ZAIN’s 2014 net loss down 23% to SAR 1270 mln

Mobile Telecommunications Company (Zain), a third mobile operator in Saudi Arabia , reported a net loss of SAR 1270 million, a 23 percent decrease compared to the last year.

A net loss of SAR 306 million was reported for Q4-2014 compared to SAR 316 million for Q3.

The Company attributed the decrease of 2014’s net loss compared to the same period last year to improvement of gross profit and margin as a result of the rising demand on internet segment services; the decline of provisions due to winning legal cases and upon external legal opinion; the decline of repair and maintenance expenses; and the adjustment of the useful life of some of the Company’s assets.

The Company attributed the decline of Q4-2014’s net loss compared to the same period last year to the improvement of gross profit as a result of the rising demand on internet segment services; the decline of repair and maintenance expenses; the adjustment of the useful life of some of the Company’s assets.

The decline of Q4-2014’s net loss compared to the previous period (Q3-2014) was attributed to cost optimization and the decline of repair and maintenance expenses in addition to the decline of financial charges by 7% (SAR 172 million from SAR 184 million) which is mainly attributed to the change in the KWD and SAR exchange price.

Emphasis of a matter by external auditor:

1. We draw attention to Note 1 and 3 to the interim financial statements; the Company has incurred a net loss for the year ended December 31, 2014 and has an accumulated deficit as of that date. In addition, during 2014, the Company results were below its approved business plan which resulted in technical deviation of the covenants of a loan related to the Murabaha Financing Agreement referred to in note 3 to the financial statements. During the fourth quarter, the management of the Company obtained from the financing banks the required waiver for the above-mentioned breach as of September 30, 2014 and also agreed with the financing banks to revise covenant calculations for December 31, 2014 and March 31, 2015. The Company’s board of directors has approved a revised business plan on January 20, 2015 subject to reach a final understanding with the banks to comply with the requirements of the financing agreements.

 2. We further draw attention to Note 1 to the interim financial statements in relation which to the Company’s board of directors recommendation to the shareholders in its meeting held on November 27, 2014 to reduce the Company’s capital share from SAR 10,801 million (1,080.1 milion shares of SAR 10 each) to SAR 5,837,291,750 (583,729,175 shares of SAR 10 each), representing a decrease of 45.96%. This recommendation remains subject to the shareholders and regulatory authorities approvals.

 3. We also draw attention to the matter of significance referred to in Note 10.2 to the interim financial statements which outlines that as of December 31, 2014 the Company is a party to an arbitration proceedings with Etihad Etisalat Company (Mobily) in relation to claims raised by the later against the Company in the amount of SAR 2.2 billion plus penalties that were rejected in their majority by the Company; thus resulting in a dispute arising from the Services Agreement entered into by the Company and Mobily on May 6, 2008.

The arbitration’s sessions which are in progress, started to be effective on December 20, 2014, and the ultimate outcome from the arbitration and resulting effect, if any, on the Company accounts cannot be reliably determined at this stage.