, 106) (727,257) (2,317,470) (1,210,921)

4,714,301 729,809 (130,160) (724,005)

(3,469,086) (4,326,337)

11,114,558 20,345,211 (742,882) (690,934) (451,050) (521,861)

9.920.626 19,132,416

(9,426,711) (8,406,935) (1,941,453) (1,350,151)

140,307 5,094 37,931

(232,669) 642,431 595,731

23,731,986 26,988,671 (14,928,948) (22,859,438)

(1,9n,126) {5,027,028)

(12,105,714) (8,054,671) (712,467) (350,948) (635,710) 5,381,417 303,936 (279,933) (130,517)

(8,067,645) (8,516,962)

(124,145) 5,588,426

8,153,865 2,567,044

1,290 {l,2Q5l

8,031,010 8,153,865

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F-137


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 (AU Amounts in Saudi Ri�als thousands unless otherwise stated)

Total egui9'.'. attributable to the eguitl_ holders of the Parent Comeanr.

Issued Statutory Other Retained

HRru caeital reserves reserves eaming_s Total

Balance as at 1 January 2018 (as restated) 20,000,000 10,000,000 (1,nS,390) 34,637.791 62,862.401

Net profit 10,n9,771 10,n9,771

Other comprehensive loss (128.488) (128,488)

Total comprehensive income (128.488) 10.n9,771 10,651,283

Dividends to the equity holders of the Parent Company 46 (8,000,000) (8,000,000)

Dividends paid to non-controlling interests

Balance as at 31 December 2018 20,000,000 10,000,000 (1,903,878) 37.417,562 65,513,684 =

Balance as at 1 January 2019 20,000,000 10,000,000 (1,903,878) 37,417,562 65,513,684

Net profit 10,664,666 10,664,666 Other comprehensive loss (501,189) (501,189)

Total comprehensive income (501,189) 10,664,666 10,163,477

Dividends to the equity holders of the Parent Company 46 (14,000,000) (14,000,000) Dividends to non-controlling interests Share of changes in other reserves of a joint venture equity 21.2 85,433 85,433

Transfers 17 (425,974) 425,974 -- -

Balance as at 31 December 2019 20,000,000 10,000,000 (2,745,608) 34,508,202 61,762,594

Non-controlling

interests

939,180

300,727

(1,875)

298,852

(90,118)

1,147,914

1,147,914

260,165 3,185

263,350

(118,812)

1,292,452 ---

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Total eguity

63,801,581

11,080.498

(130,363)

10,950,135

(8,000,000)

(90,118)

66,661,598 ---

66,661,598

10,924,831 (498,004)

10,426,827

(14,000,000) (118,812)

85,433

63,055,046

F-138


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE VEAR ENDED 31 DECEMBER 2019 (AU Amounts in Saudi Riyals thousands unless otherwise stated)

1. GENERAL INFORMATION

A) 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 authorised 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"). Pursuant to the Council of Ministers' Resolution No. m dated 2 Rajab 1423H (corresponding to 9 September 2002) the Government sold JC)°/. of its 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.

B) GROUP ACTIVITIES

The main activities of the Company and its subsidiaries (the "Group") comprise the provision and introduction of telecommunications, information, media services and digital payments, which include, among other things:

1) Establish, manage, operate and maintain fixed and mobile telecommunication networks, systems and infrastructure.

2) Deliver, provide, maintain and manage diverse telecommunication and information technology (ID services to customers.

3) Prepare the required plans and necessary studies to develop, implement and provide the telecom and ITservices covering all technical, financial and administrative aspects. In addition, prepare and implementtraining plans in the field of telecommunications and IT, and provide consultancy services.

4) Expand and develop telecommunication networks, systems, and infrastructure by utilizing the most current devices and equipment in telecom technology, especially in the fields of providing and managingservices, applications and software.

5) Provide integrated communication and information technology solutions which include among other things (telecom, IT services, managed services, and cloud services, etc.).

6) Provide information-based systems and technologies to customers including providing telecommunication means for the transfer of internet services.

7) Wholesale and retail trade, import, export, purchase, own, lease, manufacture, promote, sell, develop,design, setup and maintain of devices, equipment, and components of different telecom networksincluding fixed, moving and private networks. Also, computer programs and the other intellectualproperties, in addition to providing services and executing contracting works that are related to differenttelecom networks.

8) Real estate investment and the resulting activities, such as selling, buying, leasing, managing, developingand maintenance.

9) Acquire loans and own fixed and movable assets for intended use. 10) Provide financial and managerial support and other services to subsidiaries.11) Provide development, training, assets management and other related services. 12) Provide solutions for decision support, business intelligence and data investment 13) Provide supply chain and other related services. 14) Provide digital payment services. 15) Construction, maintenance and repair of telecommunication and radar stations and towers.

Moreover, the Company is entitled to set up individual companies as limited liability or closed joint stock. It may also own shares in or merged with other companies, and it has the right to partner with others to establish

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F-139



F-140

2. BASIS OF PREPARATION AND CONSOLIDATION

2.1 Basis of preparation

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi Organization for Certified Public Accountants (“SOCPA”) (“IFRS endorsed by SOCPA”).

The consolidated financial statements have been prepared on a historical cost basis, unless stated otherwise, in the below accounting policies.

The consolidated financial statements are presented in Saudi Riyals (“SR”), which is the functional currency for the Group, and all values are rounded to the nearest thousand Saudi Riyals, except when otherwise indicated.

The preparation of the consolidated financial statements in accordance with IFRS as endorsed by SOCPA requires the use of certain significant accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

The significant accounting policies (See Note 4) applied in preparing these consolidated financial statements are consistent with those applied in comparative periods presented, with the exception of IFRS 16 (Leases) that was applied for the first time (See Note 3.1)

2.2 Basis of consolidation

The consolidated financial statements of the Group comprises the financial information of the Company and its subsidiaries (refer to Note 18).

Subsidiaries are companies controlled by the Group, control is achieved when the Group has: - Power over the investee (i.e. existing rights that give the Group the current ability to direct the

relevant activities of the investee) - Exposure, or rights, to variable returns from its involvement with the investee - The ability to use its power over the investee to affect its returns

In general, there is a presumption that a majority of voting rights result in control. In support of this assumption, when the Group has less than a majority of the voting rights or similar rights in the investee, the Group takes into consideration all relevant facts and circumstances when determining whether it exercises control over the investee, including:

- Arrangement(s) with other voting rights holders in the investee company.- Rights arising from other contractual arrangements.- Group’s voting rights and potential voting rights

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control mentioned above.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired (or disposed) of during the year are included (or derecognised) in the consolidated financial statements from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the equity holders of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.



F-141

2. BASIS OF PREPARATION AND CONSOLIDATION (CONTINUED) 2.2 Basis of consolidation (continued)

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies.

All intragroup assets and liabilities, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group's ownership interests in subsidiaries that do not result in losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, a gain or loss is recognised in the consolidated statement of profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets and liabilities of the subsidiary (i.e. reclassified to the consolidated statement of profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

3. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP

3.1 IFRS 16 “LEASES”

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases.IFRS 16 supersedes the following Standards and Interpretations:

(a) IAS 17 Leases;(b) IFRIC 4 Determining whether an Arrangement contains a Lease; (c) SIC-15 Operating Leases—Incentives; and(d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all major leases; which represents a significant change from IAS 17.

Lessor accounting under IFRS 16 is substantially unchanged from previous accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

Impact of transition to IFRS 16

The Group has adopted IFRS 16 using the modified retrospective approach with the cumulative effect of applying this standard recognised at the date of initial application (1 January 2019) and accordingly the information presented for 2018 has not been restated. It remains as previously reported under IAS 17 and related interpretations. On initial application, the Group has elected to record right-of-use assets (amounting to SR 2,556 million) based on the corresponding lease liability (amounting to SR 2,367 million) adjusted for any prepaid or accrued lease payments as of 1 January 2019, with no impact on retained earnings.

Lease liabilities are recognized on the date of initial application of the lease contracts previously classified as operating leases (in accordance with IAS 17). Lease liabilities were measured at the present value of the remaining lease payments discounted using the Group's incremental borrowing rate as of 1 January 2019. The weighted average rate of incremental borrowing rate at the initial implementation date was 3.9%.



F-142

3. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP (CONTINUED) 3.1 IFRS 16 “LEASES” (CONTINUED)

The following is the reconciliation of lease liabilities on 1 January 2019 with operating lease commitments on 31 December 2018:

Operating lease commitments as at 31 December 2018 2,501,822 Weighted average incremental borrowing rate as at 1 January 2019 3.9% Discounted operating lease commitments as at 1 January 2019 2,216,484 Less: Commitments relating to short-term leases (1,192) Commitments relating to leases of low-value assets (7,358) Add: Extension and termination options not recognized at 31 December 2018 159,414 Lease liabilities as at 1 January 2019 2,367,348

The Group has elected to apply the following: 1- apply one discount rate on a portfolio of leases with reasonably similar characteristics.2- account for leases for which the lease term ends within 12 months of the date of initial application as

short-term leases.3- exclude direct costs from measuring the right of use assets at the date of initial application. 4- use hindsight, such as in determining the lease term if the contract contains options to extend or

terminate the lease.

As a practical expedient, the Group has elected not to reassess whether a contract is, or contains, a lease at the date of initial application, and continue as previously assessed under IAS 17 and IFRIC 4. The Group applied the definition of a lease under IFRS 16 to contracts entered into or changed on or after 1 January 2019.

3.2 NEW IFRS STANDARDS, ISSUED AND ADOPTED Few other amendments to IFRS and IFRIC that were applied by the Group with effective date on 1 January 2019 and had no material impact:

Amendments and interpretations Amendments to IFRS 9 'Financial Instruments' - Prepayments features with negative compensation Amendments to IAS 19 ‘Employee Benefits’ - Plan Amendment, Curtailment or Settlement Amendments to IAS 28 'Investments in Associates and Joint Ventures' – Long-term interests in Associates and Joint Ventures IFRIC 23 'Uncertainty over Income Tax Treatments' Annual Improvements to IFRS Standards 2015 – 2017 Cycle

3.3 Other Amendments of relevenant IFRS’s issued but not yet effective

Amendments and interpretations Amendments to the Conceptual Framework for Financial Reporting Definition of a Business - Amendments to IFRS (3) Definition of Material- Amendments to IAS (1) and IAS (8)



F-143

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4.1 Business combinations

Business combinations are accounted for using the acquisition method upon transfer of control to the Group. The consideration transferred is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in the consolidated statement of profit or loss as incurred.

When the Group acquires a business, it assesses the identifiable assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquirer.

At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value with limited exceptions.

Goodwill is initially measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value at the acquisition-date of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts recognised at the acquisition date.

If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then a gain on bargain purchase at a differential price is recognised in the consolidated statement of profit or loss. After initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing for goodwill acquired from the business combination and from the date of acquisition, it will be allocated to cash-generating units (CGU) that are expected to benefit from the consolidation regardless of whether the other assets or liabilities acquired have been allocated to those units.

If goodwill is not allocated to designated cash-generating units because of an incomplete initial calculation, the initial impairment loss will not be tested unless impairment indicators are available to enable the Group to distribute the carrying amount of the goodwill on the cash generating units or the group of cash generating units expected to benefit of the benefits of business combination. Where goodwill is allocated to the cash generating unit and part of the operations of that unit is disposed of, goodwill associated with the discontinued operation will be included in the carrying amount when determining the gain or loss on disposal of the operation. The goodwill in such circumstances is measured on the basis of a value of similar disposed operation and the remaining portion of the cash-generating unit.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.

Any contingent consideration to be paid (if any) will be recognised at fair value at the acquisition date and classified as equity or financial liability. Contingent consideration classified as financial liability is subsequently remeasured at fair value with the changes in fair value recognised in the consolidated statement of profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity.



F-144

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.1 Business combinations (continued)

When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in the consolidated statement of profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the consolidated statement of profit or loss where such treatment would be appropriate if that interest were disposed off.

If the initial accounting for the business combination is not completed by the end of the reporting period which constitutes the period in which the combination occurred, the Group present the items whose value calculation has not been completed in a temporary manner in the consolidated financial statements. During the measurement period, which is not more than one year from the acquisition date, the temporary value recognized on the acquisition date is retroactively adjusted to reflect the information obtained about the facts and circumstances that existed at the date of acquisition and if it is determined that this will affect the measurement of amounts recognized as of that date. The Group recognizes additional assets or liabilities during the measurement period if new information about facts or circumstances existed at the date of the acquisition and if it will result in recognition of assets or liabilities from that dat. The measurement period ends once the group obtains those information existed at the acquisition date or as soon as it becomes sure of the lack of access to more information.

4.2 Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence but does not have control or joint control over it. Significant influence is the Group ability to participate in the financial and operating policies decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the Group has joint control of the arrangement and has rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence are holding– directly or indirectly – voting rights in the investee, representation on the board of directors or equivalent governing body of the investee, participation in policy-making, including participation in decisions about dividends or other distributions; material transactions between the Group and its investee; interchange of managerial personnel; or provision of essential technical information.

The investment in associates or joint ventures are accounted for in the consolidated financial statement of the Group using the equity method of accounting. The investment in associates or joint ventures in the consolidated statement of financial position is initially recognized at cost and adjusted thereafter to recognise the Group’s share of the profit and loss and other comprehensive income of the associate or joint venture adjusted for any impairment in the value of net investment. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or joint venture), the Group discontinues recognising its share of further losses.

Additional losses are recognised and recorded as liabilities only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

Unrealised gain or losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture.

On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment.



F-145

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.2 Investments in associates and joint ventures (continued)

Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in the consolidated statement of profit or loss in the acquisition year.

The requirements of IFRSs are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. The carrying amount of the investment in an associate or a joint venture is tested for impairment in accordance with the policy described in Note (5.1.2).

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale.

When the Group reduces its ownership interest in an associate or a joint venture but the Group continues to use the equity method, the Group reclassifies to the consolidated statement of profit or loss the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss includes the disposal of the related assets or liabilities.

When any entity within the Group transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group's consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

4.3 Revenue recognition

Revenue is recognized based on the consideration specified in a contract with a customer and excludes amount collected on behalf of third parties. The Group recognizes revenue when it transfers control over a product or services to a customer.

The timing of revenues recognition is either at a point in time or over time depending upon the satisfaction of the performance obligation by transferring control of goods or services to the customer.

When there is a high degree of uncertainty about the possibility of collection from certain customers, the Group recognizes revenue only upon collection.

The Group principally earns revenue from airtime usage, messaging, data services, interconnect fees, connection fees and device sales. Products and services may be sold separately or in bundled packages.

Product and services Nature and timing of satisfaction of performance obligation

Telecommunication services Telecommunication services include voice, data and text services. The Group recognizes revenues as and when these services are provided (i.e. actual usage by the customer).

Bundled packages Arrangements involving multiple products and services are separated into individual items and revenues is recognized on the basis of fair value (standalone selling prices) of the individual items by allocating the total arrangement consideration to the individual items on the basis of the relative value of the selling prices of the individual items. Items are separable if they are of separate value to the customer.

Devices The Group recognizes revenues when the control of the device is transferred to the customer. This usually occurs at the contract inception when the customer takes the possession of the device.

Dividend income from investments in equity instruments is recognized when the Group's right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).



F-146

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.4 Lease contracts (policy applied from 1 January 2019) (See Note 3.1)


At the commencement date, the Group recognizes a right of use asset representing the Group’s right to use the underlying asset and a lease liability representing the Group’s obligation to make lease payments. At commencement date, the right of use asset is initially measured at cost (based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, as per lease terms).

After the commencement date, the right of use asset is measured using the cost model (cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the related lease liability).

At commencement date, the lease liability is measured at the present value of the lease payments that are not paid at that date, discounted using the interest rate implicit in the lease, if that rate can be readily determined; otherwise the Group’s incremental borrowing rate is used instead.

After the commencement date, the lease liability is measured by:

(a) increasing the carrying value to reflect interest on the lease liability.(b) reducing the carrying value to reflect the lease payments made.(c) remeasuring the carrying value to reflect any reassessment or lease modifications, or to reflectrevised in-substance fixed lease payments.

The amount of the remeasurement of the lease liability is recorded as an adjustment to the right of use asset. However, if the carrying amount of the right of use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, then any remaining amount of the remeasurement is recognized in the consolidated statement of profit or loss.

The Group has elected to apply the practical expedient not to recognize right of use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term.

The Group as a lessor

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. The group as a Lessor will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 does not have an impact for leases where the Group is the lessor.

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Operating lease income is recognized in the consolidated statement of profit or loss on a straight-line basis over the lease term. Any benefits granted as an incentive to enter into an operating lease, are distributed in a straight-line basis over the lease term . Total benefits from incentives are recognized as a reduction in rental income on a straight-line basis, unless there is another basis that better represents the period of time in which the economic benefits of the leased asset are exhausted.

The amounts due from the finance leases are recorded as lease receivables at an amount equal to the net investment of the Group in the lease. The lease payments to be received are distributed into two components: (1) a reimbursement of the original amount (2) a financing income to compensate the Group for its investment and services. The additional costs directly attributable to negotiating the lease contract are included in theamounts due, which in return, will reduce the finance income portion from the contract.

4.5 Foreign currencies

The information and disclosures are presented in Saudi Riyals (the functional currency of Saudi Telecom Company – the Parent Company). For each subsidiary, the Group determines the functional currency, which is defined as the currency of the primary economic environment in which the entity operates, and items included in the financial statements of each subsidiary are measured using that functional currency.



F-147

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.5 Foreign currencies (continued)

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item to which it relates.

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for limited circumstances.

For the purposes of presenting the consolidated financial statement, the assets and liabilities of the Group's foreign operations are translated into Saudi Riyals using exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the reporting period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (and attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in a joint venture or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to the Company’s shareholders are reclassified to the consolidated statement of profit or loss.

For all partial disposals of associates or joint ventures that do not result in the Group losing significant influence or joint control, the proportionate share of the accumulated exchange differences is reclassified to the consolidated statement of profit or loss.

4.6 Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the attached conditions and that the grants will be received.

Government grants are recognised in the consolidated statement of profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to the consolidated statement of profit or loss on a systematic and rational basis over the useful lives of the related assets.

When the Group receives government grants as compensation for expenses or losses already incurred or immediate financial support with no future related costs are recognised in the profit or loss in the period in which they become receivable.

4.7 Employee benefits

4.7.1 Retirement benefit costs and end of service benefits

Payments to defined contribution schemes are charged as an expense as they fall due. Payments made to state-managed pension schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution scheme.

Employee’s end of service benefits provision is calculated annually by actuaries in accordance with the projected unit credit method as per (IAS 19) Employee Benefits, taking into consideration the labour law of the respective country in which the subsidiary operates. The provision is recognised based on the present value of the defined benefit obligations.



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4.7 Employee benefits (continued)

4.7.1 Retirement benefit costs and end of service benefits (continued)

The present value of the defined benefit obligations is calculated using assumptions on the average salary incremental rate, average emolyees years of service and an appropriate discount rate. The assumptions used are calculated on a consistent basis for each period and reflect management’s best estimate.

Due to the fact that the Kingdom does not have a deep market in high quality corporate bonds, the discount rate is deterimined based on available information of Saudi Arabia sovereign bond yields with a term consisentent with the estimated term of the defined benefit obligation as at the reporting date.

Re-measurement of net liabilities that includes actuarial gains and losses arising from the changes in assumptions used in the calculation, is recognized directly in other comprehensive income. Re-measurements are not reclassified to the consolidated statement of profit and loss in subsequent periods.

The cost of past services (if any) is recognized in the consolidated statement of profit or loss before:

- Date of modification of the program or labour downsizing; and- The date on which the Group recognizes the related restructuring costs.

Net interest cost is calculated using the discount rate to net defined benefit assets or liabilities. The Group recognizes the following changes in the net benefit obligation identified under "cost of revenue", "general and administrative expenses" and "selling and marketing expenses" in the consolidated statement of profit or loss (by function):

- Service costs that include the current service costs, past service costs, profits and losses resultingfrom labour downsizing and non-routine payments.

- Net interest cost or income.

4.7.2 Other short and long -term employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period in which the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

4.8 Zakat and Taxation

4.8.1 Zakat

The Group calculates and records the zakat provision based on the zakat base in its consolidated financial statements in accordance with Zakat rules and principles in the Kingdom of Saudi Arabia. Adjustments arising from final zakat assessment are recorded in the reporting period in which such assessment is approved by the General Authority of Zakat and Tax (“GAZT”).

4.8.2 Current and deferred taxes

Tax related to subsidiaries located outside the Kingdom is calculated in accordance with tax laws applicable in those countries.

Deferred income tax provision for foreign entities is calculated using the liability method, and it is used for the temporary differences at the end of the financial year between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities and deferred tax assets are measured at the tax rates expected to be applied in the reporting period in which the obligation is settled, or the assets is realized.

Deferred tax assets of foreign entities are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized. This involves a judgement relating to the future financial performance of the foreign entity in which the deferred tax assets have been recognised. Deferred tax liabilities are generally recognized for all temporary differences that are taxable. The current income tax is recognized in the consolidated statement of profit or loss.



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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.9 Property and equipment

Property and equipment are stated in the consolidated statement of financial position at their cost, less any accumulated depreciation and accumulated impairment losses.

Cost of telecommunication network and equipment comprises all expenditures incurred up to the customer connection point, including contractors’ charges, direct materials and labour costs till the date the relevant assets are placed into service.

Assets under construction are carried at cost, less any recognised impairment loss. Depreciation of these assets commences when the assets are ready for their intended use.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items.

When significant parts of property and equipment are to be replaced (except land), the Group recognises such parts as individual assets with specific useful life. All other repairs and maintenance costs are charged to the consolidated statement of profit or loss during the reporting period in which they are incurred, except to the extent that they increase productivity or extend the useful life of an asset, in which cases they are capitalized.

Depreciation is charged and reduces the cost of assets, other than land, using the straight-line method, over their estimated useful lives. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of profit or loss within other operating income or expenses.

The residual values, useful lives and methods of depreciation of property and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

4.10 Intangible assets other than goodwill

Intangible assets are presented in the consolidated financial position at cost less accumulated amortisation and accumulated impairment losses. The cost of intangible assets acquired in a business combination represents their fair value as at the date of acquisition. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and the estimated useful life and amortisation method are reviewed at the end of each financial year end, with the effect of any changes in estimate being accounted for on a prospective basis.

Intangible assets with indefinite lives are not amortized, but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

4.10.1 Software

Computer software licenses are capitalised based on the cost incurred to acquire the specific software and bring it into use. Amortisation is charged to the consolidated statement of profit or loss on a straight line basis over the estimated useful life from the date the software is available for use.

4.10.2 Licence and frequency spectrum fees

Amortisation periods for licence and frequency spectrum fees are determined primarily by reference to the unexpired licence period, the conditions for licence renewal and whether licences are dependent on specific technologies. Amortisation is charged to the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives when the related network services are available for use.



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4.10 Intangible assets other than goodwill (continued)

4.10.3 Indefeasible Rights of Use (“IRU”)

IRUs correspond to the right to use a portion of the capacity of a terrestrial or submarine transmission cable granted for a fixed period. IRUs are recognised at cost as an asset when the Group has the specific indefeasible right to use an identified portion of the underlying asset, generally optical fibres or dedicated wavelength bandwidth, and the duration of the right is for the major part of the underlying asset’s economic life. They are amortised on a straight line basis over the shorter of the expected period of use and the life of the contract which ranges between 10 to 20 years.

4.10.4 Derecognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the consolidated statement of profit or loss.

4.11 Impairment of tangible and intangible assets other than goodwill

At the end of each finical year, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of other assets (cash-generating unit).

Recoverable amount is the higher of fair value less costs of disposal and the present value of the estimated future cash flows expected to be derived from the asset (value in use). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated statement profit or loss.

Tangible and intangible assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each financial year.

4.12 Inventories

Inventories are stated at the lower of cost or net realisable value. Costs of inventories are determined using the weighted average method of costing. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

4.13 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and the obligation can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the financial year, after taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost in the consolidated statement of profit or loss.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.



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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.14 Assets’ decommissioning liabilities (continued)

The Group recognizes obligations on decommissioning of assets when there is a legal or constructive obligation arising from past events and is likely to result in an outflow of resources to settle the obligation and if the obligation can be reliably measured.

The Group calculates a provision with the value of future costs related to the removal and decommissioning of the network and other assets. Upon initial recognition of the obligation, the present value of the expected costs (using a discount rate for future cash flows ) is added to the value of the concerned network and other assets. Changes in the discount rate, timing and cost of removing and decommissioning assets are accounted prospectively by adjusting the carrying amount of the provision and the carrying amount of the network and other assets.

4.15 Financial instruments

4.15.1 Classification, recognition, and presentation

Financial instruments are recognised in the consolidated financial position when and only when the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial instruments at initial recognition.

The Group classifies its financial assets within the following categories: a) at fair value (either through other comprehensive income, or through profit or loss) b) at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. The Group has classified all non-derivative financial liabilities at amortised cost.

Derivatives embedded in host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the consolidated statement of profit or loss. 4.15.2 Measurement

4.15.2.1 Initial measurement

Financial assets and financial liabilities are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of financial assets and issue of financial liabilities or, where appropriate, deducted from them. (Except for financial assets and financial liabilities classified at fair value where transaction costs directly attributable to the acquisition of financial assets or financial liabilities are recognized directly in the consolidated statement of profit or loss).

4.15.2.2 Subsequent measurement of financial assets

The subsequent measurement of the non-derivative financial assets depends on their classification as follows:

a. Financial assets measured at amortised cost:

Assets that are held to collect contractual cash flows are measured at amortised cost using the effective interest rate (‘EIR’) method where those cash flows represent solely payments of principal and interest. Interest income from these financial assets is included in finance income.

b. Financial assets measured at fair value through profit or loss

The financial assets measured at fair value through profit or loss (“FVTPL”) are measured at each reporting date at fair value without the deduction of transaction costs that the Group may incur on sale or disposal of the financial asset in the future.



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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4.15 Financial instruments (Continued)

4.15.2 Measurement (Continued)

4.15.2.2 Subsequent measurement of financial assets (continued)

c. Financial assets measured at fair value through other comprehensive income

The financial assets measured at fair value through other comprehensive income (“FVOCI”) are measured at each reporting date at fair value without the deduction of transaction costs that the Group may incur on sale or disposal of the financial asset in the future.

When the financial asset is derecognised, the accumulated gain or loss recognised previously in the consolidated statement of comprehensive income are reclassified to the consolidated statement of profit and loss. However, there is no subsequent reclassification of fair value gains and losses to consolidated statement of profit and loss in case of equity instruments. The recognition and presentation of gains and losses for each measurement category are as follows:

Measurement category Recognition and presentation of gains and losses

At amortised cost The following items are recognised in the consolidated statement of profit or loss:

finance income using the effective interest method expected credit losses (or reversals of such losses) foreign exchange gains and losses.

When the financial asset is derecognised, the gain or loss is recognised in consolidated statement of profit or loss.

At FVOCI Gains and losses are recognised in the consolidated statement of comprehensive income, except for the following items, which are recognised in consolidated statement of profit or loss in the same manner as for financial assets measured at amortised cost:

finance income using the average effective interest method expected credit losses (or reversals of such losses) foreign exchange gains and losses.

Equity instruments – gain or loss – presented in consolidated statement of comprehensive income

Gains and losses are recognised in the consolidated statement of comprehensive income. Dividends are recognised in consolidated statement of profit or loss unless they clearly represent a repayment of part of the cost of the investment. The amounts recognised in the consolidated statement of comprehensive income are not reclassified to consolidated statement of profit or loss under any circumstances.

At FVTPL Gains and losses, both on subsequent measurement and derecognition, are recognised in consolidated statement of profit or loss.



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4.15 Financial instruments (Continued)

4.15.2 Measurement (Continued)

4.15.2.3 Subsequent measurement of financial liabilities a. Amortised cost

The Group should classify all financial liabilities at amortised cost and remeasured subsequently as such, except for:

1- financial liabilities at FVTPL2- financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or is

accounted for using the continuing involvement approach3- commitments to provide a loan at a below-market interest rate and not measured at fair value though

profit or loss 4- financial guarantee contracts 5- contingent consideration recognised at fair value by the Group in a business combination to which IFRS

3 applies (shall subsequently be measured at fair value with changes recognised in the consolidatedstatement of profit or loss).

Financial liabilities classified at amortized cost are measured using the effective interest rate method. When the financial liabilities are derecognised, the gain or loss is recognised in consolidated statement of profit or loss.

b. Liabilities at fair value through profit or loss

Financial liabilities falling under this category include: 1- liabilities held for trading2- derivative liabilities not designated as hedging instruments 3- those designated as at FVTPL

After initial recognition, the Group measures financial liabilities at fair value with changes recognised in theconsolidated statement of profit or loss.

Gains or losses on a financial liability designated as at FVTPL are generally split and presented as follows:

1- the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that financial liability is presented in the consolidated statement of comprehensive income

2- the remaining amount of change in the fair value of the financial liability is presented in the consolidatedstatement of profit or loss

4.15.3 Impairment of financial instruments

With respect to impairment of financial assets, IFRS 9 requires the use of the expected credit loss (ECL) model instead of the incurred credit loss model under IAS 39, whereby, the Group assesses the expected credit losses associated with its assets carried at amortised cost and debt instrument carried at FVOCI. The impairment methodology applied depends on whether there has been a significant increase in the credit risk of the financial instrument since initial recognition. Accordingly, the provision for impairment of financial instruments is measured by the amount of the expected credit losses over the life of the financial instrument. If credit risk of the financial instrument has not increased significantly since initial recognition, then 12 month ECL is used to provide for impairment loss. For trade receivables and contact assets, the Group applies a simplified approach to measure the provision for impairment loss in an amount equal to the expected credit loss over the life of the financial instrument.

4.15.4 Derecognition of financial assets

The financial assets are derecognised from the consolidated statement of financial position when the rights to receive cash flows from the financial assets have expired, or when the financial assets or all its risks and rewards of ownership have been transferred to another party. The difference between the financial asset’s book value and its transferred proceeds will be recorded in the consolidated statement of profit or loss.



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4.15 Financial instruments (continued)

4.15.5 Derecognition of financial liabilities

The financial liabilities are derecognised when and only when the underlying obligations are extinguished, cancelled or expires.

4.15.6 Offsetting between financial assets and financial liabilities

A financial asset and a financial liability are offsetted and presented as a net amount in the consolidated statement of financial position when, and only when, both of the following conditions are satisfied:

1- The Group currently has a legal enforceable right to offset the recognised amounts of the asset andliability; and

2- The Group intends to settle on a net basis exists, or to realise the asset and settle the liabilitysimultaneously.

4.16 Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and short term Murabahas with a maturity of three months period or less, which are subject to an insignificant risk of changes in value.

4.17 Fair values

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure in the consolidated financial statements purposes is determined on such a basis, except for leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

The Group uses valuation techniques appropriate to current circumstances that provide sufficient data to measure fair value, providing the maximum limit for the use of relevant inputs that are observable and the minimum use of inputs that can be not observable. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: a- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the

Group can access at the measurement date; b- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the

asset or liability, either directly or indirectly; andc- Level 3 inputs are unobservable inputs for valuing the asset or liability, either directly or indirectly.

4.18 Non Current Asset held for Sale

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. When the Group is committed to a sale plan involving disposal of an investment in an associate or, a portion of an investment in an associate, the investment, or the portion of the investment in the associate, that will be disposed of is classified as held for sale when the criteria described above are met. The Group then ceases to apply the equity method in relation to the portion that is classified as held for sale. Any retained portion of an investment in an associate that has not been classified as held for sale continues to be accounted for using the equity method.



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4.19 Segmental Information

The specific operating segments of the Group are identified based on internal reports, which are regularly reviewed by the Group's main decision makers (chief operating decision maker) for the purpose of resource allocation among segments and performance assessment.

5. SIGNIFICANT ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies, which are described in Note 4, the management of the Group are required to make judgements about the carrying amounts of assets and liabilities and the accompanying disclosures that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods.

5.1 Significant estimates in applying accounting policies

The following are the significant estimates, apart from those involving uncertain estimations (See Note 5.2 below), that the management have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statement.

5.1.1 Revenue recognition

Gross versus net presentation

When the Group sells goods or services as a principal, revenue and payments to suppliers are reported on a gross basis in revenue and operating costs. If the Group sells goods or services as an agent, revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin earned.

Whether the Group is considered to be the principal or an agent in the transaction depends on analysis by management of both the legal form and substance of the agreement between the Group and its business partners; such judgements impact the amount of reported revenue and operating expenses but do not impact reported assets, liabilities or cash flows.

5.1.2 Impairment of non-financial assets

An impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow (DCF) model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.

5.2 Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

5.2.1 Arrangements with multiple deliverables

In revenue arrangements where more than one good or service is provided to the customer, customer consideration is allocated between the goods and services using relative fair value principles. The Group generally determines the fair value of individual elements based on prices at which the deliverable is regularly sold on a stand-alone basis. Revision to the estimates of these fair values may significantly affect the allocation of total arrangement consideration among the individual elements.



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5. SIGNIFICANT ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

5.2 Key sources of estimation uncertainty (continued)

5.2.2 Customer activation service fees

Customer activation service fees are deferred and recognised over the average of customer retention period (period of contract or anticipated contract). The estimation of the expected average duration of the relationship is based on historical turnover. If the Group’s estimates are revised, material differences may result in the amount of revenue and timing of revenue for any period. 5.2.3 Provisions

In respect of provisions including decommissioning provision, the Group provides for anticipated outflows of resources considered probable. Estimates are used in assessing the likely amount of the settlement. The ultimate liability may vary from the amounts provided and would be dependent on the eventual outcome. See Note 26 for details.

5.2.4 Useful lives for property and equipment, software and other intangible assets

The annual depreciation and amortisation charge is sensitive to the estimated lives allocated to each type of asset. Assets lives are assessed annually and changed where necessary to reflect current circumstances in light of technological change, network investment plans and physical conditions of the assets concerned.

5.2.5 Provision for impairment losses on trade receivables and contract assets

The Group uses a provision matrix to calculate expected credit loss on trade receivables and contract assets. The provision matrix is initially based on Group’s historical observed defaults rates. The Group calibrates the matrix to adjust the historical loss experience with forward looking information. At the end of each reporting date, the Group updates its historical default rates and reflects that on future estimates.

The Group recognizes an allowance for impairment loss of 100% against all trade receivables that are aged over 365 days, except for balances with related parties and balances of which credit quality did not deteriorate based on historical experience of the Group.



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6. SEGMENT INFORMATION

The Group is engaged mainly in providing telecommunication services and related products. Majority of the Group’s revenues, income and assets relate to its operations within the Kingdom (Saudi Telecom Company and Channels by stc). Outside of the Kingdom, the Group operates through its subsidiaries, associates and joint ventures in several countries.

Revenue is distributed to an operating segment based on the entity of the Group reporting the revenue. Sales between segments are calculated at normal business transaction prices.

The disclosed operating segments exceeded the 75% threshold and therefore all other operating segments are combined and disclosed as “Other segments”.

The following is an analysis of the Group's revenues and results based on segments for the year ended 31 December:

2019 2018

Revenues (1) Saudi Telecom Company 40,259,106 39,356,283 Channels by stc 17,409,802 16,882,726 Other operating segments (2) 12,628,185 9,502,560 Eliminations / adjustments (15,929,562) (13,778,326)

──────── ──────── Total revenues 54,367,531 51,963,243

Cost of operations (excluding depreciation and amortisation) (33,102,551) )32,127,488( Depreciation and amortisation (8,784,587) )7,590,530( Cost of early retirement (600,000) )450,000( Finance income 639,161 551,535 Finance cost (765,154) (395,440) Net other (expenses) income (76,062) 102,943 Net share in results of investments in associates and joint ventures 49,597 )10,605( Net other losses (40,960) )215,493( Zakat and income tax (762,144) )747,667(

──────── ──────── Net profit 10,924,831 11,080,498

════════ ════════

Net profit attributable to: Equity holders 10,664,666 10,779,771 Non-controlling interests 260,165 300,727

──────── ────────10,924,831 11,080,498

════════ ════════

Following is the gross profit analysis on a segment basis for the year ended 31 December:

2019 2018

Saudi Telecom Company 26,299,935 25,408,542 Channels by stc 1,418,463 1,314,706 Other operating segments (2) 4,910,725 3,795,174 Eliminations / adjustments (237,898) (45,340)

──────── ──────── Gross profit 32,391,225 30,473,082

═════════ ═════════



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6. SEGMENT INFORMATION (CONTINUED)

The following is an analysis of the assets and liabilities on a segment basis as at:


Assets Saudi Telecom Company 125,104,941 116,882,397Channels by stc 4,560,238 3,333,662Other operating segments (2) 34,355,695 19,539,165Eliminations / Adjustments (45,694,618) )30,384,630(

───────── ─────────Total Assets 118,326,256 109,370,594

═════════ ═════════Liabilities Saudi Telecom Company 49,484,795 38,998,013Channels by stc 3,122,999 2,068,819Other operating segments (2) 22,438,203 10,512,261Eliminations / Adjustments (19,774,787) )8,870,097(

───────── ─────────Total Liabilities 55,271,210 42,708,996

═════════ ═════════

Following are the additions to non-current assets (See Notes 7 and 8) based on the segments for the year ended 31 December:

2019 2018 Additions to non-current assets Saudi Telecom Company 9,109,544 11,373,307 Channels by stc 116,352 56,427 Other operating segments (2) 2.535.992 1,118,474

───────── ───────── 11,761,888 12,548,208

═════════ ═════════

(1) Segment revenue reported above represents revenue generated from external and internalcustomers. There were SR 15,930 million for the year ended 31 December 2019 (2018: SR 13,778 million,)inter-segment sales and adjustments (between the Group’s Companies) which were eliminated atconsolidation.

(2) Other operating segments include: Kuwait Telecommunications Company (stc Kuwait), stc Bahrain, Solutions by stc, Specialized by stc, stc Gulf, Sapphire, Aqalat, Telecommunications TowersCompany, and Saudi Digital Payments Company (See Note 18).

For the purpose of monitoring the performance of segments, assets/liabilities are allocated to segments and no assets and liabilities are used mutually between segments.

Information about major customers

Included in revenues arising from sales are revenues of approximately SR 6,873 million for the year ended 31 December 2019 (31 December 2018: SR 6,335 million) that arose from sales to the Government and Government entities (See Note 20.2). No other single customers contributed 10% or more to the Group's revenue.

Information about geographical segmentation

Geographical segmentation of revenues and non-current assets are as follows:

Revenues for the year ended Non-current assets as at 31 December 2019 31 December 2018 31 December 2019 31 December 2018

Kingdom of Saudi Arabia 49,970,303 47,323,610 62,160,408 53,862,288 Others 4,397,228 4,639,633 11,324,356 9,478,781

───────── ───────── ───────── ───────── 54,367,531 51,963,243 73,484,764 63,341,069

═════════ ═════════ ═════════ ═════════



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7. PROPERTY AND EQUIPMENT

Land and buildings

Telecommunication network and equipment Other assets


Cost As at 1 January 2019 14,892,365 83,769,469 8,461,774 3,672,535 110,796,143 Additions 82,187 192,850 72,192 8,921,089 9,268,318 Additions related to the acquisition of a new subsidiary (See Note 18) - 127,979 17,593 7,589 153,161 Disposals / transfers 349,868 6,385,512 342,993 (7,811,160) (732,787) Effect of foreign currency exchange differences (366) 4,685 (28) 439 4,730

───────── ───────── ───────── ───────── ───────── As at 31 December 2019 15,324,054 90,480,495 8,894,524 4,790,492 119,489,565

───────── ───────── ───────── ───────── ───────── Accumulated depreciation As at 1 January 2019 8,524,319 54,880,178 5,471,237 - 68,875,734 Additions related to the acquisition of a new subsidiary (See Note 18) - 119,262 3,739 - 123,001 Depreciation for the year 373,337 5,363,373 340,838 - 6,077,548Disposals / transfers (84,075) (449,106) (141,437) - (674,618) Effect of foreign currency exchange differences (60) 2,624 (6) - 2,558

───────── ───────── ───────── ───────── ───────── As at 31 December 2019 8,813,521 59,916,331 5,674,371 - 74,404,223

───────── ───────── ───────── ───────── ─────────Net book value as at 31 December 2019 6,510,533 30,564,164 3,220,153 4,790,492 45,085,342

═════════ ═════════ ═════════ ═════════ ═════════



F-160


Land and buildings

Telecommunication network and equipment Other assets


Cost As at 1 January 2018 14,681,829 77,627,211 7,873,489 3,667,103 103,849,632 Additions 23,258 29,749 62,020 8,205,042 8,320,069 Additions related to the acquisition of a new subsidiary - 90,830 2,531 1,480 94,841 Disposals / transfers 187,278 6,035,287 523,934 )8,200,628( (1,454,129) Effect of foreign currency exchange differences - )13,608( )200( )462( )14,270(

───────── ───────── ───────── ───────── ───────── As at 31 December 2018 14,892,365 83,769,469 8,461,774 3,672,535 110,796,143

───────── ───────── ───────── ───────── ───────── Accumulated depreciation As at 1 January 2018 8,381,477 50,315,490 5,212,049 - 63,909,016Depreciation for the year 367,828 5,154,889 382,275 - 5,904,992Disposals / transfers )224,986( )597,738( )123,272( - )945,996(Effect of foreign currency exchange differences - 7,537 185 - 7,722

───────── ───────── ───────── ───────── ─────────As at 31 December 2018 8,524,319 54,880,178 5,471,237 - 68,875,734

───────── ───────── ───────── ───────── ─────────Net book value as at 31 December 2018 6,368,046 28,889,291 2,990,537 3,672,535 41,920,409

═════════ ═════════ ═════════ ═════════ ═════════

Property and equipment are depreciated using the following estimated useful lives:

Buildings 10 - 50 years Telecommunication network and equipment 3 - 30 years Other assets 3 - 20 years



F-161


a- Land and buildings include land of SR 2,203 million as at 31 December 2019 (31 December 2018: SR 2,200million). Including lands with ongoing ownership transfer to the Company with a value of SR 200 million(2018: SR 200 million).

b- Pursuant to Royal Decree No. M/35 Dated 24 Dhu al-Hijjah 1418 (corresponding to 21 April 1998), referred to in Note 1-A, the ownership of the Assets was transferred to the Company on 2 May 1998, but the transferof legal title for some lands are still ongoing. The value of lands with legal titles transferred to theCompany up to 31 December 2019 amounted to SR 1,879 million (2018: SR 1,879 million). Ownership transferof the remaining lands with total value of SR 144 million (2018: SR 144 million) is ongoing, which constitutes part of the amount referred to in paragraph (a) above.

c- Other assets include furniture, fixtures, motor vehicles, computers and tools.

d- During the year, the Group disposed of assets with a net book value of SR 465 million (31 December 2018:SR 414 million) resulting in a loss amounting to SR 325 million (31 December 2018: SR 291 million) (See Note40).

e- The following table shows the breakdown of depreciation expense if allocated to operating costs itemsfor the year ended 31 December:

2019 2018

Cost of revenues 4,931,664 4,859,647 Selling and marketing expenses 16,239 31,472 General and administrative expenses 1,129,645 1,013,873

───────── ───────── 6,077,548 5,904,992

═════════ ═════════

f- Property and equipment include land and building owned by a subsidiary that are pledged againstmurabaha borrowings amounting to SR 54 million (31 December 2018: SR 108 million).



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8. INTANGIBLE ASSETS AND GOODWILL

Computer software


Cost As at 1 January 2019 10,410,881 7,695,620 75,613 1,994,841 20,176,955 Additions 103,182 43,705 - 1,859,295 2,006,182 Additions related to the acquisition of a new subsidiary (1) - 238,141 67,425 28,661 334,227 Disposals/Transfers 1,134,674 - - (1,109,051) 25,623 Effect of foreign currency exchange differences - (1,892) - 37 (1,855)

───────── ───────── ───────── ───────── ───────── As at 31 December 2019 11,648,737 7,975,574 143,038 2,773,783 22,541,132

───────── ───────── ───────── ───────── ───────── Accumulated amortisation and impairment As at 1 January 2019 7,497,478 2,277,146 - 842,212 10,616,836 Amortisation for the year 1,309,535 392,398 - 249,138 1,951,071 Disposals/Transfers 25,137 - - 42,021 67,158 Effect of foreign currency exchange differences - (690) - 69 (621)

───────── ───────── ───────── ───────── ───────── As at 31 December 2019 8,832,150 2,668,854 - 1,133,440 12,634,444

───────── ───────── ───────── ───────── ───────── Net book value as at 31 December 2019 2,816,587 5,306,720 143,038 1,640,343 9,906,688

═════════ ═════════ ═════════ ═════════ ═════════



F-163


Computer software


Cost As at 1 January 2018 9,492,799 4,971,203 75,613 1,860,645 16,400,260 Additions 1,052,228 2,646,280 - 346,917 4,045,425 Additions related to the acquisition of a new subsidiary - 78,137 - 9,736 87,873 Disposals/Transfers (134,146) - - (222,266) (356,412) Effect of foreign currency exchange differences - - - (191) (191)

───────── ───────── ───────── ───────── ───────── As at 31 December 2018 10,410,881 7,695,620 75,613 1,994,841 20,176,955

───────── ───────── ───────── ───────── ───────── Accumulated amortisation and impairment As at 1 January 2018 6,460,526 1,899,032 - 866,127 9,225,685 Amortisation for the year 1,166,098 378,114 - 141,326 1,685,538 Disposals/Transfers (129,146) - - (164,476) (293,622) Effect of foreign currency exchange differences - - - (765) (765)As at 31 December 2018 ───────── ───────── ───────── ───────── ─────────

7,497,478 2,277,146 - 842,212 10,616,836 Net book value as at 31 December 2018 ───────── ───────── ───────── ───────── ─────────

2,913,403 5,418,474 75,613 1,152,629 9,560,119 ═════════ ═════════ ═════════ ═════════ ═════════



F-164


1) During the year 2019, one of the subsidiaries (Kuwait Telecommunications Company (stc Kuwait))completed the acquisition of Qualitynet General Trading and Contracting Company W.L.L.(QualityNet), resulting into a goodwill of KD 5.45 million (equivalent to SR 67.5 million) (See Note 18).

2) Others includes contract intangible assets such as under-sea cable network, franchise agreementsand computer software under development.

Intangible assets are amortized using the following estimated useful lives:

Computer software 5 – 7 years Telecommunication licenses 15 – 25 years Others 3-5 years

The following is the net book value and expiry dates of the mobile operating licenses and frequency spectrum as at:

Country End of amortisation

period 31 December 2019 31 December 2018

Kuwait 2021 / 2031 / 2039 2,033,350 1,933,493 Bahrain 2038 732,780 730,375 Kingdom of Saudi Arabia 2026 / 2032 / 2033 2,540,590 2,754,606

───────── ───────── 5,306,720 5,418,474

═════════ ═════════

The following table shows the breakdown of amortisation expense if allocated to operating costs items for the year ended 31 December:

2019 2018

Cost of revenues 641,036 550,947 Selling and marketing expenses 3,493 2823, 2 General and administrative expenses 1,306,542 1,111,309

─────── ─────── 1,951,071 1,685,538

═══════ ═══════

9. RIGHT OF USE ASSETS

Land and Buildings Motor Vehicles Others* Total At 1 January 2019 2,375,639 8,281 171,604 2,555,524 Additions 1,012,209 212,075 - 1,224,284 Depreciation (700,786) (17,409) (37,773) (755,968)Disposal and others (135,907) - - (135,907)At 31 December 2019 2,551,155 202,947 133,831 2,887,933

* Others include rental of towers sites



F-165

9. RIGHT OF USE ASSETS (CONTINUED)

Right of use assets are depreciated using the following estimated useful lives:

Buildings 2 – 31 years Motor Vehicles 2 – 4 years Others 2-10 years

The following table shows the breakdown of depreciation expense if allocated to operating costs items for the year ended 31 December:

2019

Cost of revenues 562,514 Selling and marketing expenses 7,539 General and administrative expenses 185,915

755,968

10. INVENTORIES


Goods held for resale 2,113,405 1,128,454 Less: Allowance for slow moving inventories (391,875) (340,998)

───────── ───────── 1,721,530 787,456

═════════ ═════════

The following is an analysis of the allowance for slow moving inventories for the year ended 31 December:

2019 2018

Balance at beginning of the year 340,998 423,312 Reversal/adjustment during the year (6,209) (114,177) Charged during the year 57,086 31,863

───────── ───────── Balance at end of the year 391,875 340,998

═════════ ═════════

11. TRADE AND OTHER RECEIVABLES



───────── ─────────19,557,579 13,041,232

- Non trade receivables 1,814,789 1,451,917───────── ─────────

21,372,368 14,493,149═════════ ═════════



F-166

11. TRADE AND OTHER RECEIVABLES (CONTINUED)

11.1 Trade receivables

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the financial year. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. The requirement for impairment in relation to key customers and related parties are analysed on an individual basis. Retail customers and other minor receivables are assessed for impairment on a collective basis.

Ageing analysis of trade receivables as follows:


Not past due 3,249,052 2,045,083Past due: 1 – 30 days 1,437,935 458,25931 – 90 days 1,473,426 1,268,92191 – 150 days 1,194,900 1,563,952151 – 270 days 3,129,379 2,761,160271 – 365 days 1,102,958 731,356>365 days 10,787,985 6,688,242

───────── ─────────

22,375,635 15,516,973═════════ ═════════

Movement of trade receivables’ allowance for impairment loss for the year ended 31 December as follows:

2019 2018

Balance at beginning of the year 2,475,741 2,473,211 Charged for the year (Note 36) 662,043 706,935 Amounts written off during the year (319,728) (704,405)

───────── ───────── Balance at end of the year 2,818,056 2,475,741

═════════ ═════════ 11.2 Government and government related entities

Trade receivables balance from Government and Government related entities amounted to SR 18,508 million as at 31 December 2019 (31 December 2018: SR 12,343 million) (See Note 20.2). No other clients represent more than 10% of the total balance of trade receivables.

Receivable aging from government entities and government related entities is as follows:


Less than a year 7,903,051 6,936,884 More than one year to two years 6,393,629 5,367,424 More than two years 4,211,395 38,416

───────── ───────── 18,508,075 12,342,724

═════════ ═════════

12. SHORT TERM MURABAHAS

The Group invests part of its excess cash in Murabahas that have maturity of 91 days or more with several local banks, with an annual profit rate ranging from 2% to 5% (31 December 2018: 2% to 5%).



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13. OTHER ASSETS



───────── ───────── 4,188,947 2,324,499

═════════ ═════════


───────── ───────── 4,188,947 2,324,499

═════════ ═════════

14. ASSETS HELD FOR SALE

On 26 March 2019 Uber Technologies (Uber) signed an assets purchase agreement with Careem (the Group holds a direct shares of 8.88%) to acquire the net assets of Careem for about USD 3.1 billion (equivalent up to SR 11.6 billion) subject to modifications.The total financial return of the agreement consists of the following:

- About USD 1.7 billion (equivalent up to SR 6.4 billion) of convertible bonds, unsecured and without interest. - About USD 1.4 billion (equivalent up to SR 5.2 billion) in cash. The acquisition was completed by Uber on 2 January 2020 after obtaining the approval of most of the regulatory authorities in the relevant countries with retention of the equivalent of 25% of the deal value for a period of two years (See Note 45 - subsequent events).

15. CONTRACT COSTS Contract costs consist of the following:


Costs to obtain the contracts (1) 299,118 174,357 Costs to fulfil the contracts (2) 623,804 855,772

922,922 1,030,129

(1) Costs to obtain contracts relate to incremental commission fees and additional incentives paid tointermediaries, dealers and employees as a result of obtaining contracts with customers. Thesecosts are amortised on a straight line basis over the period of contract/anticipated contract.

(2) Costs to fulfil contracts are installation costs and are amortised on a straight line basis over theperiod of contract/anticipated contact.

The following table shows the allocation of contract costs amortization and impairment losses among operating costs items for the year ended 31 December::

2019 2018 Cost of revenues (See Note 35) 315,797 373,644 Selling and marketing expenses (See Note 36) 88,346 42,989

───────── ───────── 404,143 416,633

═════════ ═════════



F-168

16. CONTRACT ASSETS


Unbilled revenue 7,596,729 6,060,202 Less: Allowance for impairment losses (154,905) (87,719)

───────── ───────── 7,441,824 5,972,483

═════════ ═════════


───────── ───────── 7,441,824 5,972,483

═════════ ═════════ Contract assets are initially recognized for revenue earned from rendering of telecom services, sale of devices, and construction contracts unbilled yet. Upon completion of billing cycle, the amounts recognized as contract assets are reclassified to trade receivables.

17. FINANCIAL ASSETS


Financial assets measured at FVTPL (1) 1,550,869 3,115,185 Financial assets at amortised cost Sukuk (2) (3) 5,600,543 1,490,137 Murabahas (4) - 2,250,746Loans to employees (5) 438,481 524,417Others (6) 110,129 86,174

───────── ───────── 6,149,153 4,351,474

Financial assets designated at FVTOCI (1) - 1,394,602───────── ─────────

7,700,022 8,861,261 ═════════ ═════════

Current 376,589 5,488,245 Non-current 7,323,433 3,373,016

───────── ───────── 7,700,022 8,861,261

═════════ ═════════

1) During 2019, the Group reclassified its investment in the units of stc Ventures Fund and STV LP fund from financial assets measured at fair value through OCI (FVOCI) to financial assets measured at fair value through profit or loss (FVTPL).

- stc ventures fund is a fund investing in emerging ,small and medium-sized companies operating inthe field of Communications and Information Technology in Saudi and other global markets.Investment units were valued at SR 724 million as at 31 December 2019 (31 December 2018: SR 614million).

- STV LP Fund is a fund investing in internationally in high-growth pioneer private technologycompanies with total value of USD 500 million (equivalent to SR 1,875 million) financed in five equalinstalments of USD 100 million each (equivalent to SR 375 million). During 2018, the first and secondinstalments were paid by the Company in total of USD 200 million (equivalent to SR 750 million).Investment units were valued at SR 846 million as at 31 December 2019 (31 December 2018: SR 781million).



F-169

17. FINANCIAL ASSETS (CONTINUED)

2) The Group invested in Sukuk that issued by the Ministry of Finance during the first quarter of 2019as the following:

Tranche I Tranche II Nominal Investment value 1,762,000 2,140,000 Investment duration 5 years 10 years Yield 3.17% 3.9% Investment amount at maturity 1,771,755 2,227,188

3) On 31 December 2007, stc Asia Holding Company Limited (a subsidiary) invested in Sukuk issued byBinariang GSM Holding (“BGSM”) in the amount of RM 1,508 million (equivalent to SR 1,383 million) for a period of 50 years (callable after 10 years) with an annual profit margin of 10.75% upto 28 December 2017 and then a profit margin of 9.25% for subsequent periods. These sukuk are not past due or low in value with a book value of SR 1,587 million as of 31 December 2019 (31 December 2018: SR 1,490 million).

4) During 2019, most of the company’s investments in the diversified investment portfolio and murabaha investments were liquidated mainly and reinvested in the Ministry of Finance Sukuk (See Note 17.2).

5) The Company has provided its employees interest-free loans to acquire residential housing andmotor vehicles for a period of 25 years and 4 years, respectively. The repayment is made in equalinstalments over the term of the loan duration while the employee remains in service, otherwise, they are required to be repaid in full upon the employee leaving the Company. Any new housing loansprovided to an employee after June 2016 are being funded through a local commercial bank and areguaranteed by the Company. The Company bears loans’ finance cost.

6) Mainly represent a Group subsidiary suppliers retentions amounting to SR 80 million as at 31December 2019 (31 December 2018: SR 80 million).



F-170

18. SUBSIDIARIES

Subsidiaries owned directly by the Company are as follows:

Name of subsidiary Country of

incorporation Effective shareholding

percentage 31 December

2019 31 December

2018

Arabian Internet and Communications Services Company Limited (“Solutions by stc”) (1) Kingdom of Saudi Arabia 100% 100%

Telecom Commercial Investment Company Limited (“TCIC”) (2) Kingdom of Saudi Arabia 100% 100%

stc Bahrain BSC (C) (“stc Bahrain) (formerly: “VIVA Bahrain”) (3) Kingdom of Bahrain 100% 100%

Aqalat Company Limited (“Aqalat”) (4) Kingdom of Saudi Arabia 100% 100%

Saudi Telecom Specialized Company (“Specialized by stc”) (5) Kingdom of Saudi Arabia 100% 100%

Sapphire Company Limited (“Sapphire”) (6) Kingdom of Saudi Arabia 100% 100%

stc Turkey Holdings Ltd (“stc Turkey”) (7) British Virgin Islands 100% 100%

stc Asia Telecom Holdings Ltd (“stc Asia”) (8) British Virgin Islands 100% 100%

stc Gulf Investment Holding S.P.C. (“stc Gulf”) (9) Kingdom of Bahrain 100% 100%

Saudi Telecom Channels Company (Channels by stc) (10) Kingdom of Saudi Arabia 100% 100%

Kuwait Telecommunications Company (“stc Kuwait”) (formerly: “VIVA Kuwait”) (11) Kuwait 51.8% 51.8%

Telecommunications Towers Company Ltd. (“TAWAL”) (12) Kingdom of Saudi Arabia 100% 100%

Saudi Digital Payments Company (“stc Pay”) (13) Kingdom of Saudi Arabia 100% -

Smart Zone Real Estate Company (14) Kingdom of Saudi Arabia 100% -

(1) Arabian Internet and Communications Services Company Limited (“Solutions by stc”) was established in the Kingdom in April 2002 and is engaged in providing internet services, operation of communicationsprojects and transmission and processing of information in the Saudi market. In December 2007, theGroup acquired 100% of share capital of the Arabian Internet and Communications Services CompanyLimited, amounting to SR 100 million.



F-171


(2) Telecom Commercial Investment Company (TCIC) was established in the Kingdom in October 2007 witha capital of SR 1 million with the purpose of operating and maintaining of telecommunication networks,organizing computer systems’ networks and internet networks, maintenance, operation and installationof telecommunication and information technology systems and programs in the Saudi market.

(3) stc Bahrain was established in the Kingdom of Bahrain in February 2009 with a capital of BD 75 millionequivalent to about SR 746 million at the exchange rate as of that date. stc Bahrain provides all mobiletelecommunication services, international telecommunications, broadband and other related servicesin the Bahraini market, and commenced its commercial operation on 3 March 2010. During the firstquarter of 2018, stc Bahrain has fully acquired “MENA Telecom Company Limited” in the Kingdom ofBahrain (as a subsidiary). The main activity is to provide Internet services.

(4) Aqalat was established in the Kingdom in March 2013 with a capital of SR 70 million fully owned by theCompany with the purpose of establishing, owning, investing, managing of real estate and contracting,and providing consulting services, and importing and exporting services to the benefit of the Company.

(5) Saudi Telecom Specialized Company (Specialized by stc) was established in February 2002 in theKingdom. The Company acquired 100% of the SR 252 million share capital in January 2014. Specialized bystc operates in the electrical business and communication networks, wholesale and retail trade in fixedtelecommunications equipment, electrical appliances, import, marketing, installation and maintenanceof fixed and mobile telecommunications and information technology licensed devices.

(6) Sapphire was established in the Kingdom in June 2014 with a capital of SR 100 million fully owned by theCompany to operate in the retail and wholesale trade of computer systems and devices, fixed and mobile telecommunication, internet equipment, advertising and publicity material, spare parts, electricalequipment, advance payment devices, points-of-sale devices, telecom operator services, establishtelecom sales and service centres. In November 2017, the Group’s Board of Directors has decided to wind up Sapphire and integrating its business with Saudi Telecom Company starting from 1 January 2018. Thelegal procedures for the liquidation of the company is expected to be completed during 2020.

(7) stc Turkey is a limited liability company which was established under the Commercial Companies Law in the British Virgin Islands on 8 April 2007. It is a special purpose vehicle established to provide servicesand support required in respect of investment activities of the Group.

In April 2008, stc Turkey acquired 35% of Oger Telecom Limited’s (“OTL”) USD 3.6 billion share capital,equivalent to approximately SR 13.5 billion, at the exchange rate as at that date.

During 2016, and due to the continuing losses and the depletion of the Group's entire investment balance in OTL, the Group has stopped recognizing its share in OTL additional losses. (See Note 21.1)

(8) stc Asia is a limited liability company which was established under the Commercial Companies Law inthe British Virgin Islands on 24 July 2007 and is a special purpose vehicle that invests in companiesoperating primarily in the Malaysia. It holds an investment in stc Malaysia Holdings Ltd (“stc Malaysia”), (a wholly owned subsidiary by stc Asia), which was incorporated under the Commercial Companies Law inthe British Virgin Islands.

stc Malaysia Holdings Ltd in turn holds the Group’s 25% stake in Binariang GSM Holdings (“BGSM”) (SeeNote 21.2). The principal activity of both stc Asia and its subsidiary is to provide services and supportrequired in respect of investment activities of the Group.

(9) stc Gulf was incorporated in the Kingdom of Bahrain on 12 March 2008 and has wholly-owned subsidiariesin the Kingdom of Bahrain, as listed below. The primary objective of this company and its followingsubsidiaries is to provide services and support required in respect of investment activities of the Group:

1- stc Gulf Investment Holding 1 S.P.C.2- stc Gulf Investment Holding 2 S.P.C.3- stc Gulf Investment Holding 3 S.P.C.



F-172


stc Gulf Investment Holding 3 S.P.C. and stc Gulf Investment Holding 2 S.P.C. holds 100% (2018: 100%) inIntigral Holding BSC (C) (“Intigral Holding”). Intigral Holding was established in the Kingdom of Bahrain in June 2009 with a share capital amounting to BD 28 million which is equivalent to approximately SR 281million at the exchange rate as at that date. Intigral Holding is a holding company which owns shares incompanies operating in the field of content services and digital media in Gulf countries. During 2018, thecompany increased its capital to reach BD 101 million equivalent to SR 1.008 million at the exchange rateas at 31 December 2018.

(10) Saudi Telecom Channels Company (“Channels by stc”) was established in the Kingdom in January 2008and operates in the wholesale and retail trade of recharge card services, telecommunication equipment and devices, computer services, sale and re-sale of all fixed and mobile telecommunication services, and commercial centres’ maintenance and operation. The Company operates in Saudi Market withsubsidiaries in Bahrain and Oman whom are working in the same field. Saudi Telecom Company acquired 60% of Channels SR 100 million share capital in December 2011. On January 2017, the Company acquiredthe remaining shares in Channels by stc by SR 400 million. Accordingly, Channels by stc became a wholly-owned subsidiary of Saudi Telecom Company.

(11) In December 2007, the Company acquired 26% share capital of Kuwait Telecommunication Company (stc Kuwait) for an amount of Kuwaiti Dinar (“KD”) 50 million, equivalent to approximately SR 687 million at the exchange rate as at that date. Kuwait Telecommunication Company operates in the field of mobileservices in the Kuwaiti market and commenced its commercial operation on 4 December 2008 and waslisted as a joint stock company on the Kuwait Stock Exchange on 14 December 2014.

On November 2015, the Company has submitted a voluntary offer to acquire the issued shares of stcKuwait not already owned by the Company, which represented 74% of stc Kuwait issued shares. The offer presented by the Company to stc Kuwait’s shareholders amounted to KD 1 per share (equivalent to SR12.37 at the exchange rate as at that date).The offer ended on 31 January 2016 and the number of shares accepted under the offer amounted to128,860,518 shares which representing 25.8% of total issued shares to stc Kuwait. Saudi Telecom Company has thus become owning 51.8% of the total issued shares of stc Kuwait.During 2018, stc Kuwait entered into a binding contract to acquire 100% of the total issued shares ofQualitynet General Trading and Contracting Company W.L.L. (QualityNet), which operates in Kuwait inthe field of providing internet services. On 6 May 2019, stc Kuwait completed the acquisition procedures and acquired QualityNet’s net assets amounting to KD 23.96 million (equivalent to SR 296.6 million) with apurchase consideration amounting to KD 29.41 million (equivalent to SR 364.1 million) resulting into agoodwill of KD 5.45 million (equivalent to SR 67.5 million) based on the most updated price purchaseallocation reports on acquired net assets. Cash and cash equivalent in the purchased Companyamounted to KD 10.61 million (equivalent to SR 131.35 million) and therefore the net cash flows resultingfrom the business combination amounted to KD 18.79 million (equivalent to SR 232.66 million).

(12) During the first quarter of 2018, the Company established Telecommunications Towers Company Ltd.(TAWAL), a limited liability company and 100% owned by stc, with a share capital of SR 200 million. TAWAL is responsible for owning, constructing, operating, leasing and commercializing telecom towers in theKingdom. During the first quarter of 2019, TAWAL obtained the nessacery operating license from theCommunications and Information Technology Commission (CITC). During the fourth quarter of 2019, theCompany increased the capital of TAWAL with an amount of SR 2,300 million, for a total capital to reachSR 2,500 million.

(13) During the fourth quarter of 2017, Solutions by stc established Saudi Digital Payments Company (stc Pay) in the Kingdom with a capital of SR 100 million and its main activity is to provide digital payments services. During the third quarter of 2019, stc Pay ownership was transferred from stc Solutions to the Companywith no financial impact at the group level. During the fourth quarter of 2019, the Company increased the capital of the stc Pay with an amount of SR 300 million, stc Pay for a total capital to reach SR 400 million. In January 2020, the Saudi Arabian Monetary Authority (SAMA) licensed stc Pay as an electronic walletcompany.

(14) During the fourth quarter of 2019, the Company established a special purpose vehicle subsidiary (SmartZone Real Estate Company) in the kingdom with a share capital of approximately SR 107 million and itsmain activity is the development, financing and management of real estate projects, the establishmentof facilities, complexes, commercial, office and residential buildings.



F-173


Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests as at:

Name of Subsidiary

Proportion of ownership and

voting rights acquired by non-


Profit allocated to non-controlling

interests Accumulated non-controlling

interests

2019 2018

For the year ended 31

December 2019 31 December 2019 31 December 2018

Kuwait Telecommunications Company (stc Kuwait) 48.2% 48.2% 259,545 1,285,155 1,143,582 Individually immaterial subsidiaries 620 7,297 4,332

────── ─────── ─────── 260,165 1,292,452 1,147,914

══════ ═══════ ═══════

The following is a summary of the financial statements of Kuwait Telecom Company (stc Kuwait) which is non- wholly owned by the Group and have material non-controlling interests:



Profit for the year 538,898 622,630 Other comprehensive loss for the year (3,053) (3,893) Total comprehensive income for the year 535,845 618,737

Group's share of comprehensive income 277,567 320,506 Non-controlling interests of comprehensive income 258,278 298,231

31 December 2019 31 December 2018 Statement of financial position Current assets 2,345,244 1,907,726 Non-current assets 2,749,547 1,867,401 Current liabilities (2,114,100) (1,337,219) Non-current liabilities (314,393) (65,331) Net assets 2,666,298 2,372,577 Group's share of net assets 1,381,143 1,228,995 Non-controlling interests 1,285,155 1,143,582



F-174


Details of non-wholly owned subsidiaries that have material non-controlling interests (continued)


Statement of cash flows Operating activities 1,168,667 1,069,548 Investing activities (1,254,811) (385,062) Financing activities (74,581) (269,674) Net (decrease) increase in cash and cash equivalents (160,725) 414,812

19. CASH AND CASH EQUIVALENTS


Short term murabaha (with 3 months maturity or less) 6,476,407 6,316,162 Cash at banks 1,494,694 1,640,738 Cash on hand 12,365 5,848 Cheques under collection 47,544 191,117

───────── ───────── 8,031,010 8,153,865

═════════ ═════════ The Company invests a part of its surplus cash in murabahas three months or less with several local banks with a profit rate ranging between 1% -3.7% (2018: 1%-3.7%)

20. RELATED PARTY TRANSACTIONS

20.1 Trading transactions and balances with related parties (Associates and Joint Ventures – See Note 21)

The Group trading transactions with related parties during the year ended 31 December were as the following:

2019 2018

Telecommunication services provided 430,682 503,008

Telecommunication services received 29,050 17,188

The sale and purchase transactions are carried out by the relevant parties in accordance with the normal terms of dealing. The outstanding balances are unguaranteed, without commission and no guarantees have been provided or received in relation to the balances due or from the related parties.

The following balances were outstanding as at the end of the financial year:

Amounts due from related parties Amounts due to related parties 31 December

2019 31 December

2018 31 December

2019 31 December

2018


──────── ───────── ───────── ───────── 304,235 344,096 207,083 135,985

════════ ════════ ════════ ════════



F-175

20. RELATED PARTY TRANSACTIONS (CONTINUED)

20.2 Trade transactions and related parties’ balances (government and government related entities)

Revenues related to transactions with governmental entities for the year ended 31 December 2019 amounted to SR 6,873 million (31 December 2018: SR 6,335 million) and expenses related to transactions with governmental entities for the year ended 31 December 2019 (including government charges) amounted to SR 2,748 million (31 December 2018: SR 3,214 million).

It is worth mentioning that based on the Council of Ministers’ resolution No. (196) dated 4 Rabi Thani 1440H (corresponding to 11 December 2018), the percentages of government charges collected by the government for providing telecommunications services commercially has been amended to become a uniform annual fee of 10% of net telecommunications revenues effective 1 January 2018 instead of the previous percentages which were 15% of net mobile service revenues, 10% of net fixed line revenues and 8% of net revenues from data services. Furthermore, the Company's services licenses have been combined into a unified license.

As at 31 December 2019, accounts receivable from Government entities totalled SR 18,508 million (31 December 2018: SR 12,343 million) (See Note 11.2) and as at 31 December 2019, accounts payable to government entities totalled SR 953 million (31 December 2018: SR 3,706 million). Among the commercial transactions with government entities, the Group invested to SR 3,902 million in the Sukuk issued by the Ministry of Finance during the first quarter of 2019. (See Note 17.2).

20.3 Loans to related parties


Loans to senior executives 5,358 2,360 ══════════ ═════════

20.4 Benefits, remuneration and compensation of board members and senior executives

The remuneration and compensation of board members and senior executives during the year ended 31 December were as follows:

2019 2018

Short-term benefits and remunerations 280,381 206,224 Provision for leave and end of service benefits 60,061 55,368

21. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

21.1 Investments in associates

Investments in all associates are accounted below in the Group's consolidated financial statements in accordance with the equity method.

21.1.1 Details of associates

Details of each of the Group’s associates at the end of the year are as follows:

Name of Associates Country of

incorporation Proportion of

ownership interest / voting rights 31 December 2019 31 December 2018

Arab Satellite Communications Organisation (“Arabsat”) 1 Kingdom of Saudi Arabia 36.66% 36.66% Virgin Mobile Saudi Consortium (“VMSC”) 2 Kingdom of Saudi Arabia 10% 10% Oger Telecom Limited (“OTL”) 3 United Arab Emirates 35% 35%



F-176


21.1 Investments in associates (continued)

21.1.1 Details of associates (continued)

1) Arab Satellite Communications Organisation (“Arabsat”) was established on April 1976 by the membersof the League of Arab States. Arabsat offers a number of services to these member states, as well as toall public and private sectors within its coverage area, and principally in the Middle East. Current servicesoffered include: Regional telephony (voice, data, fax and telex), television broadcasting, regional radiobroadcasting, restoration services and leasing of capacity on an annual or monthly basis. In April 1999,Saudi Telecom Company acquired 36.66% of Arabsat’s USD 500 million share capital (equivalent toapproximately SR 1,875 million at the exchange rate as of that date).

2) Virgin Mobile Saudi Consortium (“VMSC”) was established during 2013 as a mobile virtual networkoperator and started its operations during the year of 2014. The Company owns 10% of VMSC’s sharecapital. The Group’s ability to exercise significant influence is evidenced by the material transactionsbetween VMSC and the Company through the reliance of VMSC’s on the Comapny’s technical network.

At its meeting held on 4 Jumada Al-Awal 1440H (corresponding to 10 January 2019), the Board of Directors approved to buy an additional 39% stake in Virgin Mobile Saudi Arabia for SR 151 million. Due to the non-completion of the legal and regulatory procedures during 2019, the Company decided not to completethe acquisition procedures of the additional stake. Therefore, the Company’s shareholding in VirginMobile Saudi Arabia remains at (10%) as of 31 December 2019.

3) Oger Telecom Limited (“OTL”) is a holding company registered in Dubai, the United Arab Emirates. In April 2008, Saudi Telecom Company through one of its subsidiaries (stc Turkey Holding Ltd) acquired 35% ofOTL’s share capital amounting to approximately USD 3.6 billion, equivalent to approximately SR 13.5billion at the exchange rate as at that date. On 1 January 2016, the Group’s investment in OTL wascompletely extinguished and the Group discontinued recognising its share of further losses. OTL wasfacing financial difficulties to settle its borrowings dues and its ability to comply with the financialcovenants agreed with lenders. During 2018, OTL has completed necessary procedures to liquidate itsmain subsidiaries and restructure it’s investments in Turkey and South Africa in order to meet thefinancial obligations of the lenders. Liquidation of OTAS (subsidiary of OTL in Turkey) commenced in2019. In addition, after the liquidation of OTAS is completed, OTL is expected to commence its liquidationprocess in the foreseeable future.



F-177


21.1 Investments in associates (continued)

21.1.2 Details of material associates

Summarised financial information of the Group’s material associate is set out below:


Statement of income and other comprehensive income Revenue 945,228 997,308 Profit for the year 182,622 316,028 Other comprehensive (loss) for the year (28,294) (55,358) Total comprehensive income for the year 154,328 260,670

The following is the reconciliation of the above-summarised financial information to the carrying amount of the Group's interest in Arabsat:


Net assets of the associate 4,995,887 5,083,112 Proportion of the Group’s ownership interest in Arabsat 36.66% 36.66%

───────── ───────── Carrying amount of the Group’s interest in Arabsat 1,831,492 1,863,469

═════════ ═════════

The Following is the aggregate information of associates that are not individually material for the year ended:

2019 2018

The Group’s share of gain from continued operations 1,301 61,988

Aggregate carrying amount of the Group’s interests in these associates (*) 3,382 269,809

Total carrying amount of the Group’s interest in associates 1,834,874 2,133,278

(*) the comparative figures include the investment in Careem which was reclassified as held for sale as at 31 December 2019 (See Note 14)

Arabsat 31 December 2019 31 December 2018

Statement of financial position Current assets 1,605,861 1,110,572 Non-current assets 5,665,128 6,096,520 Current liabilities (441,864) (490,799) Non-current liabilities (1,833,238) (1,633,181)



F-178


21.2 Investments in joint ventures

Investments in all joint ventures mentioned below are accounted for in the Group's consolidated financial statements in accordance with the equity method

21.2.1 Details of joint ventures

Below is the detail of joint ventures as at:

Name of joint venture Country of

incorporation

Proportion of ownership interest/ voting

rights 31 December

2019 31 December

2018

Arab Submarine Cables Company Limited

1 Kingdom of Saudi Arabia 50% 50%

Contact Centres Company (“CCC”) 2 Kingdom of Saudi Arabia 49% 49% Binariang GSM Holding (“BGSM”) 3 Malaysia 25% 25%

1) Arab Submarine Cables Company Limited was established on September 2002 for the purpose ofconstructing, leasing, managing and operating a submarine cable connecting the Kingdom and theRepublic of Sudan for the telecommunications between them and any other country.

The operations of the Company started in June 2003 and Saudi Telecom Company acquired 50% of its SR 75 million share capital in September 2002. In November 2016, the company's capital was reduced to SR25 million.

2) Contact Centres Company was established to provide call centre services and answer directory queries with Aegis Company at the end of December 2010 in the Kingdom, with a share capital of SR 4.5 million.The Company acquired 50% of its share capital. During the fourth quarter of 2015, the Company sold 1%of its stake in CCC to the other partners according to the terms of the partners’ agreement. Thus making the Company's share 49%.

3) Binariang group GSM is an investment holding group registered in Malaysia which owns 62% of MaxisMalaysian Holding Group (“Maxis”), a major telecom operator in Malaysia. BGSM also had indirectinvestments in India, Aircel Limited (“Aircel”) which were eliminated in 2018.

In September 2007, the Company acquired (through its subsidiaries stc Asia holding and stc Malaysiaholding) 25% of Binariang group GSM MYR 20.7 billion share capital, equivalent to approximately SR 23billion at the exchange rate as at that date.

During 2013, the Company conducted a review of its foreign investment in Binariang group holding GSM(joint venture), including the manner in which this investment is being managed and how joint controlhas been effectively exercised. As a result, the Company signed an amendment to the shareholders’agreement with other shareholders of Binariang group GSM with respect to certain operational mattersof Aircel (one of Binariang group subsidiaries). Consequently, the group ceased to account for itsinvestment in Aircel using the equity method effective from the second quarter 2013.



F-179

21 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)


21.2.2 Details of material joint ventures

Summarised financial information in respect of the Group’s material joint venture is set out below:

Binariang group Holding GSM 31 December 2019 31 December 2018

Statement of financial position Current assets 3,794,720 3,273,483 Non-current assets 27,175,812 25,851,745 Current liabilities (5,769,520) (4,547,699) Non-current liabilities (13,671,417) (12,946,453)

The above amounts of assets and liabilities include the following: 31 December 2019 31 December 2018

Cash and cash equivalents 1,342,939 1,374,852 Current financial liabilities (excluding trade and other payables and provisions) (1,057,839) (1,164,892) Non-current financial liabilities (excluding trade and other payables and provisions) (13,067,091) (12,339,736)


2019 2018


Profit from continuing operations 426,750 1,192,434 Profit from discontinued operations - 600,723Profit for the year 426,750 1,793,157

Other comprehensive (loss) / income for the year (5,306) 167,949 Total comprehensive income for the year 421,444 1,961,106

Depreciation and amortisation (1,292,642) (1,032,504) Finance income 85,337 48,264 Finance cost (945,861) (884,317) Income tax expense (451,076) (556,003)

The above is the reconciliation of the above summarised financial information to the carrying amount of the Group's interest in Binariang group GSM Holding (“BGSM”):


Net assets of BGSM (excluding non-controlling interest share and share of other shareholders in Aircel) 364,400 (5,192)

═════════ ═════════

Proportion of the Group’s ownership interest in the joint venture 91,100 (1,298) Goodwill and fair value adjustments, net 1,184,070 1,184,070 Adjustments: the carve-out of Aircel Group and others 3,443,422 3,208,024

───────── ───────── Carrying amount of the Group’s interest in the joint venture 4,718,592 4,390,796

═════════ ═════════



F-180

21 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)


The Following is the aggregate information of joint ventures that are not individually material for the year ended 31 December:

2019 2018

The Group’s share of profit from operations 6,060 8,806 The Group’s share of other comprehensive income 1,341 - The Group’s share of total comprehensive income 7,401 8,806

───────── ───────── Aggregate carrying amount of the Group’s interests in these joint

ventures 65,060 57,659 ═════════ ═════════

───────── ─────────

Total carrying amount of the Group's share in the joint ventures 4,783,652 4,448,455 ═════════ ═════════

22. ISSUED CAPITAL

31 December 2019 31 December 2018 Issued and fully paid capital comprises 2 billion fully paid ordinary shares 20,000,000 20,000,000

23. STATUTORY RESERVE

In accordance with the companies law in the Kingdom of Saudi Arabia and the Company’s By-law, 10% of the net income was taken as statutory reserve until it reached 50% of the share capital. Based on the approval of the Ordinary General Assembly of Shareholders at its meeting on 23 Rabi Thani 1432H corresponding to 28 March 2011 it was resolved to cease the transfer to statutory since it reached half of the capital. Although the recent change in the companies law, include the cease of transfer to statuory reserve when it reaches 30% as minimum instead of 50% of the share capital, the Company maintained the accumulated reserve at 50%. This reserve is not available for distribution to the Company’s shareholders.



F-181

24. OTHER RESERVESForeign

currency translation

reserve

Cash flow hedge

reserve Investments at FVOCI reserve Other reserves Total

As at 1 January 2019 (52,321) (140,129) 425,974 (2,137,402) (1,903,878) Assets measured at FVOCI - - (425,974) - (425,974)Re-measurement of the end of service benefit provision (See Note 27) - - - (710,054) (710,054) Exchange difference on translation of foreign operations (1,479) - - - (1,479) Net loss on cash flow hedges - (484) - - (484) Share from associates and joint ventures - - - 296,261 296,261

──────── ──────── ──────── ──────── ──────── As at 31 December 2019 (53,800) (140,613) - (2,551,195) (2,745,608)

════════ ════════ ════════ ════════ ════════

As at 1 January 2018 (41,582) (140,865) 312,431 (1,905,374) (1,775,390) Assets measured at FVOCI - - 113,543 - 113,543Re-measurement of the end of service benefit provision (See Note 27) - - - 13,414 13,414 Exchange difference on translation of foreign operations (10,739) - - - (10,739) Net gain on cash flow hedges - 736 - - 736 Share from associates and joint ventures - - - (245,442) (245,442)

───────── ───────── ───────── ───────── ───────── As at 31 December 2018 (52,321) (140,129) 425,974 (2,137,402) (1,903,878)

═════════ ═════════ ═════════ ═════════ ═════════



F-182

25. BORROWINGS

Total loans paid during the year ended 31 December 2019 amounted to SR 351 million (31 December 2018: SR 636 million). Total loans received during the year ended 31 December 2019 amounted to SR 5,381 million (31 December 2018: SR 304 million). A list of the loans are as follows:

Nature of borrowing

Date of borrowing

Date of final

instalment

Currency Profit rate Current portion Non-current portion Balance as at 31 December 2019




Sukuk (1) January 2014

June 2024 SAR 3 months SAIBOR + 0.7% - - 2,000,000 2,000,000

Sukuk (2) May 2019 May 2029 USD 3.89% - - 4,670,038 - Murabaha February

2019 February 2022

SAR SAIBOR + 0.65% - - 180,673 -

Murabaha December 2018

January 2019

SAR LIBOR + 0.55% - 232,499 - -

Murabaha (3) May 2009 December 2021

BHD 1 month BIBOR + 0.25% 26,828 26,891 26,829 53,781

Murabaha (4) July 2017 May 2022 BHD 1 month BIBOR + 1.60% 251,137 58,280 504,623 521,281 Murabaha December

2018 November 2025

BHD 2.10% 3,062 2,863 18,673 21,786

Murabaha (5) December 2017

December 2022

MYR 6 months KLIBOR + 0.65% - - 1,383,358 1,368,631

Murabaha May 2019 April 2023 KWD 3.75% 46,427 - 139,282 - Tawaruq May 2019 February

2020 KWD

3.5% 61,885 - - - ──────── ──────── ───────── ─────────

Total 389,339 320,533 8,923,476 3,965,479 ════════ ════════ ═════════ ═════════



F-183

25. BORROWINGS (CONTINUED)

(1) The company issued a sukuk program with a maximum of SR 5 billion. Sukuk certificates have a nominalvalue of SR 1 million each, and they were issued with a nominal value for a period of 10 years.

(2) At the General Assembly meeting on 19 Shaaban of 1440 H (corresponding to April 24, 2019), the Company approved the establishment of an international sukuk program and the issuance of sukuk in accordancewith directly or by establishing a special purpose vehicles that is established and used to issue primaryor secondary Sukuk in one or several parts Or one or several stages, or through a series of issues in USdollars, not exceeding the amount of USD 5,000 million for the total value of the sukuk issues and partsof Sukuk program referred to above at any time.

Based on the above, the Saudi Telecom Sukuk Company Limited during the second quarter of 2019 (acompany established for the purpose of issuing sukuk under the sukuk program referred to above in USdollar) launched the first issue of the Sukuk Program in the amount of USD 1,250 million (equivalent to SR 4,688 million) For 10 years. This program is an international Sukuk in US dollar, with a total number ofSukuk 6,250 Sukuk with a nominal value of USD 200 thousand for the Sukuk with an annual return of 3.89% and a maturity of ten years.

(3) stc Bahrain has murabaha facilities secured by a land and a building. The risk of return has been hedged for a large portion of the Murabaha facility

(4) stc Bahrain has an unsecured Murabaha facility of BD 84.8 million (SR 844 million). The Company hasentered into cash flow hedging arrangements to hedge the profit rate risk. The book value of murabahafacilities is not materially different from their fair value because the effect of discount, credit risk andother market risks are not considered material.

(5) These facilities are secured by a letter of guarantee provided by the Company.

26. PROVISIONS


Legal and regulatory provisions (1) 5,806,117 7,336,057 Decommissioning and other provisions (2) 242,203 385,304

───────── ───────── 6,048,320 7,721,361

═════════ ═════════ Current 5,157,110 6,829,451 Non-current 891,210 891,910

───────── ───────── 6,048,320 7,721,361

═════════ ═════════

2019 2018

Legal and regulatory provision (1) Balance as at 1 January 7,336,057 8,392,198 Additions during the year 507,825 1,298,823 Payment / settlements during the year (2,037,765) (2,354,964)

───────── ───────── Balance as at 31 December 5,806,117 7,336,057

═════════ ═════════ Decommissioning and other provisions (2) Balance as at 1 January 385,304 444,234 Additions during the year 172,226 7,079 Reductions / adjustment resulting from re-measurement and others (315,327) (66,009)

───────── ───────── Balance as at 31 December 242,203 385,304

═════════ ═════════



F-184

26. PROVISIONS (CONTINUED)

1) The Company is considered a party of number of legal and regulatory claims. The Group, after takingindependent legal advice, has established provisions after taking into account the facts for each case.The timing of the cash outflows associated with the majority of the legal claims are typically more thanone year, however, for some legal claims the timing of cash flows may be less than one year.

2) In the course of Company’s normal activities, a number of sites and other assets are utilised which areexpected to have costs associated with restoration of the assets to how it was upon removing the assets. The associated cash outflows are expected to occur primarily in years up to ten years from the date when the assets are brought in use.

27. RETIREMENT BENEFITES PLANS

End of service benefit provision

The Group provides end of service benefits to its employees. The entitlement is based upon the employees’ final salary and length of service, subject to the completion of a minimum service years, calculated under the provisions of the Labour Law of the respective country and is payable upon resignation or termination of the employee. The expected costs of these benefits are accrued over the years of employment.

The Group's plan is exposed to actuarial risks such as discount rate and salary risk.

Discount rate risk A decrease in the discount rate will increase the end of service benefits plan liability.

Change in Salaries risk

The present value of the end of service benefit plan liability is calculated by reference to the estimated future salaries of plan participants. As such, an increase in the salaries of the plan participants will increase the plan’s liability.

Calculation of end of service benefit provision was done using the most recent actuarial valuation as at 31 December 2019. During the financial year, Actuarial assumptions relating to the discount rate have been updated, resulting in an increase in the present value of the defined benefit obligations.

The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.

The significant actuarial assumptions, during 2019, used in determining the end of service benefit obligation represent the discount rate of (3.2%-4.3%) and the expected increase in salary (2.7%-5.7%) (2018: discount rate of (4.3%-5%) and the expected increase in salary (3.3%-5%).

The net expenses recognized in the consolidated statement of profit or loss are as follows for the year ended 31 December:

2019 2018

Services cost 367,423 354,101 Interest cost 193,490 176,477

───────── ───────── 560,913 530,578

═════════ ═════════



F-185

27. RETIREMENT BENEFITES PLANS (CONTINUED)

End of service benefit provision (continued)

Movements of End of service benefit provision for the year ended 31 December is as follow:

The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the financial year, with other assumptions being constant.

If the discount rate increases (decreases) by 25 basis points, the end of service benefit provision would(decrease) or increase by SR 127 million (31 December 2018: (decrease) or increase by SR 111 million).

If the expected salary growth increases (decreases) by 0.25%, the end of service benefit provision wouldincrease or (decrease) by SR 126 million (31 December 2018: increase by or (decrease) by SR 112 million).

The sensitivity analysis presented above may not be representative of the actual change in the end of service benefit provision as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Defined contribution plans

The Group is participating in a pension schemes for its employees which are managed by government institutions in the countries concerned. The amount recognised as an expense for defined contribution plans for the year ended 31 December 2019 is SR 443 million (31 December 2018: SR 401 million).

28. CONTRACT LIABILITIES


Deferred revenue from services 2,632,582 3,192,688 Customer loyalty programme 605,068 118,167

───────── ───────── 3,237,650 3,310,855

═════════ ═════════ Current 2,465,735 2,538,940 Non-current 771,915 771,915

───────── ───────── 3,237,650 3,310,855

═════════ ═════════

2019 2018 Balance at beginning of the year 3,919,362 3,922,065

Expenses recognized in the consolidated statement of profit or loss 560,913 530,578 Actuarial losses recognised in the consolidated statement of comprehensive income 710,054 (13,414) paid during the year (451,050) (521,861) Exchange differences and others 73,526 1,994


═════════ ═════════



F-186

29. LEASE LIABILITIES

Following is the movement on lease liabilities during 2019:

Balance as at 1 January 2019 2,367,348 Additions during the year 1,174,990 Payments during the year (712,467) Annual interest costs 137,576 Other adjustments (86,270)

───────── Balance as at 31 December 2019 2,881,177

═════════ Current 1,300,242 Non-current 1,580,935

───────── 2,881,177

═════════

30. OTHER FINANCIAL LIABILITIES

31 December 2019

31 December 2018

Financial liabilities related to frequency spectrum licenses 1,618,653 1,528,923 Dividends payable 2,111,161 81,927 Derivative liabilities 7,373 6,140

───────── ───────── 3,737,187 1,616,990

═════════ ═════════

Current 2,145,276 90,731 Non-current 1,591,911 1,526,259

───────── ───────── 3,737,187 1,616,990

═════════ ═════════

31. OTHER LIABILITIES

31 December 2019

31 December 2018

Government charges 956,478 3,699,077 Deferred income (*) 3,341,943 2,185,431 Statutory dues and Other 766,145 411,226

───────── ───────── 5,064,566 6,295,734

═════════ ═════════

Current 1,555,860 4,118,718 Non-current 3,508,706 2,177,016

───────── ───────── 5,064,566 6,295,734

═════════ ═════════



F-187

31. OTHER LIABILITIES (CONTINUED)

(*) The details of deferred income are as follows:


Government grants (*) 3,320,684 2,138,098 Others 21,259 47,333

───────── ───────── 3,341,943 2,185,431

═════════ ═════════


───────── ───────── 3,341,943 2,185,431

═════════ ═════════

(*) The government grants represent grants provided by Communication and Information Technology Commission (“CITC”) to the Company to build telecommunication network in remote areas (See Note 4.6). 32. TRADE AND OTHER PAYABLES


Accrued expenses 8,364,626 8,323,129 Trade payables 6,550,812 3,050,348 Employee accruals 1,382,581 1,424,912 Other trade payables 1,445,780 981,031, 1 Capital supplier dues and retentions 880,864 234,630 Customer refundable deposits 69,749 27,907

───────── ───────── 18,694,412 14,092,907

═════════ ═════════ No interest is charged on the trade payables. The Group has financial risk management policy in place to ensure that all payables are paid within the pre-agreed credit terms.

33. ZAKAT AND INCOME TAX


Zakat (a) 1,452,645 1,443,224Income taxes (b) 29,633 22,551

───────── ─────────1,482,278 1,465,775

═════════ ═════════



F-188


a. Zakat

The Group calculates and records the zakat provision based on the zakat base in accordance with the zakat rules and principles in the Kingdom:

2019 2018 Share capital – beginning of the year 20,000,000 20,000,000Additions: Retained earnings, reserves and provisions – beginning of the year 63,151,587 60,377,908Borrowings and payables 15,318,831 4,589,524Adjusted net profit 10,129,061 10,097,775

───────── ───────── Adjusted total shareholders’ equity 108,599,479 95,065,207

───────── ─────────Deductions: Net property (adjusted) and investments 58,227,066 58,050,032Dividends paid 12,000,000 8,000,000Deferred expenses and other balances 1,962,266 326,064

───────── ───────── Total adjusted deductions 72,189,332 66,376,096

───────── ───────── Zakat base 36,410,147 28,689,111

Zakat on wholly owned companies for the year 938,538 717,228Zakat adjustments during the year (203,893) -Add: zakat on partially owned companies for the year 6,463 6,718

───────── ───────── Total zakat provision charged during the year 741,108 723,946

═════════ ═════════

Zakat provision 2019 2018

Balance at beginning of the year 1,443,224 1,488,001 Charge during the year 741,108 723,946 Settlements during the year (3,907) )99,535( Amounts paid during the year (727,780) )669,188(


═════════ ═════════

The Company submitted all zakat returns until the end of 2018, with payment of zakat due based on those returns, and accordingly received zakat certificates for those years. Effective from the year 2009, the Company started the submission of consolidated zakat return for the Company and its wholly owned subsidiaries (whether directly or indirectly) in accordance with the Ministerial Decree No.1005 dated 28/4/1428H.

During year 2019, the Group reached a settlement with the GAZT regarding 2008 and 2009 objections,in addition to a final settlement for the years 2010 and 2011 objections resulted in payment of SR 57 million.

In February 2020, the Group received a notification from the GAZT stating that the settlement procedures related to 2008 and 2009 was not accepted and thus these objections are still being considered by the General Secretariat of Tax Committees (formerly the Appeal Committee) until the date of preparing these consolidated financial statements. These Zakat disputed differences were essentially a result of the comparison between Zakat base and the adjusted profit whichever is higher.The Group believes that the results of these above-mentioned objections will be in its favor.

In January 2020, the group received a zakat assessment that includes differences related to zakat declaration for the year 2018 amounted to SR 226 million, and the Group has objected to it within the statutory deadline. The Group sees the merit of its legal position and it will not result in any material additional provisions.



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b. Income tax

The Group's share of income tax payable by subsidiaries is in accordance with the prevailing tax regulations in their countries. Income tax expense for the year ended 31 December 2019 amounts to SR 21 million (2018: SR 23 million).

34. REVENUES


2019 2018 Rendering of services 45,642,945 43,142,069 Sale of goods 8,556,090 8,372,850 Others 168,496 448,324

───────── ───────── 54,367,531 51,963,243

═════════ ═════════

35. COST OF REVENUES


2019 2018 Network access charges 4,515,488 4,998,609 Government charges (*) 3,108,508 3,565,553 Cost of devices sold 6,049,028 4,386,167 Employees’ costs 3,059,466 2,969,178 Repair and maintenance 2,730,892 2,346,994 Cards recharge and printing cost 1,302,581 1,532,359 Amortisation and impairment of contract costs (See Note 15) 315,797 373,644 Others 894,546 1,317,657

───────── ───────── 21,976,306 21,490,161

═════════ ═════════

“Others” mainly comprise various expenses mainly related to rent of property, equipment and vehicles, telecommunication services, postage, courier, security and safety expenses, premises expenses, and consultancy.

(*) The details of government charges are as follows:


Commercial service provisioning fees 2,237,983 2,800,149 License fees 373,237 398,250 Frequency spectrum fees 360,039 350,136 Others 137,249 17,018

───────── ───────── 3,108,508 3,565,553

═════════ ═════════



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36. SELLING AND MARKETING EXPENSES


2019 2018 Employees’ costs 2,152,253 2,314,684Impairment loss on trade receivables (See Note 11.1) 662,043 706,935Advertising and publicity 769,601 560,114Sales commissions 786,809 505,623Call centre expenses 260,898 268,534Amortisation and impairment on contract assets 102,807 241,151Repairs and maintenance 320,765 195,201Sport activities sponsorship cost 83,245 142,414Amortisation and impairment of contract costs (See Note 15) 88,346 42,989Others 355,202 502,643

───────── ─────────5,581,969 5,480,288

═════════ ═════════

“Others” comprises various items, the main ones are: security and safety, telephone and utility expenses. 37. GENERAL AND ADMINISTRATIVE EXPENSES


2019 2018 Employees’ costs 3,303,365 2,617,257 Repair and maintenance 880,471 914,609 Consultancy, legal and professional fees 404,776 247,202 Security and safety expenses 141,181 140,311 Sadad service fees 120,211 107,097 Utilities expenses 99,025 179,683 Operating lease costs 88,605 359,351 Others 506,642 591,529

───────── ───────── 5,544,276 5,157,039

═════════ ═════════

“Others” comprises various items, the main ones are: insurance premiums, office equipment, freight, handling, postage and courier expenses.

38. FINANCE INCOME


2019 2018 Income from murabaha 360,136 378,042 Income from sukuk 279,025 173,493

───────── ───────── 639,161 551,535

═════════ ═════════



F-191

39. FINANCE COST


2019 2018 Financing costs relating to murabaha 144,429 67,836 Financing costs relating to sukuk 193,635 59,104 Financing cost relating to lease liabilities 137,576 - Unwinding of discounts on provisions and financial obligations 289,514 268,500

───────── ───────── 765,154 395,440

═════════ ═════════ 40. NET OTHER LOSSES


2019 2018 Net gain arising on financial assets measured at FVTPL 287,480 7,465 Loss on sale/disposal of property and equipment (324,546) (291,431) Net foreign exchange (loss) gain and others (3,894) 68,473

───────── ───────── (40,960) (215,493)

═════════ ═════════

41. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company by the weighted average number of shares for the year ended 31 December as follows:

2019 2018

Profit for the year attributable to owners of the Company 10,664,666 10,779,771 Weighted average number of ordinary shares for the purposes of basic earnings per share 2,000,000 2,000,000

───────── ───────── Basic and Diluted earnings per share (in Saudi Riyal) 5.33 5.39

═════════ ═════════

The Group does not have potentially dilutive shares and accordingly, dilutive earnings per share equals basic earnings per share.



F-192

42. FINANCIAL INSTRUMENTS 42.1 Capital management

The Group manages its capital to ensure that:

It will be able to operate as a going concern It efficiently finances its working capital and strategic investment requirements at optimal terms It provides a long-term dividend policy and maintains a stable dividend pay-out It maximises the total return to its shareholders It maintains an appropriate mix of debt and equity capital

The Group reviews its capital structure in light of strategic investment decisions, changing economic environment, and assesses the impact of these changes on cost of capital and risk associated to capital.

The Group is not subject to any externally imposed capital requirements. The Group did not introduce any amendments to the capital management objectives and procedures during the year ended 31 December 2019.

The Group reviews the capital structure on annual basis to evaluate the cost of capital and the risks associated with capital. The Group has the following target ratios:

(1) Debt to EBITDA level of 200% or below(2) Debt to (Debt + Equity) level of 50% or below

The ratio as at the year ended 31 December was as follows:

2019 2018

Debt (a) 9,312,815 4,286,012EBITDA (b) 21,264,980 19,835,755

───────── ─────────Debt to EBITDA 44% 22%

═════════ ═════════

Debt 9,312,815 4,286,012Debt + Equity (c) 72,367,861 70,947,610

───────── ─────────Debt to (Debt + Equity) 13% 6%

═════════ ═════════

(a) Debt is defined as current and non-current borrowings as described in Note 25.(b) EBITDA is defined as operating profit for the year adjusted for depreciation and amortization

expenses. (c) Equity is defined as total equity including issued capital, reserves, retained earnings and non-

controlling interest.

42.2 Fair value of financial instruments

The Group uses valuation techniques appropriate to current circumstances that provide sufficient data to measure fair value. For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety (See Note 4-17).



F-193


42.2 Fair value of financial instruments (continued)

The following table shows the fair values of the Group's financial assets and liabilities:


Carrying amount Fair value Fair value measurement

using

Financial assets

Trade and other receivables (See Note 11) 21,372,368 21,372,368 Level 3 Short term murabahas (See Note 12) 2,181,416 2,181,416 Level 2

At fair value through profit or loss (See Note 17) 1,550,869 1,550,869 Level 3

At amortised cost: Sukuk 5,600,543 5,600,543 Level 2 Loans to employees 438,481 438,481 Level 2 Others 110,129 110,129 Level 2

───────── ───────── 31,253,806 31,253,806

═════════ ═════════


At amortised cost: Borrowings (See Note 25) :

Murabahas and Tawaruq – unsecured 1,232,554 1,232,554 Level 2 Sukuk – unsecured 6,670,038 6,670,038 Level 2 Murabahas – secured 1,410,223 1,410,223 Level 2

Other financial liabilities (See Note 30) 1,618,653 1,618,653 Level 2 Dividends payable (See Note 30) 2,111,161 2,111,161 Level 2

At fair value through profit or loss Derivative liabilities (See Note 30) 7,373 7,373 Level 2

───────── ───────── 13,050,002 13,050,002

═════════ ═════════



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42. FINANCIAL INSTRUMENTS(CONTINUED)

42.2 Fair value of financial instruments (continued)


Carrying amount Fair value Fair value measurement

using

Financial assets

Trade and other receivables (See Note 11) 14,493,149 14,493,149 Level 3 Short term murabahas (See Note 12) 9,685,491 9,685,491 Level 2

At fair value through profit or loss (See Note 17) 3,115,185 3,115,185 Level 2

At amortised cost: Sukuk 1,490,137 1,490,137 Level 2 Murabahas 2,250,746 2,250,746 Level 2 Loans to employees 524,417 524,417 Level 2 Others 86,174 86,174 Level 2

At fair value through other comprehensive income (See Note 17) 1,394,602 1,394,602 Level 3

───────── ───────── 33,039,901 33,039,901

═════════ ═════════


At amortised cost: Borrowings (See Note 25) :

Murabahas – unsecured 605,052 605,052 Level 2 Sukuk – unsecured 2,000,000 2,000,000 Level 2 Murabahas – secured 1,680,960 1,680,960 Level 2

Other financial liabilities (See Note 30) 1,528,923 1,528,923 Level 2 Dividends payable (See Note 30) 81,927 81,927 Level 2

At fair value through profit or loss Derivative liabilities (See Note 30) 6,140 6,140 Level 2

───────── ───────── 5,903,002 5,903,002

═════════ ═════════



F-195


42.3 Profit rate risk

The Group’s main profit rate risk arises from borrowings and financial assets with variable profit margin rates. some Group`s companies through the use of profit swap contracts manages the profit rate risk.

There has been no change to the Group’s exposure to profit risks or the manner in which these risks are managed and measured.

The sensitivity analyses below have been determined based on the exposure to profit rates for non-derivative instruments at the end of the financial year. These show the effects of changes in market profit rates on profit and loss. For floating rate asset and liabilities, the analysis is prepared assuming the amounts outstanding at the end of the year were outstanding for the whole year. A 20-basis point increase or (decrease) represents management’s assessment of the reasonably possible change in profit rates. If profit rates had been 20 basis points higher (lower) and all other variables were held constant, the impact on profit of the Group would have been lower (higher) by SR 18 million (2018: SR 4.5 million). This hypothetical effect on profit of the Group primarily arises from potential effect of variable profit financial liabilities.

42.4 Foreign currency risk management

Saudi Riyal currency is considered as the functional currency of the Group which is pegged against the United States Dollar. Therefore, the Group is only exposed to exchange rate fluctuations from transactions denominated in foreign currencies other than United States Dollar. Thus, the impact of foreign currency risk is minimal on the Group.

42.5 Credit risk management

The Group has approved guidelines and policies that allows it to only deal with creditworthy counter parties and limits counter party exposure. The guidelines and policies allow the Group to invest only with those counterparties that have high investment grade credit rating issued by international credit rating agencies and limits the exposure to a single counter party by stipulation that the exposure should not exceed 30% of the counterparty’s shareholders’ equity. Further. The Group’s credit risk is monitored on a quarterly basis.

Other than the concentration of credit risk disclosed in Note 11, concentration of credit risk with respect to trade receivables are limited given that the Group’s customer consists of a large number of unrelated customers. Payment terms and credit limits are set in accordance with industry norms.

On-going evaluation is performed on the financial condition of trade receivable and management believes there is no further credit risk provision required in excess of the normal provision for impairment loss (See Note 11).

In addition, the Group is exposed to credit risk in relation to financial guarantees given to some subsidiaries with regard to financing arrangements. The Group’s maximum exposure in this respect is the maximum amount the Group may have to pay if the guarantee is called on. There is no indication and instance that the Group will incur any loss with respect to its financial guarantees as the date of the preparation of this consolidated financial statement.

42.6 Liquidity risk management

The Group has established a comprehensive liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity requirements under the guidelines approved.

The Group ensures its liquidity by maintaining cash reserves, short-term investments and committed undrawn credit facilities with high credit rated local and international banks. The Group determines its liquidity requirements by continuously monitoring short and long term cash forecasts in comparison to actual cash flows.

Liquidity is reviewed periodically for the Group and stress tested using various assumptions relating to capital expenditure, dividends, trade receivable collections and repayment of loans without refinancing.



F-196



The following table detail the Group’s remaining contractual maturity for financial liabilities with agreed repayment periods. The table have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

Undiscounted Cash Flows Carrying amount 1 year or less Above 1 – 5 years Above 5 years

31 December 2019 Trade and other payables (Note 32) 9,007,687 9,007,687 - - Borrowings (Note 25) 9,312,815 401,967 2,918,857 6,053,423 Dividends payable (Note 30) 2,111,161 2,111,161 - - Lease liabilities (Note 29) 2,881,177 1,532,798 1,689,324 483,919 Other financial liabilities (Note 30) 1,618,653 221,347 885,386 1,068,815 Derivative liabilities (Note 30) 7,373 5,523 1,243 607

───────── ───────── ───────── ───────── 24,938,866 13,280,483 5,494,810 7,606,764

═════════ ═════════ ═════════ ═════════ 31 December 2018 Trade and other payables (Note 32) 4,082,329 4,082,329 - - Borrowings (Note 25) 4,286,012 323,196 2,020,001 2,000,000 Dividends payable (Note 30) 81,927 81,927 - - Other financial liabilities (Note 30) 1,528,923 221,347 885,386 1,290,161 Derivative liabilities (Note 30) 6,140 4,451 1,689 -

───────── ───────── ───────── ───────── 9,985,331 4,713,250 2,907,076 3,290,161

═════════ ═════════ ═════════ ═════════

The Group has unused financing facilities amounting to SR 4,611 million as at 31 December 2019 (2018: SR 1,072 million). The Group expects to meet its obligations from operating cash flows, cash and cash equivalents and proceeds of maturing financial assets.

In accordance with the terms of the agreements with the operators, commercial debtors and creditors are settled in connection to call routing and roaming fees and only the net amounts are settled or collected. Accordingly, the net amounts are presented in the consolidated statement of financial position.



F-197



The following table presents the recognised financial instruments that are offset or are subject to enforceable master netting agreements and other similar agreements as at:

Gross amounts Amounts set off Net amounts 31 December 2019 Financial assets Trade and other receivables 26,131,053 (4,758,685) 21,372,368 Financial liabilities Trade and other payables 23,453,097 (4,758,685) 18,694,412

═════════ ═════════ ═════════ 31 December 2018 Financial assets Trade and other receivables 17,052,530 (2,559,381) 14,493,149

═════════ ═════════ ═════════ Financial liabilities Trade and other payables 16,652,288 (2,559,381) 14,092,907

═════════ ═════════ ═════════

42.7 Changes in liabilities arising from financial activities

Changes in liabilities arising from financial activities are as follows:

1 January 2019 Cash flows Non-

monetary changes

31 December 2019

Short-term borrowings 320,533 (242,147) 310,953 (1) 389,339 Lease liabilities - current 1,471,935 (712,467) 540,774 (2) 1,300,242 Long-term borrowings 3,965,479 5,272,616 (314,619) 8,923,476

───────── ────── ────── ─────────

5,757,947 4,318,002 537,108 10,613,057 ═════════ ══════ ══════ ═════════

1 January 2018 Cash flows

Non-monetary changes 31 December 2018

Short-term borrowings 647,763 (460,840) 133,610 (1) 320,533 Long-term borrowings 4,005,980 - (40,501) (1) 3,965,479

───────── ────── ────── ─────────

4,653,743 (460,840) 93,109 4,286,012 ═════════ ══════ ══════ ═════════

(1) Mainly includes reclassification from non-current to current portion.(2) Mainly includes new lease liabilities.



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43. CAPITAL COMMITMENTS

(a) During the fourth quarter of 2018, the Company signed an agreement with the Ministry of Finance, theMinistry of Communications & Information Technology and the authority of Communications andInformation Technology ("Government Entities") for a comprehensive and final settlement of theoutstanding dispute related to commercial services provisioning fees provided by the Company and thelicences fees granted to the Company for the period from 1 January 2008 to 31 December 2017. In return,the Company is committed to provide capital investments in its infrastructure which is in line with theKingdom's vision to develop the telecommunications infrastructure within a period of three years from 1January 2018 according to the terms and conditions of the comprehensive Settlement Agreement(Referred to as "Target Performance Indicators").

(b) One of the subsidiaries has an agreement to invest in a fund aiming to improve the telecommunicationand internet environment for USD 300 million (equivalent to SR 1,125 million) as at 31 December 2019 (31December 2018: USD 300 million (equivalent to SR 1,125 million).

44. CONTINGENT LIABILITIES

(a) The Group has outstanding letters of guarantee amounting to SR 4,514 million as at 31 December 2019 (31December 2018: SR 6,597 million).

(b) The Group has outstanding letters of credit as at December 31 2019 amounting to SR 961 million (31December 2018: SR 655 million).

(c) On 21 March 2016, the Company received a letter from a key customer requesting a refund for paidbalances amounted to SR 742 million related to construction of a fibre optic network. Based on theindependent legal opinions obtained, the management believes that the customer’s claim have no meritand therefore this claim has no material impact on the financial results of the Group.

(d) The Group, in its ordinary course of business, is subject to proceedings, lawsuits and other claims.However, these matters are not expected to have any material impact on the Company’s financial position or on the results of its operations as reflected in these consolidated financial statements.

(e) The Company has submitted an objection to the appeal committee with respect to GAZT withholding taxassessment on international operators’ networks rentals outside Saudi Arabia for the years from 2004 to2015 for an amount of SR 2.9 billion. The management believes that Saudi tax regulations do not imposewithholding tax on the rental of international operators’ networks since the source of income did notoccure inside the Kingdom, therefore this service should not be subject to withholding tax. Based on theopinions of tax specialists in this matter, the nature of the services and existing similar cases where thedecision was in the favour of the companies in the telecom sector, the Company’s management believesthat this assessment will not result into any additional provisions.

(f) The agreement signed with government entities during the fourth quarter of 2018 includes detailedmechanisms relating to the performance indicators that the Company is required to achieve within threeyears starting from 2018. The Company has re-evaluated the related provisions in line with theexpectations of the target performance indicators which shall be reviewed periodically.

45. SUBSEQUENT EVENTS

1. On 2 January 2020, Uber completed the acquisition deal of Careem company assets. The impact on Group’s results from the sale of its direct investment in Careem Company will be recorded during the first quarter of 2020.

2. On 29 January 2020, The Company signed a non-binding memorandum of understanding with theVodafone Global Group according to which the Company will acquire 55% of the shares of Vodafone Egypt with a value of approximately USD 2,392 million (equivalent to about SR 8,970 million). The final purchaseconsideration will be determined upon signing the final agreement.



F-199

46. DIVIDENDS

On 9 Rabi Thani 1440H (corresponding to 16 December 2018) the Board of Directors have approved the Company’s dividends policy for the next three years starting from the fourth quarter of 2018, which was approved by the General Assembly on 19 Sha`ban 1440H (corresponding to 24 April 2019). The objective of the dividends policy is based on maintaining a minimum level of dividend of SR 1 per share on quarterly basis. The Company will consider and pay additional dividend subject to the Board of Directors recommendiation after assessment and determination of the Company's financial situation, outlook and capital expenditure requirements. It is probable that additional dividends are likely to vary on quarterly basis depending on the company’s performance.

The dividends policy will remain subject to:

(1) Any material changes in the Company's strategy and business (including the commercial environment in which the Company operates).

(2) Laws, regulations and legislations governing the sector at which the Company operates.(3) Any banking, other funding or credit rating covenants or commitments that the company may be

bound to follow from time to time.In line with this policy, the Company distributed the following cash dividends during the year ended 31 December 2019: - SR 2,000 million at a rate of SR 1 per share for the fourth quarter of 2018.- SR 4,000 million at a rate of SR 2 per share as an additional one-time special dividends for the year 2018.- SR 2,000 million at a rate of SR 1 per share for the first quarter of 2019.- SR 2,000 million at a rate of SR 1 per share for the second quarter of 2019.- SR 2,000 million at a rate of SR 1 per share for the third quarter of 2019.

In line with the same policy, the Company will distribute cash dividends to the shareholders of the Company for the fourth quarter of 2019, amounting to SR 2,000 million, at a rate of SR 1 per share.

47. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

At its meeting held on 22 Rajab 1441 H (corresponding to 17 March 2020), the Board of Directors approved the consolidated financial statements for the year 2019.

48. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the classification used for the year ended 31 December 2019.

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