Investor Presentation
Investor Relations Q3, 2020 Investor Presentation 2020 | stc group Index
I. Macro Environment 3
II. KSA Telecom Market Overview 8
III. stc Profile 12
IV. Strategy Overview 26
V. Business Overview 29
VI. Financial Highlights 38 I. Macro Environment Domestic Macroeconomic Indicators Investor Presentation 2020 | stc group
GDP & Government Budget: Saudi Unemployment Rate (15+): Data on H1 2020, real GDP showed that the economy decreased by 4.0% Q-o-Q. During GaStat’s latest labor market release for Q2 2020 shows that Saudi Q2 2020, the oil sector declined by 58% Y-o-Y (17% share of GDP), whilst non-oil GDP unemployment rate increased to 15.4%, up from 11.8% in Q1 2020. Male declined by 8% Y-o-Y (non-oil private sector GDP decreased by 9% and government unemployment increased to 8.1%, up from 5.6%, whereas female unemployment sector decreased by 5% Y-o-Y). increased to 31.4%, up from 28.2% in Q1 2020. Bn (SAR) 3,500 20.0% 42% 2,949 2,974 32.7% 2,836 25% 32.5% 31.7% 31.4% 3,000 2,760 2,800 31.0% 30.9% 31.1% 30.9% 31.1% 30.8% 30.8% 34% 2,517 2,582 15.0% 28.2% 2,454 2,419 15.4% 2,500 26% 15% 12.8% 12.8% 12.9% 12.9% 12.8% 12.7% 12.5% 12.3% 12.0% 12.0% 11.8% 2,000 10.0% 18%
1,500 1,260 5% 5.0% 7.4% 7.5% 7.6% 7.6% 7.5% 8.1% 6.6% 6.6% 6.0% 5.8% 4.9% 5.6% 10% 1,000 -5% 0.0% 2% 500 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020
0 -15% Total Unemployment Rate Male Female 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1 2020 *Source: GaStat Nominal GDP (SAR) Nominal GDP % (Change) Real GDP (% Change) Consumer Price Index: *Source: GASTAT As a result of the measures taken in response to the crisis including the additional spending The general consumer price index (CPI) registered in Q3 2020 a surge both in Y-o-Y over the approved budget and despite efforts to achieve savings in some expenditure items, (6.5%) and Q-o-Q (5.2%) mainly due to a rise in the level of VAT from 5 to 15 percent total expenditures for FY 2020 is expected to exceed the approved budget of SAR 1,020 bn to that was effective starting from July 2020 onwards resulted in hikes in price levels. reach SAR 1,068 bn. Expenditure allocated for FY 2021 and following years reflect fiscal policy priorities, including continuation of spending as per pervious plans to support the goals of the 5.7% Saudi Vision 2030.The budget will support the continued implementation of VRPs and initiatives 2.8% to deliver the desired outcomes of the vision. 2.2% 2.1% 1.5% 1.3% 1.0% 0.2% 0.5% Estimate Projections 2.5% -0.7% SAR Bn 1.9% -0.8% 2.1% 2.2% -0.8% 2020 2021 2022 2023 Total Revenue -0.5% 770 846 864 928 -1.1% -1.4% Total Expenditure 1,068 990 955 941 -2.1% Budget Deficit (298) (145) (91) (13) Debt 854 941 1,016 1,029 % GDP 34.4% 32.9% 33.4% 31.8% *Source: Bloomberg *Source: MoF 4 Domestic Macroeconomic Indicators Cont. Investor Presentation 2020 | stc group
Nominal GDP of World’s Major Economies: Population:
(KSA ranked #18 out of the top largest 20 economies in 2019) 34.21 (Mn) 33.41 35 31.79 32.55 10% 30.77 31.02 $ 13.10 12.65 30 11.71 12.14 5,082 10.07 10.24 7% 5.39% 25 3,846 20 4% 2.49% 2.41% 2.65% 2.38% 2,875 2,827 2,716 15 0.80% 1% 1,642 10 1,394 1,393 20.70 20.77 20.08 20.41 20.77 21.11 793 5 -2% 2014 2015 2016 2017 2018 H1 2019 Japan Germany India United France Korea, Australia Spain Saudi Saudi Non-Saudi Growth Rate Kingdom Rep. Arabia *Source: The World Bank Brent Oil Performance (Monthly): Foreigners in Saudi Labor Force: Brent oil prices averaged $43/ barrel in Q3 2020. Overall oil prices witnessed a recovery Latest General Organization for Social Insurance (GOSI) figures shows a decrease in the rate of the expat during the last couple of months as OPEC+ agreed to reduce production coupled with exodus in Q3 2020. In addition, data shows that despite the rise in expat workers during Q1, it is still opening up the economy and easing the restrictions related to COVID-19 pandemic in expected a total of 1.2 million expat departure by year end.
number of countries. Looking ahead, oil prices are expected to see a recovery specially (Mn) 8.8 6% with market demand picking up during H2 2020. 7.91 $ 8.4 7.71 3.6% 160 7.40 4% 8.0 7.13 120 6.90 2% 7.6 6.71 80 -0.4% 7.2 6.58 -0.9% -1% 6.90 -1.3% -2.0% 40 6.8 -0.8% -2.5% 6.71 6.67 6.65 -1.3% -1.5% 6.58 6.52 6.44 6.41 -3% 6.4 -3.6% 0 -4.1% -2.7% -3.4% -3.3% -3.6% 6.0 -5% Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20
*Source: GOSI Male Female Growth 5 *Source: Bloomberg Domestic Macroeconomic Indicators Cont. Investor Presentation 2020 | stc group
Historical Average Communication Consumer Spending (By Segmentation of Average Consumer Spending in 2018 Total Households): (By Total Households): Throughout the years, percentage of consumer spending on communication services slightly witnessed a decrease. This is mainly due to the reduction of operational costs on the general telecom sector as a whole, along with the 17.2% competitive packages offered by market operators. Food And Beverages 20.0%
Tobacco Average of Consumer Average Household Spending on Fabric, Apparel and Footwear 0.5% Year % Salaries Communication Housing, Water, Electricity, Gas, 3.8% Services and other Fuels 5.1% Furniture and Furnishings 2018 12,818 659 5.14 Health 2013 11,522 726 6.30 2.6% Transport 2.8% 2007 10,280 665 6.47 Communications 23.3%
Recreation and Culture 5.1%
Education 11.9%
Restaurants and Hotels 1.3% 6.2%
Miscellaneous Personal Goods and Services
*Source: GaStat
6 Aligning stc Strategy with Saudi Arabia’s 2020 NTP 2020 Investor Presentation 2020 | stc group & 2030 Vision
To raise our ranking on the E-Government Survey Index from our current position of 36 to be among the top five nations; Elements of stc Strategy:
To increase the private sector's contribution from 40% to 65% of GDP; Lead market in digital services and To increase women’s participation in the workforce from 22% to 30%; creative solutions
To move from our current position as the 19th largest economy in the world into the top 15; Drive efficiencies through digital To lower the rate of unemployment from 11.6% to 7%; transformation To increase SME contribution to GDP from 20% to 35%; Digitalise processes, internal operations, To increase our capacity to welcome Umrah visitors from 8 million to 30 million delivery engine and commercial every year. approach Provide broadband services to all KSA regions by stimulating investment in infrastructure and regulatory frameworks; Instill culture change Support e-commerce;
Bridge the digital gap in the skills of ICT users;
Increase the IT industry’s contribution in the non-oil GDP; Grow B2G and B SME segments Rehabilitation of specialized Saudi human capital and employment in CITC sector;
Develop and activate smart government transactions based on a common Lead technological advancement and infrastructure. provide best in class connectivity platform
7 II. KSA Telecom Market Overview KSA & Telecom Industry (Q3 2020) Investor Presentation 2020 | stc group
• Saudi bank loans granted to the public and private sectors increased 15% year-on-year (Y-o-Y) by the end of August 2020 to SAR 1.776 trillion compared to SAR 1.544 trillion a year earlier, according to data issued by the Saudi Arabian Monetary Authority (SAMA). • Qualified foreign investors (QFIs) net purchasers reached SAR 2.6 billion worth of stocks on the Saudi Stock Exchange (Tadawul) in Macro Economy & September 2020. Liquidity • The unemployment rate among Saudis rose to 15.4% quarter-on-quarter (Q-o-Q) in Q2 2020, compared to 11.8% in Q1 2020, according to data from the Saudi General Authority for Statistics. • Saudi Arabia’s GDP forecast to shrink 3.8% in 2020 with better performance in H2 2020. • Saudi Arabia's expenditure for the 2021 state budget is expected to reach SAR 990 billion, with estimated revenue of SAR 846 billion.
• CITC issued the "Cyber Security Regulatory Framework for Service Providers in the Information and Communications Technology and Postal Sector through which it seeks to raise the level of cybersecurity maturity within these sectors. Regulatory • CITC announced the extension of the competition to licenses new mobile virtual network operators (MVNOs) to provide services in Saudi Arabia. Environment • CITC announced the entry into force of the open access agreement between all six telecommunications companies. This agreement aims to expand choices for subscribers, as they will be able to choose their broadband service provider independently of fiber infrastructure ownership, which will increase broadband subscriptions and improve service quality.
• The General Organization for Social Insurance (GOSI) announced that an approval was issued to extend support for Saudi workers in private sector establishments that are still affected by COVID-19, through the unemployment insurance system (SANED), for an additional period of three months. Government • Saudi Arabia announced on Sept. 28th, that the 2020 G20 Leaders’ Summit will be held virtually on Nov. 21–22, chaired by King Salman. Initiatives • Saudi Arabia announced four phases to resume Umrah, amid compliance with the required preventive health procedures. • The Saudi Ministry of Interior announced that the GCC nationals and non-Saudis, who hold valid exit and re-entry, work, residence or visit visas will be allowed to leave and re-enter the Kingdom starting from Tuesday, Sept. 15.
9 KSA Internet Usage Investor Presentation 2020 | stc group
Internet Use Based on Device Perspective As of Jan 2020:
# #
Total Number of Active Internet Users As a Percentage Total Number of Active Mobile Internet Users As a Percentage Internet Users: 32.23 mn of Total Population: 93% Mobile Internet Users: 30.46 of Total Population: 93% mn
Mobile Subscriptions By Type As of Jan 2020:
#
Total Number of Mobile Mobile Connections As a Percentage of Mobile Percentage of Mobile Percentage of Mobile Connections: 40.20 mn Percentage of Total Connections That are Pre- Connections That are Post- Connections That are Population: 116% paid: 72% paid: 28% Broadband: 88%
* Source: Hootsuite
10 stc Internet Performance Investor Presentation 2020 | stc group
4G Mobile Download Speed:
(Mbps) (Mbps) 80 80
60 60
40 40 72.8 61.8 66.2 51.4 52.7 20 20 45.4 33.0 37.9
0 0 Ookla Meqyas
Q3-Q4 2018 Q1-Q2 2019 Q3-Q4 2019 Q1-Q2 2020 Q3 2019 Q4 2019 Q1 2020 Q2 2020
4G Mobile Upload Speed:
(Mbps) (Mbps) 30 30
20 20
10 20.0 21.5 10 20.8 20.2 16.3 17.0 17.4 17.1
0 0 Ookla Meqyas
Q3-Q4 2018 Q1-Q2 2019 Q3-Q4 2019 Q1-Q2 2020 Q3 2019 Q4 2019 Q1 2020 Q2 2020
11 We are looking forward
III. stc Company Profile
* stc is ranked as the 2nd most valuable brand in Saudi Arabia with a total value of SAR 30.09 bn (USD 8.024 bn) as of April 2020 stc at Glance (Q3 2020) Investor Presentation 2020 | stc group
Balance Sheet SAR GCC Ranking** #1 in KSA in Mobile Total Assets 119.08 bn #2 & Fixed Broadband A- subscribers Total stc group Total Equity 63.66 bn #1 Standard employees 19K Total Liabilities 54.12 bn #4 & Poor's & A1 Total stc KSA Debt/ Equity 14.16% Moody's employees 13.6K
Debt/ Assets 7.57%
Dividends Paid (Q3 2020) SAR 1/ share
Dividend Yield Q3 2020* 3.98% SAR30.09 bn Length of deployed nd 2 Most valuable fiber optic cables Brand (AA+)*** 217K KM Income Statement SAR GCC Ranking** Revenue 14.88 bn #1 Operating Profit 3.46 bn #2 #1 in KSA in Net Income 2.77 bn #1 #1 in KSA in Post-paid & Fixed Telephony Pre-paid EPS 1.38 #1 subscribers subscribers *Based on 30/9/2020 closing price ** Among GCC biggest Telecom Operators (Zain Group, Etisalat UAE and Ooredoo Qatar) based on Q2 2020 numbers ***As of April 2020, Brand Finance
13 Board of Directors Investor Presentation 2020 | stc group
HRH. Prince Mohammed Khalid ALFaisal Mr. Rashid Ibrahim Sharif Chairman of the Board Board Member
H.E. Dr. Khaled Hussain Biyari Mr. Osama Yassin Al-Khiary Board Vice Chairman Board Member
H.E. Mohammed Talal Al-Nahhas Mr. Roy Chestnutt Board Member Board Member
Mr. Ahmed Mohammed Al-Omran Mr. Sanjay Kapoor Board Member Board Member
Dr. Ibrahim bin Abdulrahman Kadi Eng. Nasser Bin Sulaiman Al Nasser Board Member Chief Executive Officer (CEO)
14 Major Milestones Investor Presentation 2020 | stc group Since Establishment, stc has Capitalized on Major Growth Opportunities
1998 2003 2006 2008 2010 2012 2014 2016 2018
. Company . Introduction of . Increased capital . Stake acquisition in . Launched Bundled . Fiber Optic in . SAR 5 billion . Share increase in . Comprehensive Incorporation. DSL services. from SAR 15 Oger; services. Saudi; Sukuk program VIVA Kuwait up to settlement agreement billion to SAR 20 . Launched Indonesian . Reached more offering (1st series 51.8% and Sale with the Government; billion. operation under the than 500 residents. was SAR 2 billion). Co. to 100%. . Announcement of new name AXIS. Dividend Policy;
. Launch of stc PAY. 1998 -2002 2003-2005 2006-2007 2008-2009 2010-2011 2012-2013 2014-2015 2016-2017 2018-2019 2002 2005 2007 2009 2011 2013 2015 2017 2019 . Acquisition of . stc became an ICT . Stack acquisition in . 3rd mobile license in . Acquired 60% stake . stc ranked as most . $5 billion international . stc IPO (December) . 10 million push-to-talk (PTT) integrated player in MAXIS Viva Bahrain. in Sale valuable brand in Sukuk program offering mobile mobile operator the region. st Communications and Communication; Saudi Arabia; (1 series was $1.250 bn); subscriber Public Telecom its operations in . Share Increase in . Establishment of . Establishment of Tawal mark; Company (Bravo); Indonesia & India; AXIS Indonesia and STV with $500 Company; . Launch of 3G . Establishment of . Won third mobile Integral; million capital. . Launching 5G services; and 3.5G . Launched IPTV Aqalat Company. . Launching the new mobile license in Viva Kuwait. services in Saudi branding of stc; technology. Arabia. . Uber acquisition of Careem (in which stc owns a direct stake of 8.8% and an indirect stake of 9.3%)
15 Wining Awards Investor Presentation 2020 | stc group
2010: 2017: . Advertiser Excellence in the Middle East and North Africa by Dubai Linux; . 7 awards (1 Grand Prix, 2 silver, 4 bronze) on creativity portrayed in advertising campaigns by Dubai . Operational Excellence Award at the Global Forum for Communications TM Forum Management World; Lynx International Festival of Creativity; . Transparency Award for Saudi Stock Companies by BMG Financial Consultations Firm. . Makkah excellence award for its strategic partnership; . Excellence Award in Corporate Governance at the 2nd Annual Corporate Governance Conference by 2011: Alfaisal University. . Customer Care Excellence Award by Middle East Excellence Awards Institute; . Cisco Most innovation Data Center Project awards by Cisco International; 2018: . Leadership Award for pioneer Role in Telecom Industry at TMT Conference Middle East; . SPEEDTEST award for the fastest mobile internet in the Kingdom; . Best operator of mobile phone services at TMT Conference; . Golden Award for Mystc Campaign for the Effective Integration of the Channels Partnerships by the . International Award for Development, Experience Transfer, and Innovation at TMT Conference Middle East. WARC Media Awards; . Silver Award for the "Unveil Saudi" campaign for the Effective Use of Partnerships by the WARC Media 2012: Awards; . Distinctive award for Employment Nationalization; . Pioneer Marketing Award as Best Advertising Campaign for Digital Day. . Mobile Operator of the Year by TMT Finance; . Best iPhone app; 2019: . Best Mobile Service Provider in the fourth annual poll by Mobile Trend; . 6 Awards at Dubai Lynx 2019 Festival; . Mid East Media Reach-Out Award by Datamatix International; . King Salman honored stc for supporting the Founder’s Equestrian Cup Festival; . The Best Provider of Telecom Services to Airports in Emerging Markets by Arabian Reach; . stc Academy won the Silver award in Technology by the Global Council of Corporate Universities . Distinction Award for Information Security Control and Operating Project for the entire region by Symantec. (GCCU); . 4 Awards by Effie Worldwide as a leader in the telecommunication industry; 2013: . Won Makkah excellence award for its strategic partnership; . Customer Services Excellence Award by Global Telecom Business; . Golden Award for “Mystc campaign” and with the Silver Award for “Unveil Saudi”; . MENA performance excellence and telecom service delivery Award by COMMSMEA magazine; . Won the Excellence Award in Corporate Governance by Al Faisal University. . World-renowned ISO Certification for effectively handling customer complaints in call centers by Lloyd’s . Won the Speedtest award for the fastest mobile internet in the Kingdom. Register Quality Assurance (LRQA); . Won the Speedtest award for the best mobile coverage. . Procurement wins EIPM Award. 2020: 2014: . wins the best apply of Customer Experience Management program Award 2020. . 4 Mena Cristal awards for its print and outdoor Roaming campaigns by Mena Cristal event. . First company headquartered in Saudi to be accredited by CREST for penetration testing services. . Won the best mobile coverage award by Speedtest. 2015: . Won the fastest 5G and mobile network award by Speedtest. . Obtains OKAZ and EFFIE awards; . Best wholesale operator for data and voice services in the MENA region by Telecoms World Middle East.
2016: . Multiple creativity awards on outstanding work on the Rayi7 Rayi7, Dawri Plus, and Laywagif campaigns by Dubai Lynx; . Mega contact centers and “social media services” awards; . Middle East Grand Prix at the Lorez Award Ceremony; . Gold medal for “contact center” award and the silver medal for “Best use of Social Media in the Contact Center” award during Contact Center World Summit; . Two awards for being the leader in the telecommunication industry by Effie Worldwide.
16 Expanding Footprints Across Four Countries Has Unlocked Investor Presentation 2020 | stc group Growth Opportunities
2007 Kuwait 2009 Bahrain
Kingdom of Saudi Arabia
2008 Malaysia
17 stc 5G Technology Investor Presentation 2020 | stc group
1st Launched 3,000 5G IoT Award Wining Commercial Towers Technology Network
. stc is the first telecom company . Total number of 5G towers as end of . The company will benefit from Internet . stc group won 3 international awards launching the fifth generation 2019 reached 2,300. stc KSA currently of Things (IoT) enabled by 5G at the 5G MENA Summit. technology in the region commercially has more than 3,000 5G towers out of technology. It will not only enhance (KSA, Kuwait and Bahrain). 7,000 towers in the Kingdom. It is operational efficiencies and user expected that the number of towers experiences but provide new revenue . The fifth generation in the Kingdom deployed will increase as demand opportunities. was launched through broadband grow for devices and applications applications. supporting 5G technology. . 5G technology in industrial applications is a future plan, as the . stc deals with various international company operates in several areas, suppliers for providing 5G including oil and gas, service agencies equipment. and various industries.
18 Y-o-Y Revenue Breakdown Investor Presentation 2020 | stc group
Q3 2019 Q3 2020
stc KSA stc KSA SAR SAR 10.29 bn 11.04 bn
0 Channels by stc SAR Channels by stc SAR 4.34 bn 3.71 bn
SAR 14.11 bn SAR 14.88 bn Revenue Revenue
Other Operating Segments* Other Operating Segments* SAR SAR 3.35 bn 4.22 bn
Eliminations/ Adjustments SAR Eliminations/ Adjustments SAR (3.88) bn (4.08) bn
*Other operating segments include: stc Kuwait, stc Bahrain, Solutions by stc, Intigral, Specialized by stc, Aqalat, Tawal and stcpay. 19 Key Credit Strengths Investor Presentation 2020 | stc group
Largest telecom operator in the MENA region Market cap of SAR 200.80 bn (USD 53.55 bn), and presence in 4 countries (as of 30-Sept- 2020) Experienced best-in-class management Strong financial performance team Management team has significant experience Consistent growth in EBITDA Margin (14% since across telecom products & markets and has a 2016) proven track record of delivery 1 8 2
Extensive & developed telecommunications Strong Government links and strategic infrastructure importance Largest fixed line network in Saudi Arabia. 7 3 70% government ownership; national flagship Comprehensive cross-border network serving all company; significant contributor to non-oil GDP operators in MENA. and employment. Regional pioneer in 5G & FTTH deployment1 6 4 Strong balance sheet and Healthy Cash Sound business and growth strategy 5 Flow Given its strong financial position, stc is able to Well placed to gain access to efficient, swiftly capitalize on growth opportunities via substantial levels of debt to fund future organic and inorganic growth investments if needed. Market leadership in Saudi Arabia (the largest market in the region) 74% market share by revenue, as of 30-Sept-20
1 FTTH: Fiber-to-the-home technology.
20 Share Information Investor Presentation 2020 | stc group
Market Capitalization As of 30th Sept. 2020 Among Major Saudi Ownership Structure As of 30th Sept. 2020: Listed Companies : Foreign 265.2
Ownership Bn
5.45% SAR SAR 200.8
24.55% 164.3
111.5
71.7 55.9 70% 53.8 52.9 52.0 48.8
Public Investment Fund (PIF) Free Float Shares SABIC STC Al Rajhi NCB Saudi Riyad Samba Al Marai SABB Maaden Electric Bank
Share Information 30th September 2020 Float Adj Mkt Cap Index MSCI* (USD bn) Wt. (%) Close Price (SAR) 100.40 AL RAJHI BANKING & INV 21.46 12.36 Issued Shares (mn.) 2,000 SAUDI BASIC IND CORP AL 21.21 12.22 Free Float 30% Saudi Aramco 21.06 12.13 P/E Ratio 17.97 Saudi Telecom Co 16.06 9.25 EPS (Q3) 1.38 NATIONAL COMM BANK 14.56 8.39
* As of 30th Sept. 2020
21 Share Information Investor Presentation 2020 | stc group
Share Performance Vs. Telecom and TASI Index: Market Capitalization of Telecom Sector As of 30th Sept. 2020:
Announcement on the interim consolidated 3.49% Announcement financial results for the on the interim period ending on 30- Announcement on the dividends for 06-2020 (six Months) latest development in 9.52% the 2nd quarter regards to the 2020 Announcement on the memorandum of latest development in understanding (MoU) 20% regards to the with Vodafone Egypt. memorandum of understanding (MoU) 16% with Vodafone Egypt. 14.4% YTD 12%
8%
4% 3.4% YTD 2.0% YTD 86.98% 0%
-4%
-8%
stc Mobile Zain
TASI Telecom stc
22 Submarine Cable Investment & Optimized Connectivity Investor Presentation 2020 | stc group
Submarine Cables
stc has given a strategic importance to establish its international network, as about 99% of the total communication # Cable System Name of Cable 99% and data transmission is carried out through Submarine Cables.
1 SMW5 South Asia Middle East #5 Western Europe 25 stc serves the Middle East and North Africa (MENA) region through its international network, which for more than 25 Years years is considered one of the leading networks in the region. 2 SMW4 South Asia Middle East #4 Western Europe
400 3 IMEWE India Middle East Western Europe stc has signed with more than 400 operators all over the world in more than 100 countries. Operators
4 EIG Europe India Getaway stc runs more than 90% of the volume of the internet traffic and data in the Kingdom and increases the data traffic to 90% more than 3,500 TB per day. The company passes the data flows through the largest internet gateway in the region with capacity of 4,000 GB per second. 5 SMW3 South Asia Middle East #3 Western Europe
stc is one of the initiators and founders of the fourth continental submarine cable, which extends for a distance of 20 6 1-SAS 1- Saudi Arabia Sudan Initiator thousand Km and connects 14 countries between Singapore and France. The company is also a founding member of IMEWE marine cable project linking India, Middle East and Western Europe.
7 2-SAS 2- Saudi Arabia Sudan The Company is a founding member of EIG Europe India Getaway project that extend from the UK through Founder Alexandria with landing station in Tark mountain, Libya and Morocco, and from Egypt to India with landing station in Saudi Arabia, Oman, Djibouti and UAE. 8 EASSY Eastern Africa Submarine System
The company has strategic partnership in new projects such as (EASSY) which extend along the East Coast as well 9 MENA Middle East North Africa Partnerships as South Africa to reach Sudan linked to two cable systems SAS-1 and SAS-2.
10 FLAG Fiber link around Global The latest achievements was the completion of a project of an international alliance of more than 14 international International communication companies. The project of establishing the SMW “South Asia Middle East West Europe” (Capacity of alliances 24 TB per second, 20,000 km long and connects 17 countries). 11 GBI Gulf Bridge International
New stc is currently preparing to engage in a new project (Africa1 cable), which connects a number of African countries, 12 JADI Jeddah Amman Damascus Istanbul projects with capacity of 36 TB per second and connect more than 12 countries in Africa and Europe through the Kingdom.
23 Submarine Cable Investment & Optimized Connectivity Investor Presentation 2020 | stc group
Source: stc Wholesale Unit
24 Healthy Organization – stc’s OHI Success Story Continues with Hitting Investor Presentation 2020 | stc group Target Again
stc OHI 2019 Entered Top Quartile
33 +6 39 +8 47 +8 55 +9 64 +7 71 +7 78
2013 2014 2015 2016 2017 2018 2019
. stc Unique Success Story continues in it’s 7th year; . Ranked in the first-quartile in KSA and the Region; . First-Quartile compared to Telecom Industry.
25 IV. Strategy Overview stc Vision & Values Investor Presentation 2020 | stc group
Vision:
“ We are a world-class digital leader providing innovative services
and platforms to our customers in the MENA region. “
Values:
27 stc DARE Strategy Investor Presentation 2020 | stc group
igitize stc ccelerate Core Asset Performance Digitally transform stc’s operational Extract more value from our core assets capabilities and traditional segments
dare einvent Customer xpand Aggressively Experience At World-class Scale And Scope Standards Redefine customer experience through personalization of every interaction Pursue concrete opportunities for growth
28 V. Business Overview stc Subsidiaries, Associates & Joint Ventures Investor Presentation 2020 | stc group
Local Subsidiaries International Subsidiaries Associate Companies
Arab Satellite Communications 36.6% Channels by stc 100% stc Bahrain 100% Organization
Specialized by stc 100% stc Kuwait 51.8% Virgin Mobile KSA 10%
Tawal (Tower Company) 100% stc Asia 100% Oger Telecom Limited 35%
Solutions by stc 100% stc Gulf Investment 100%
Joint Ventures Aqalat 100%
Arab Submarine 50% stc pay 100%
Telecom Commercial Contact Center (CCC) 49% 100% Investment Co Ltd (TCIC)
Binariang GSM Holding 25% (BGSM)
30 Tawal Investor Presentation 2020 | stc group
Date of Incorporation:
The subsidiary was founded in Q1 2018.
Invested Capital:
A total of SAR 2.5 billion.
Subsidiary Objective:
To be responsible for owning, constructing, operating, leasing and investing in the towers.
stc Ownership:
Since establishment, stc fully owns the subsidiary (100%).
Subsidiary Operation:
During Q1 2019, stc Towers Co. obtained the necessary operational licenses from the Communications and Information Technology Commission.
31 Specialized by stc Investor Presentation 2020 | stc group
Date of Incorporation:
The subsidiary was founded in 2002.
Invested Capital:
A total of SAR 252 million.
Subsidiary Objective:
stc Specialized, is the only national licensed operator providing the business sector, and the governmental, industrial and commercial sectors with services and solutions addressing instant collective wireless communications.
stc Ownership:
stc fully owns the subsidiary (100%).
Provided Services:
TETRA Services Messaging Services
Mobile Telephony Inmarsat
Location-Based Services Control Room Solutions
Alert Service
32 Channels by stc (Formerly Sale Advanced – SALECO) Investor Presentation 2020 | stc group
Date of Incorporation:
The subsidiary was founded back in 2008
Invested Capital:
A total of SAR 100 million
Subsidiary Objective:
Considered as the sales and distribution arm of stc Group, stc Channels is the leading and one of the largest telecom distribution companies in the Middle East with operations in Saudi Arabia, Bahrain and Oman;
The company is a wholesaler and retailer of smart card services, communication equipment and computer services, the selling and reselling of all fixed and mobile telecommunications services and the maintenance and operation of commercial complexes. The company’s head office is located in Saudi Arabia.
stc Ownership:
In December 2011, stc acquired a 60% stake of the subsidiary. In January 2017, the company acquired the remaining shares thereby owning 100% in the subsidiary.
Digitization:
• Reduced number of branches and distribution centers by 36%;
• Increasing number of Self-services machines which increased the number of transactions by 380% in two years only;
• Digitized inventory management by using a digital order management system;
• Launched digital platforms to boost online sales: MyStore, Mystc, electronic recharging…etc.
266 46,000 + 122 + 57,000 + 3,200 + Stores Merchants Distribution Hubs POS transaction Agents
33 Solutions by stc Investor Presentation 2020 | stc group
Date of Incorporation: The subsidiary was founded in 2002.
Invested Capital: A total of SR 100 million.
Subsidiary Objective: . To enable digital transformation to support government and private sector goals; spreading the benefits of Cloud computing to bring down the cost of progress and speed up the journey into the future;
. Through an extensive partner ecosystem, the subsidiary aim to deliver the most advanced end-to-end solutions, and managed services, for compute, storage and network, software and hardware.
stc Ownership: stc fully owns the subsidiary (100%).
Provided Services:
Big Data Analytics and Smart Data Insights Cyber Security
The Internet of Things Managed Services
CLOUD System Integration
34 AQALAT Investor Presentation 2020 | stc group
Date of Incorporation: The subsidiary was founded in 2013.
Invested Capital: A total of SAR 70 million.
Subsidiary Objective: To develop and manage the company’s properties in all parts of the Kingdom by benefiting from the capabilities of the Saudi Telecommunications Group and its applications by adopting the concept of smart development that is based on integrating technology in all projects and investments.
stc Ownership:
Since establishment, stc fully owns the subsidiary (100%). Riyadh Project
Projects Under Management:
1- Riyadh Project (Smart Square)*
The project is located in the heart of Riyadh City in Al-Mursalat district, sitting on a 140,000 m2 land. In this project, AQALAT aspires to achieve its vision of future projects by enabling Smart Cities concepts. It is a mixed- use project that include residential, offices and commercial units.
2- Dammam Project (Smart Boulevard) The project is located in the southern part of the communications complex in Al-Rayan district, in the heart of Dammam City situated on a land of 380,000 m2. The project is a mixed-use project with the commercial part being the project’s main concept. AQALAT aim this project to achieve its vision by enabling Smart Cities applications. Dammam Project
* During Q4 2019, stc issued a separate SPV for the project allocating SAR 107mn of invested capital.
35 stc pay Investor Presentation 2020 | stc group
Date of Incorporation:
The subsidiary was founded in 2018.
Invested Capital:
A total of SAR 400 million.
Subsidiary Objective:
stc Pay is a digital secure wallet that empowers individuals to take full control of their finances at their fingertips- anytime, anywhere. Enabling them to send, receive, spend, and manage money simply through their phone.
stc Ownership:
Since establishment, stc fully owns the subsidiary (100%).
Application Main Features:
36 Saudi Technology Ventures (VC Fund) Investor Presentation 2020 | stc group
STV is an independent VC fund with a total capital of USD 500 is anchored by stc with access to its assets (e.g., network, channels, analytics, customer base, etc.)
. Leading a SAR 78.75 million (USD $21 million) investment round in unifonic . 150+ Countries, 720+ Operators
. Vezeeta has managed 3 million bookings in the region . Served 2.5 million consumers/patients . Connected more than 10,000 doctors in Egypt, Saudi Arabia and Jordan
. Leading an investment round of 33.75M SAR to accelerate the company’s growth and scale-up plans
. A multimillion-dollar investment in Mrsool . The leading Saudi on-demand delivery service . $ 270 million in transactions in 2018 . 4 million registered users
. A CO-leading SAR 32.2 Million investment in noon Academy . noon Academy is the leading EdTech platform in the Mena Region
. Brings innovation to trucking with On-Demand aggregation in Real-Time. . 100% automated booking, real-time tracking of trucks, smart asset utilization, & cost efficiency.
. Delivers full screen, engaging media and measurement on rideshare vehicles and taxis. . Creating a significant new ad format at scale. the scale of rideshare networks has created a large opportunity to provide digital out of home advertising with granular city-block and time targeting.
37 VI. Financial Highlights Financial Highlight Investor Presentation 2020 | stc group
Revenue EBITDA
5.4% 6.4% 10.5% 1.1% -0.3%
43.74 17 8.4% 16.28 16.46 41.10 16 14.92 50% 14.88 6.0 65% 5.79 15 5.8 14.11 60% 13.93 14 5.6 5.34 42% 5.33 55% 5.24 13 13.26 5.4 50% 5.2 4.99 12 39.6% 45% 37.6% 34% 5.0 11
40% 4.8 10 35% 4.6 38.9% 38.2% 26% 37.1% 37.6% 9 30% 4.4 35.8%
25% 8 4.2
4.0 20% 7 18% Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 9M-19 9M-20 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 9M-19 9M-20 EBITDA Margin
Operating Profit Net Profit
-5.5% 4.0% 0.7% 0.7%
4.50 13.0% 11 35% 1.5% 26%
29% 9 4.00 10.08 8.34 8.40
30% 3.46 10 3 2.91 22% 24% 3.33 27% 9.53 3.50 8 3.06 3 3.00 21% 25% 2.77 3.00 2.75 25% 9 3 2.72 22% 7 2.40 24.5% 3 20.9% 20% 20% 2.50 23% 21.8% 8 3 20% 19% 23.6% 6 2.00 23.3% 15% 19.5% 20.3% 21% 3
18% 1.50 7 2 19.2% 18% 21.6% 2.32 18.6% 5 10% 18.3% 19% 20.5% 2 17% 1.00 17.5% 6 2 4 16% 5% 17% 16% 0.50 18.1% 2
15% 3 0.00 15% 5 0% 2 14% Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 9M-19 9M-20 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 9M-19 9M-20 Operating Margin Net Profit Margin Numbers are in SAR Billions
39 Financial Highlight Cont. Investor Presentation 2020 | stc group
Revenue EBITDA
+1.4% +2.0%
54.37 21.26
52.67 19.84 51.96 19.29
50.65 50.66 18.43 18.03
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Operating Profit Net Profit
+1.0% +2.9%
12.25 12.48 10.78 10.66 11.86 10.02 10.99 9.26 9.95 8.90
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
40 Financial Highlight Cont. Investor Presentation 2020 | stc group
Performance: 61 95% 17.55% 54.37 17.27% 50.66 51.96 37.63% 15.93% 16.45% 38.17% 39.11% 43.74 36.38% 41 65% 9.86% 9.23% 9.01% 9.39%
23.57% 21 21.69% 22.96% 21.78% 35%
19.77% 20.74% 19.62% 19.21% 1 5% 2017 2018 2019 9M 2017 2018 2019 Sept. 2020
ROA ROE Revenue Net Margin Operating Margin EBITDA Margin
Leverage: 9.31 9.01 80% . Total borrowings paid during the nine months period ended 30 Sept. 2020 9 amounted SAR 296 million (the nine months period ended 30 Sept. 2019 70% amounted SAR 302 million). Total borrowings received during the nine months 43.79% 60% period ended 30 Sept. 2020 amounted SAR 20 million (the nine months period 41% ended 30 Sept. 2019 amounted SAR 5,500 million). 6 50% 4.65 4.29 40% . During 2019, total debt increased by 117% due to the new established 25.25% 15.08% 14.16% 30% international sukuk program that was approved at the General Assembly meeting 3 21.61% th 20% on 24 April 2019; 7.40% 6.54% 10% 7.87% 7.57% . This new sukuk program is denominated in US Dollars not exceeding the amount 4.29% 3.92% of USD 5,000 million; 0 0% 2017 2018 2019 Sept. 2020 . During the second quarter 2019, stc Sukuk Company Ltd. (SPV established for Long-Term Debt Short-Term Debt Debt/ Assets the purpose of issuing sukuk), completed the first sukuk issuance under the Debt/ Equity Debt/ EBITDA Sukuk Program for USD 1,250 million (equivalent to SR 4,688), at USD 200 41 thousand par value, annual yield of 3.89% and a maturity of ten years. Financial Highlight Cont. Investor Presentation 2020 | stc group
Total Capital Expenditure (Capex): CFO/ Capex Ratio: 12 25%
25 10 20% 2.40 20.91% 2.01 1.96 8 18.78% 20 15% 1.80 6 15.67% 14.54% 15 1.22 10% 4 0.87 1.20 10 7.74 2 5% 0.60 7.94 9.76 11.37 6.36 5 0 0% 15.92 19.13 9.92 2017 2018 2019 9 Months 0 0.00 2017 2018 2019 9 Months Capex Capex/ Revenue CFO CFO/Capex Ratio
Free Cash-Flow (EBITDA-Capex): Capex/ Depreciation & Amortization Ratio:
10.49 10.08 9.90 10.10 1.07 1.29 1.29 0.92
2017 2018 2019 9 Months 2017 2018 2019 9 Months
42 Financial Highlight Cont. Investor Presentation 2020 | stc group
Dividends Distribution: 12 . Recently announced, the company has approved its dividend policy for the next 10.78 * 10.66 three years starting from the 4th quarter 2018 (as approved by the board of 10.02 90% 10 directors); 79.84% 8.40 74.21% 8 75.05% 72.46% . The objective of the dividend policy is to maintain a minimum level of dividend per 60% share on quarterly basis. stc commits to pay a fixed minimum dividend of a SR 1 per 6 share per quarter; 4 30% . The company may consider paying additional dividends subject to the Board 2 approval after assessment and determination of the Company's financial situation, 5.83% 6.54% 3.93% 3.98% outlook and capital expenditure requirements; 0 0% 2017 2018 2019 Sept. 2020 . Additional dividends are likely to vary on quarterly basis depending on the company’s performance. Net Income Dividend Yeild Payout Ratio
*Payout ratio taking into account the special dividend paid in 2018: 111.32%
Price Vs. Yield Fluctuation: P/E Multiple for Q3:
110.00 6.00%
102.00 5.20% P/E At 103.0 (Max)* 18.44 94.00 4.40% P/E At 95.5 (Min)** 17.10 86.00 3.60% P/E at closing price of Q3 (100.4) 17.97 78.00 2.80%
*As of 16/09/2020 70.00 2.00% ** As of 01/09/2020
Price Div yeild
43 Financial Highlight Cont. Investor Presentation 2020 | stc group
Stability of Dividend Distributions: Annualized Capital Gains:
Over the last five years, stc distributed a total of SAR 44 billion to investors through a stable 1 year 10.16% dividend distribution in each quarter (SAR 1/share) which indicates a healthy cash flow 2 years 21.60% supported by a strong and stable performance. 3 years 11.54% 4 years 10.58% 5 years 8.75% 22
4 18 Annualized Total Return* (Re-invested Dividends): 6 18
12 17.62% 4 12 Div: SAR 14/ share 8 4 8 16.33%, Div: SAR 6/ share 15.15% 4 4 Div: SAR 22/ share
2015 2016 2017 2018 2019
Incremental Dividends/ share
1 year (1/1/2019 - 1/1/2020) 3 years (1/1/2017 - 1/1/2020) 5 years (1/1/2015 - 1/1/2020)
*Assuming 1000 shares were invested at the beginning 44 Sukuk Programs Issued by stc Investor Presentation 2020 | stc group
Item International Sukuk Program Domestic Sukuk Program
Issuing Type International Sukuk (senior, unsecured sukuk) Domestic Sukuk
Currency USD denominated SAR denominated
Program Amount USD 5 Bn SAR 5 Bn
To support the execution of the company’s strategy, future plans and . To support the execution of the company’s strategy, future plans and diversify the sources of funding; . Issuing Objective diversify the sources of funding. . To benefit from the features of international debt capital market in terms of liquidity, competitive pricing and diversification of investors’ base.
Minimum Settlement USD 200,000 SAR 1,000,000
Price at Maturity At Par At Par
Price As of 30th Sept. 2020 USD 113.3 (YTD 2.2%) N/A
Trading Market Irish Stock Exchange plc trading as “Euronext Dublin” private placement
Issuing Date 13th May 2019 9th June 2014
1st Tranche Amount USD 1.250 bn SAR 2 bn
Number of Sukuk Issued 6,250 sak 2,000 sak
Subscription Coverage 3.5x 2x
Tenor 10 years (13th May 2029) 10 years (9th June 2024)
Coupon Rate 3.89% (Valued at Mid Swap of 2.54%+135 bps) 3M SAIBOR + 70 bps
Payment Frequency Simi annual (first payment on 13th Nov 2019) Quarterly
HSBC, JPMorgan, Standard Chartered, Samba Capital, First Abu Dhabi J.P. Morgan Saudi Arabia Limited, NCB Capital Company and Standard Arrangers Bank, and KFH Capital Chartered Capital Saudi Arabia
Rating Moody’s (A1), S&P (A-) N/A
45 Disclaimer Investor Presentation 2020 | stc group
This presentation has been prepared as an informative guide that might assist interested parties in gaining an insight into the history and background of telecommunications within Saudi Arabia, as they relate to the Saudi Telecom Company (stc). Furthermore, it does not constitute an invitation or inducement to purchase or dispose of any securities, either in stc, or any companies in which stc has a financial interest.
In addition, there may also be ‘forward looking’ statements included within the meaning of current securities laws and regulations. In this context, any opinions expressed within this document, regarding the company’s potential future performance, should be viewed as being accurate at the time of preparation. However, cognizance should be taken of the fact that uncertainty may dictate that actual performance differs substantially from any views articulated herein.
stc Head Office: Almursalat District, Imama Saud Road
Toll Free (from inside KSA): 8001161100
Postal Address: P.O.Box 87912, Riyadh 11652 Saudi Arabia
Investor Relations E-mail: [email protected]
Website: https://www.stc.com.sa/wps/wcm/connect/e nglish/investor/overview Let`s create the future together
Thank you