Background
Saudi Telecom Group (STC) is a telecommunications firm based in Saudi Arabia that provides Internet, mobile, and landline services. The telecommunication company offers integrated broadband, fixed, and mobile communications services to over 142 million customers in 10 markets as well as in Saudi Arabia. The firm started its business as the giver of telecommunications facilities all over (the ‘Kingdom’) Saudi Arabia on May 2nd, 1998, and got registered as a Saudi Joint Stock Company on June 29th, 1998. The companies headquarter is based in Riyadh. Saudi Telecom Company is the leading telecommunications firm by a number of workers, total proceeds, and market capitalization in the Arab State area. Strong headship together with premeditated investments has amplified shareholder value and allowed the company to afford 98 percent coverage and introduce new services and products (i.e. IPTV, Blackberry, 3G, MMS, and high-speed internet among others) in Saudi Arabia. This has seen the company awarded good (A1) and (A+) ratings by the Standard & Poor’s Ratings Services. The ratings have catapulted the firm to become among the top five rated firms in the world as well as the primary telecom firm in the country to achieve this excellent rating. With contemporary network amenities, a well-established balance sheet, a steadfast workforce, and a customer-centered organization, STC will carry on to grow and spread out both locally as well as internationally. In the recent past, Saudi Telecom has penetrated beyond its neighboring borders to the global markets, establishing a group of ventures and trade dealings in Africa, Asia, and a number of GCC nations. The company’s presence can now be felt in Bahrain, Indonesia, South Africa, Turkey, India, Malaysia, and Kuwait; a thing that has enabled the firm to reach a larger number of clientele, across the world (Saudi Telecom, 2011).
Mission
As a leader in a planet of dynamic change, the company endeavors to surpass clients’ expectations so as to reach new horizons together.
Values
Truthfulness, dedication, cooperation, reverence, initiative, and allegiance
Corporate Social Responsibility
As part of the company’s authentic and real sagacity of belonging to its homeland and Saudi society in general, the firm is ardent on participating in all national events and supporting expansion projects sanctioned by the regime for both private and public segments in order to encompass a valuable role in all state projects and infrastructure initiatives that touches on all fields. In addition to applying continuous endeavors in its field of trade; to offer modern integrated cable solutions that can enhance the financial system towards attaining more affluence for its nation while elevating cultural & social life for all residents in Saudi Arabia.
Saudi Telecom is well aware of its tasks towards the social order within which the company operates. Such consciousness has seen different dependability programs being launched, for instance, the “Wafaa Health program” that was started by the firm to construct & stock 22 health centers in all towns of the kingdom at a cost of one hundred million SR. This has seen the firm assist in major development programs throughout the Kingdom. The populace can easily access the health facilities as a result of the increased number of health centers thus a major stride towards the growth of the society as a whole.
The company also commenced the “Wafaa Education Program” with the aim of educating the Saudi youths, chipping into the education of more than 1300 female and male scholars in diverse colleges within the kingdom, among others.
Furthermore, the company has instigated the “Wafaa Sports Program” to assist sports clubs in Saudi setting a (world) record by supporting all Soccer event clubs, as Saudi Telecom believes in the significance of sports actions for the liveliness of society. Carrying on its dedication to assist in sports development, the firm has lately signed sponsoring agreements for Al-Ahli, Al-Nasr & Al-Ittihad clubs where STC shall fund several planned programs for the said clubs (Saudi Telecom, 2011).
Directors
- Mr. Muhammed Bin Omran Al-Omran
- Mr. Khalid Bin Abdulrahman Al-Rajhi
- Mr. Abdulaziz Bin Habdan Al-Habdan
- Dr. Muhammed Bin Sluman Al-Jasser
- Mr. Muhammed Bin Saleh Ad-Dahham
- Mr. Abdulrahman Bin Abdulaziz Mazi
- Dr. Hamad Bin Sluman Al-Qassumi
- Mr. Ibrahim Bin Ali Al_Hassan
Senior Management Team
Saudi Telecom is striving to accomplish more developments to augment its prominent task as the principal integral (telecommunication) body in the Middle East. The company is also stand by for spreading out in both the international and local markets. In order to keep pace with this new development, the Telecom Group is functioning through a panel trying its best to keep its important role and pursue development agenda. The senior management team is listed under;
- Eng. Saud bin Majed Al Daweesh – CEO STC Group
- Dr. Saad Dhafer Al Qahtani – Group CEO for Strategic Operations
- Mr. Jameel Abdullah Al Molhem – CEO of KSA Operations
- Eng. Ghassan Hasbani – Group CEO International Operations
- Dr. Ziyad Thamer Al-Otaibi – Group CEO for Technical Operations
- Dr. Fahad Hussain Mushayt – Vice President for Strategic Affairs
- Mr. Khaled Abdulrahman Al Jaser – Group Vice President for Shared Services
- Dr. Mahmoud Abdulkarim Al-Khatib – Vice President for Regulatory Affairs
- Dr. Abdullah M. Alhomeadan – Vice President for Human Capital
- Eng. Mazyad Nasser Al Harbi – Vice President for Home Services
- Mr. Amin Fahad Al Shiddi – Vice President for Finance Saudi Arabia
- Eng. Mohammed Nasser Al Jasser – Vice President for Enterprise Services
- Eng. Ibrahim Abdulrahman Al Omar – Vice President for Personal Services
- Eng. Omer Abdullah Al Nomany – Vice President for Information Technology
- Dr. Homoud Mohammed Al Kusayer – Vice President for Wholesale
- Eng. Bandar Mohammed Al Gafari – Vice President for Network
LEAD Strategy
The company’s new strategy – LEAD – was formed to focus on joint efforts and energy in seizing the up-and-coming opportunities while overseeing overall confronts over the future years. LEAD covers six main elements that are essential for Saudi Telecom Company:
SWOT Analysis
Strengths
- The firm is a leader in most of the telecommunications facilities it offers in the market i.e. products such as IPTV, Blackberry, 3G among others
- Joint ventures with international firms (such as Oger Telecom Ltd., NTS (AXIS)) has worked best for the firm in penetrating international markets and increasing sales
- The large range of the guarantees of the products that the clients remain flocking all year out due to the diverse products the company produces.
- The increasing market share in Africa, Asia, and a number of GCC nations has been and remains a major boost for the company revenues.
Weaknesses
- The company has been facing slump demand from the GCC nations.
- The company has also been experiencing increasing long term debts over the years
- The company’s operating expenses have continued to increase
- The company has been facing threats from other rivals
Opportunities
- The firm has continued receiving financing amenities (in the forms of Murabaha deals) from a number of local banks on the plus 0.25% interest.
- Increased market share in Africa and GCC nations due to the growth and development in these regions
- The Company’s various investments in associates, joint ventures, and subsidiaries have helped stabilize its finances
- Adoption of new technologies which will aid in easier financial and customer management. For instance, introducing the primary (broadband) package in Saudi that comprises web browsing through Jawal and Hatif networks. The service is offered at a considerably reduced price in the expanse, thus attracting a good number of clients
Threats
- It is difficult to achieve price standardization in a global economic environment characterized by massive economic and currency fluctuations. Saudi Telecom sells its products in different regions which are characterized by economic instabilities and this considerably reduces the profit margins
- The company has been facing stiff competition from other rivals in the industry.
- The retailers are also a threat to the company’s success since most of the time they don’t stock enough products
- The company has to make every effort in order to accomplish and uphold an eco-friendly standing
Investment and financing decisions
Source of funds
The firm has continued receiving financing amenities (in the forms of Murabaha deals) from a number of local banks on the plus 0.25% interest. Proceeds from deals in joint ventures have also played a major role in providing the much-required finances. Saudi Telecom also derives some economic benefits from its subsidiaries across the globe.
Capital mix
The company capital mix is made up of 2 billion ordinary shares. After being sold for SR 10 per share the company generated SR 20 million both in 2009 and 2010. Other major sources of capital include statutory reserves. The retained earnings that amounted to 16,287,412 and 13,552,367 in 2010 and 209 respectively were a major booster of the company’s capital base.
Cost of capital
Cost of capital of a company is determined by computing the price to earnings (P/E) ratio. (P/E) ratio = Price of the stock / Earnings per share. According to the company’s financial statement in 2010 P/E ratio = 10 / 2.25=4.4. This is an indication that the market was willing to pay for the organizational earnings.
Financial leverage
In order to reduce the cost of capital the company decreased its level of external borrowing in 2010 as compared to 2009. This indicates that the company avoided increasing the level of risk in 2010.
Analyzing Ratios
Liquidity ratio portrays the capability of a firm to convert the current assets into cash. The major types of liquidity ratio include current ratio and acid test ratio (Gibson, 2010).
current ratio= current assets
Current liabilities
For the year 2010 the current ratio was 18,704,212
26,618,333 =0.703
While in the year 2009 the current ratio was 19,899,654
26,577,162 / = 0.749.
This shows that in 2009, the rate of converting current assets into cash was high as compared with the year 2010. Another liquidity ratio that is commonly used by companies is the acid test ratio.
Acid test ratio=current assets –inventory / current liabilities.
Profitability Ratio
Gross margin ratio= Gross profit
Net sales
For the year 2010, gross margin ratio was 30,322,598 / 51,786,828 * 100% = 56% while in 2009 gross margin ratio was 31,000,695 / 50,780,087 * 100%= 61%. This shows that in 2009 the company’s financial performance was better as compared with the year 2010. It appears that the company recorded some decline in performance in the year 2010(Saudi Telecom, 2011).
Solvency Ratio
As noted by Banks (2010), this gives a company a measure of its capability to settle debts articulated as a percentage. It is calculated by adding together the firm’s net profit (post-tax) and depreciation, and dividing the computation by the magnitude of (short-term and long-term) liabilities; the resulting figure is expressed as a percentage. A solvency ratio that is high means that the company is doing well while the opposite is true to a lower ratio.
The lower a firm’s solvency ratio is, the larger is the chance that the company will evade its debt obligations. The measure is calculated as below
Solvency ratio= After-Tax Net profit + Depreciation
Long-Term Liabilities + Short-Term Liabilities
According to the 2009 and 2010 consolidated financial statements of the company, in 2009 the solvency ratio was
10,863,358 + 7,798, 739
29,413,859 + 26,577,162 = 33%
During the year 2010 the solvency ratio was
9,436,322 + 8,642,204
30698241 + 26618333 = 31.5 %
In both the years 2010 and 2009 the solvency ratio of the company was more than 20 percent a clear indication that the firm was doing well in both the years. The chances for accessing credit services are thus better in both scenarios. However, in 2009 the company was doing slightly better as compared to the year 2010.
Debt policy
According to the 2010 financial statements, one of the major debt policies that are adopted by the company is to have higher long-term debts and less short-term debts. For example, in 2010 21, 741 and 8, 447 long term and short term debts were acquired respectively by the company (Figures are SR millions).
Payout policy
In its effort to comply with the government regulations as well as the creditor’s rules, the company makes its payment when they are due. Some of the major items of payments that are settled on a quarterly basis include Zakat, withholding tax, government charges, and social insurance (Saudi Telecom, 2011). The company also maintains a list of all the payments that are done. The list includes the item, the description of the payment, the amount in SR millions and the reason for payment.
Reference List
Banks, E. (2010). Finance: The Basics. New York: Taylor & Francis.
Gibson, H.C. (2010). Financial Reporting & Analysis: Using Financial Accounting Information. New York: Cengage Learning.
Saudi Telecom (2011). The Company’s Official Website. Web.