Business Finance
PSU Analyzing Capital Cost of Saudi Telecom Company Mobily Telecom Company & Zain KSA Case Study

Prince Sultan University Saudi Arabia

Question Description

I don’t understand this Business question and need help to study.

Cost of Capital Analysis:

Select three listed companies in the same sector from Tadawul Saudi Arabia. http://www.tadawul.com.sa/.

1- Saudi telecom company STC

2- Mobily telecom company

3- Zain KSA telecom company

- Compute each component of cost of capital for current period (for the year 2019) and compute

WACC.

- Compute also capital structure weights on a book value basis and capital

structure weights on a market value basis.

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Final Answer

Hello buddy, please find the attached document which is the final version of your work. I have followed every instruction you gave and I am satisfied that the paper is of quality work. Kindly go through it and inform me in case of anything. I am looking forward to continue working with you. You can also go ahead and share my studypool link with your buddies to allow them invite me for their projects also. Thank you and have a blessed day ahead. I have also added the three financial reports of the three companies where I retrieved the information. Thank you.

ACCOUNTING

1

Analysis of cost of capital of 3 selected companies. Saudi Telecom Company, Mobily Telecom
Company and Zain KSA
Student’s Name:
Institutional Affiliation:

ACCOUNTING

2

Analysis of cost of capital of 3 selected companies. Saudi Telecom Company, Mobily Telecom
Company and Zain KSA
Q1. Compute each component of cost of capital for current period (for the year 2019) and
compute WACC.
1- Saudi telecom company STC
2- Mobily telecom company
3- Zain KSA telecom company
Q2. Compute also capital structure weights on a book value basis and capital structure weights
on a market value basis
WACC is the rate at which the future cashflows of a company need to be discounted to achieve
the present value of a business. It technically reflects the perceived riskiness of the cashflows.
Additionally, it’s a blend of both equity and debt cost of capital based on the debt and equity
capital ratio of a company.
WACC =(E/(E+D+P) * Re) + (D/(E+D+P) *(1-t) *Rd)
Cost of Equity
Using CAPM
Cost of equity = Risk free rate + [β x ERP] = Re = Rf + β × (Rm − Rf)
Where Rf= Risk free rate (typically the 10-year U.S. Treasury bond yield)
Β- Equity beta (Levered) (Beta- measure of a stock’s volatility of returns relative to the overall
market (such as the S&P 500).
Rm = Annual return of the market
Saudi telecom company STC
Beta =0.28
Risk free rate = 2.90%
Market Return= 6.59%

ACCOUNTING

3

= 2.90 + 0.28(6.59-2.90) = 3.9304%
COST OF EQUITY STC =3.9304%
2- Mobily telecom company
Beta =0.50
Risk free rate = 2.90%
Market Return= 6.58%
=2.90+ 0.50(6.58-2.90) = 3.04%
Cost of Equity = 3.04%
3- Zain KSA telecom company
Beta =0.97
Risk free rate = 2.90%
Market Return= 6.58%
=2.90+ 0.97(6.58-2.90) = 3.1716%
COST OF EQUITY 3.1716%
Total equity = 61849.8

SAR millions

COST OF DEBT
cost of debt which is categorized as the yield to maturity of the debt being issued at par hence the
cost of debt will be equal to the yield to maturity which is equal to the current coupon rate. Due
to lack of sufficient information, I will calculate a simplified cost of debt calculating it by
dividing the interest expense by the latest two year average debt.
1. Saudi telecom company STC
Interest expense = 357.905
Average debt = (10366.84+5491.74)/2 = 7929.29

ACCOUNTING

4

COST OF DEBT = (357.905/7929.29) *100= 4.51%
2. Mobily telecom company
Interest expense = 905.998
Average debt =11607.64
Cost of Debt = (905.998/11607.64) * 100 = 7.805%
3. Zain KSA telecom company
Interest Expense = 1045.501
Average Debt =8991.5335
Cost of debt= (1045.501/8991.5335) *100 = 11.6165%
MARKET VALUE WEIGHTS OF CAPITAL STRUCTURE
1.

Saudi telecom company STC

Market value of equity = EPS * No of outstanding shares = (5.38*2B) =10760 million SARS
Market value of debt = C[(1-(1/((1+Kd)^t)))/Kd] + [FV/((1+Kd)^t)]
C = interest expense on the total debt= 357.905
Kd = current cost of debt=4.51%
t = weighted average maturity period=10 years
FV = total debt=10366.84
= (357.905((1-(1/ (1+0.0451) ^10)))/0.0451+ 10366.81/ ((1+0.0451) ^10))
MV OF DEBT =2830.60948+ 6669.091279 =9499.700759
Weight of Equity = (E/(E+D)) = 10760/ (10760+ 9499.700759) = 0.53
Weight of Debt = (D/ (E+D)) = (9499.70/ (9499.70+ 10760) = 0.47
2.

Mobily telecom company

Market value of Equity = EPS * Outstanding shares =(770M*0.04) =30,800 Million

ACCOUNTING
C = interest expense on the total debt= 905.998
Kd = current cost of debt= 7.805%
t = weighted average maturity period= 10
FV = total debt=11228.54
(905.9998((1-(1/ (1+0.07805) ^10)))/0.07805+ 11228.54/ ((1+0.07805) ^10))
MV OF DEBT = (6133.168 + 5295.83) = 11429
MV Weight of Equity = (E/(E+D)) = (30800 / (30800+ 11429) = 0.72
MV Weight of Debt = (D/ (E+D)) = (11429/ (30800+ 11429) = 0.28
3.

Zain KSA telecom company

Market value of Equity = EPS * Outstanding shares = (0.83* 583.73 M) = 484.4959million
C = interest expense on the total debt= 1045.501
Kd = current cost of debt= 11.6165
t = weighted average maturity period= 10
FV = total debt= 10314.94
(1045.501 ((1-(1/ (1+0.116165) ^10)))/0.116165+ 10314.94/ ((1+0.116165) ^10))
MV OF DEBT = (6001.215+3437.025) =9438.24 M
Weight of Equity = (E/(E+D)) = (484.495 / (484.495+9438.24) = 0.05
Weight of Debt = (D/ (E+D)) = (9438.24/ (484.495+9438.24) = 0.95
BOOK VALUE DEBT AND EQUITY WEIGHTS
1. Saudi telecom company STC
Weight of Equity = (E/(E+D)) = 61849.8/ (61849.8+ 10366.84) = 0.856
Weight of Debt = (D/ (E+D)) = (10366.84/ (61849.8+ 10366.84) = 0.144
2. Mobily telecom company

5

ACCOUNTING
Weight of Equity = (E/(E+D)) = (13751.35 / (13751.35 + 11228.54) = 0.55
Weight of Debt = (D/ (E+D)) = (11228.54/ (13751.35 + 11228.54) = 0.45
3. Zain KSA telecom company
Weight of Equity = (E/(E+D)) = (4102.851 (10314.94+ 4102.851) = 0.28
Weight of Debt = (D/ (E+D)) = (10314.94/ (10314.94+ 4102.851) = 0.72
Marginal tax rate = 20%
WACC
1. Saudi telecom company STC
WACC =(E/(E+D+P) * Re) + (D/(E+D+P) *(1-t) *Rd)
=(0.856/1)* 3.9304)+( 0.144/1)* 0.8*4.51)= (3.364+0.5196)= 3.88%
STC WACC =3.88%
2. Mobily telecom company
WACC =(E/(E+D) * Re) + (D/(E+D) *(1-t) *Rd)
=(0.55/1)*3.04))+(0.45/1)*0.8*7.805) =(1.672+2.8098)= 4.482%
MTC WACC=4.482%
3. Zain KSA telecom company
WACC =(E/(E+D) * Re) + (D/(E+D) *(1-t) *Rd)
=(0.28/1)*3.1716))+(0.72/1)*0.8*11.6165) =(0.888+6.6911)= 7.579%
ZAIN KSA WACC =7.579%

6



Mobile Telecommunications Company K.S.C.P.
Kuwait
Consolidated Annual Financial Statements and
Independent Auditor’s Report
31 December 2019

Mobile Telecommunications Company K.S.C.P.
Kuwait

CONTENTS
Page

Independent Auditor’s Report

1–4

Consolidated Statement of Financial Position

5

Consolidated Statement of Profit or Loss

6

Consolidated Statement of Profit or loss and Other Comprehensive Income

7

Consolidated Statement of Changes in Shareholders’ Equity

8

Consolidated Statement of Cash Flows

9

Notes to the Consolidated Financial Statements

10 – 58

Mobile Telecommunications Company K.S.C.P.
Consolidated Statement of Profit or Loss – Year ended 31 December 2019
2019
Note(s)
Revenue

19.1

KD ’000
1,660,890

Cost of sales
Operating and administrative expenses
Depreciation and amortization

(375,517)

20.a

(434,436)

(409,996)

10,11,12

(375,954)

(229,532)

(38,886)

(13,188)

Interest income
Share of results of associates and joint venture
Other income/ (expenses)

7,098

18,320

21

1,007

3,930

9

2,762

(2,444)

38,955

(41,696)

20.b

Gain on business combination

35

Finance costs

(110,723)

Provision for impairment loss on property and equipment

33

Loss from currency revaluation

(13,058)

Net monetary gain

1,317,613

(459,135)

Expected credit loss on financial assets (ECL)
Investment income

2018

33

Profit before contribution to KFAS, NLST, Zakat,
income taxes and Board of Directors’ remuneration
Contribution to Kuwait Foundation for Advancement of Sciences

30,931
(69,173)
(9,648)
(14,764)

5,074

46,935

283,594

251,771

(2,200)

(1,667)

National Labour Support Tax and Zakat

22

(7,082)

(4,476)

Income tax expenses and other levies

23

(25,253)

(19,752)

Board of Directors’ remuneration

(510)

Profit for the year

(420)

248,549

225,456

216,928

196,500

Attributable to:
Shareholders of the Company
Non-controlling interests

31,621

28,956

248,549

225,456

50

45

Earnings per share (EPS)
Basic and diluted – Fils

24

The accompanying notes are an integral part of these consolidated financial statements.

6

Mobile Telecommunications Company K.S.C.P.
Consolidated Statement of Profit or Loss and Other Comprehensive Income –
Year ended 31 December 2019
2019

2018
KD ’000

Profit for the year

248,549

Other comprehensive income:
Other comprehensive income transferred or reclassifiable to
consolidated statement of profit or loss in subsequent periods:
Exchange differences on translating foreign operations
Other reserves
Share in associate transferred to consolidated statement of
profit or loss on business combination (note 35)
Other comprehensive income for the year

225,456

(5,029)

(160,697)

(8,206)

(430)

235,314

(16,395)
47,934

Items that will not be reclassified to consolidated statement of profit or loss:
Changes in the fair value of equity investments at FVOCI
Total comprehensive income for the year

(1,952)

(857)

233,362

47,077

207,113

18,416

26,249

28,661

233,362

47,077

Attributable to:
Shareholders of the Company
Non-controlling interests

The accompanying notes are an integral part of these consolidated financial statements.

7

Mobile Telecommunications Company K.S.C.P.
Consolidated Statement of Changes in Shareholders’ Equity – Year ended 31 December 2019

Share
capital

Equity attributable to Company’ shareholders
Share
Legal
Foreign Investment
Other
premium reserve
currency
fair reserves
translation
valuation
reserve
reserve

Retained
Nonearnings controlling
interests

Total
equity

KD ‘000
Balance at 31 December 2018
Adjustment on purchase price allocation (note 35)
Balance at 31 December 2018 (restated)
Transition adjustment on adoption of
IFRS 16 at 1 January 2019 (note 2.2.1)
Transition adjustment on adoption of
IFRIC 23 at 1 January 2019 (note 2.2.2)

432,706

1,707,164

216,353

-

-

-

432,706

1,707,164

216,353

-

-

-

(1,367,018)
(1,367,018)
-

864
-

(4)
(4)
-

-

-

-

432,706

1,707,164

216,353

(1,367,018)

Total comprehensive income for the year

-

-

-

(4,823)

On business combinations

-

-

-

-

-

-

Transfer to reserves

-

-

1

-

-

Cash dividends (2018) (note 18)

-

-

-

-

-

Cash dividends to minority shareholders of subsidiaries (2018)

-

-

-

-

-

-

Balance at 31 December 2019

432,706

1,707,164

216,354

(1,371,841)

(1,088)

Balance at 1 January 2018

432,706

1,707,164

216,353

(1,189,469)

3,251

Balance as at 1 January 2019 (restated)

-

864

864
(1,952)

-

287,143

366,070

1,643,278

-

20,722

20,722

287,143

386,792

1,664,000

(21,282)

(17,456)

(38,738)

(34,279)

(10,861)

(4)

231,582

358,475

1,580,122

(3,040)

216,928

26,249

233,362

(188)

188

-

-

(1)

-

-

(129,812)

-

-

(5,073)

(45,140)

(129,812)
(5,073)

(3,044)

318,509

379,839

1,678,599

(326)

281,919

158,006

1,609,604

Transition adjustment on adoption of IFRS 9
and IFRS 15 at 1 January 2018

-

-

-

432,706

1,707,164

216,353

(1,189,469)

Total comprehensive income for the year

-

-

-

(177,549)

On business combinations

-

-

-

-

-

-

Realised loss on equity securities at FVOCI

-

-

-

-

688

-

(688)

-

(151,447)

(4)

287,143

Balance as at 1 January 2018 (restated)

Cash dividends (2017)
Balance at 31 December 2018

-

-

-

432,706

1,707,164

216,353

The accompanying notes are an integral part of these consolidated financial statements.
8

-

(1,367,018)

(2,218)
1,033
(857)

864

-

(39,141)

(1,357)

(42,716)

(326)

242,778

156,649

1,566,888

322

196,500

28,661

47,077

-

182,367

182,367

-

-

(1,607)
366,070

(153,054)
1,643,278

Mobile Telecommunications Company K.S.C.P.
Consolidated Statement of Cash Flows – Year ended 31 December 2019
2019
Note(s)
Cash flows from operating activities
Profit for the year before income tax, KFAS, NLST, and Zakat

2018
KD ‘000

283,084

251,351

375,954

229,532

38,886

13,188

Adjustments for:
Depreciation and amortization

10,11,12

ECL on financial assets
Interest income
Investment income
Share of results of associates and joint venture
Other income/ (expenses)

(7,098)

(18,320)

21

(1,007)

(3,930)

9

(2,762)

2,444

(38,955)

41,696

20.b

Gain on business combination

35

Finance costs

110,723

Provision for impairment loss on property and equipment

11,33

Loss from currency revaluation
Net monetary gain

33

Loss on sale of property and equipment

Increase in inventories
Increase in trade and other payables and deferred revenue

69,173

-

9,648

13,058

14,764

(5,074)
1,400

Operating profit before working capital changes
Increase in trade and other receivables

(30,931)

(46,935)
202

768,209
(99,916)

531,882
(84,716)

(243)

(3,730)

4,495

70,706

Cash generated from operations
Payments:

672,545

514,142

Income tax

(16,614)

(10,629)

Kuwait Foundation for Advancement of Sciences (KFAS)
National Labour Support Tax and Zakat
Net cash from operating activities

(771)

(319)

(3,349)

(5,492)

651,811

497,702

Cash flows from investing activities
Deposits maturing after three months and cash at bank under lien

4

Proceeds from sale of investment securities

(7,403)
7,916

Investments in securities

(325)

Increase in dues from associates

-

Acquisition of property and equipment (net)

(282,799)

30,286
1,919
(4,132)
(7,039)
(173,837)

Acquisition of intangible assets (net)

(33,417)

(43,977)

Net cash on acquisition of subsidiaries

(11,703)

101,993

Interest received

5,749

Dividends received

383

Net cash used in investing activities

(321,599)

6,028
253
(88,506)

Cash flows from financing activities
Proceeds from bank borrowings

15

540,727

203,019

Repayment of bank borrowings

15

(587,387)

(288,901)

Repayment of lease liabilities

(59,114)

Dividends paid to Company’s shareholders

(129,705)

Dividends paid to minority shareholders of subsidiaries

(151,017)

(5,047)

(1,569)

Finance costs paid – due to banks

(112,438)

(52,966)

Net cash used in financing activities

(352,964)

(291,434)

Net (decrease)/ increase in cash and cash equivalents

(22,752)

Effects of exchange rate changes on cash and cash equivalents

418

Transition adjustment on adoption of IFRS 9

-

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

4

The accompanying notes are an integral part of these consolidated financial statements.
9

117,762
(13,461)
(6,497)

304,236

206,432

281,902

304,236

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
1.

Incorporation and activities
Mobile Telecommunications Company K.S.C.P. (the “Company”) is a Kuwaiti shareholding company
incorporated in 1983. Its shares are traded on the Kuwait Stock Exchange. The registered office of the
Company is at P.O. Box 22244, 13083 Safat, State of Kuwait.
The Company and its subsidiaries (the “Group”) along with associates provide mobile telecommunication
services in Kuwait and 8 other countries (31 December 2018 - Kuwait and 8 other countries) under licenses
from the governments of the countries in which they operate; purchase, deliver, install, manage and maintain
mobile telephone systems; and invests surplus funds in investment securities.
The Company is a subsidiary of Oman Telecommunications Company SAOG, Oman.
These consolidated financial statements were authorized and approved for issue by the Board of Directors of
the Company on 12 February 2020 and are subject to approval of the shareholders at their forthcoming
Annual General Meeting.

2.

Basis of preparation and significant accounting policies

2.1

Basis of preparation
These consolidated financial statements have been prepared in conformity with International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and
interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). These
consolidated financial statements are prepared under the historical cost basis of measurement adjusted for
the effects of inflation where entities operate in hyperinflationary economies and modified by the revaluation
at fair value of financial assets held as “at fair value through profit or loss”, “at fair value through
comprehensive income” and “derivative financial instruments”. These consolidated financial statements have
been presented in Kuwaiti Dinars (KD), rounded to the nearest thousand.
The economy of Republic of South Sudan became hyperinflationary in 2016. Accordingly, the results, cash
flows and financial position of the Group’s subsidiary in South Sudan have been expressed in terms of the
measuring unit current at the reporting date in accordance with IAS 29: Financial Reporting in
Hyperinflationary Economies. The methods used to measure the fair value and adjustments made to the
account of Group’s entities that operate in the hyperinflationary economies are discussed further in the
accounting policies and in the respective notes.
In 2015, the Group noted that the economy of the Republic of Sudan, where the Group has subsidiaries, may
be hyperinflationary from the beginning of 2015. This was based on the general price index showing the
cumulative three-year rate of inflation exceeding 100% at that time. However, International Accounting
Standard, IAS 29: Financial Reporting in Hyperinflationary Economies, does not establish an absolute rate at
which hyperinflation is deemed to arise and states that it is a matter of judgment when restatement of
financial statements in accordance with this Standard becomes necessary. In addition, the Group noted that
in the 2014 International Monetary Fund (IMF) Sudan country report, the cumulative projected three year
inflation rate outlook for Sudan in 2016 to be around 57% and thus, applying IAS 29 in 2015, could have
entailed going in and out of hyperinflation within a short period which was confirmed when the Republic of
Sudan went out of hyperinflation in 2016. The Republic of Sudan has been again declared as hyperinflationary
in 2018. Based on the above matters, Group believes that there is no definitive basis to apply IAS 29 at this
stage. However, Group will review it on an ongoing basis, accordingly it has not quantified the impact of
applying IAS 29 in 2019.
The preparation of consolidated financial statements in conformity with IFRS requires management to make
estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of
contingent assets and contingent liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. It also requires management to
exercise its judgment in the process of applying the accounting policies. The areas involving a high degree of
judgment or complexity or areas where assumptions and estimates are significant to these consolidated
financial statements are disclosed in note 34.

10

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
2.2

New and revised accounting standards
Effective for the current year
The accounting policies used in the preparation of these consolidated financial statements are consistent with
those used in the previous year except for the following new and amended IASB Standards during the year.

2.2.1.

Impact of adoption of IFRS 16 Leases
In the current year, the Group applied IFRS 16 Leases that is effective for annual periods that begin on or
after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant
changes to lessee accounting by removing the distinction between operating and finance lease and requiring
the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for shortterm leases and leases of low value assets when such recognition exemptions are adopted. In contrast to
lessee accounting, the requirements for lessor accounting have remained largely unchanged.
The Group has opted for the modified retrospective application permitted by IFRS 16 upon adoption of the
new standard. The Group did not restate any comparative information, instead the cumulative effect of
applying the standard is recognised as an adjustment to the opening balance of retained earnings at the date
of initial application.
The accounting policies of this new standard are disclosed in note 2.17. The impact of the adoption of IFRS
16 on the Group’s consolidated financial statements is described below.
(a) Impact of the new definition of a lease
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether
a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4
will continue to be applied to those leases entered or changed before 1 January 2019.
The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a
contract contains a lease on the basis of whether the customer has the right to control the use of an identified
asset for a period of time in exchange for consideration. This is in contrast to the focus on ‘risks and rewards’
in IAS 17 and IFRIC 4.
The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts
entered into or changed on or after 1 January 2019 (whether it is a lessor or a lessee in the lease contract).
(b) Impact on Lessee Accounting
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17,
which were off balance sheet.
Applying IFRS 16, for all leases (except as noted below), the Group:


Recognises right-of-use assets for property leases on a retrospective basis as if the new rules had always
been applied. There were no onerous lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.



Recognises lease liabilities at the present value of the remaining lease payments, discounted using the
incremental borrowing rate as of 1 January 2019.



Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated
statement of profit or loss;



separates the total amount of cash paid into a principal portion (presented within financing activities) and
interest (presented within financing activities) in the consolidated statement of cash flows.

Lease incentives (e.g. rent free period) are recognised as part of the measurement of the right-of-use assets
and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive, amortised as
a reduction of rental expenses on a straight line basis.
Payments associated with leases of low-value assets are recognised on a straight-line basis as an expense in
profit or loss. Low-value assets comprise Information Technology (IT) equipment and small items of office
furniture.
11

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
The Group has used the following practical expedients when applying the cumulative catch-up approach to
leases previously classified as operating leases applying IAS 17.


the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;



reliance on previous assessments on whether leases are onerous;



the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial
application, and



the use of hindsight in determining the lease term where the contract contains options to extend or
terminate the lease.

c) Financial impact of initial application of IFRS 16
The lessees incremental borrowing rate applied to lease liabilities recognised in the statement of financial
position on 1 January 2019 ranges from 3.5% to 21%.
The following table shows the operating lease commitments disclosed applying IAS 17 at 31 December 2018,
discounted using the incremental borrowing rate at the date of initial application and the lease liabilities
recognized in the statement of financial position at the date of initial application.
KD’000
Operating lease commitments disclosed as at 31 December 2018

233,706

Discounted using the lessee’s incremental borrowing rate of at the date of initial application

205,774

Lease liability recognised as at 1 January 2019

205,774

Current and non-current amounts are as follows:
Current lease liabilities

44,132

Non-current lease liabilities

161,642
205,774

Net impact from the adoption of IFRS 16 on opening statement of financial position as at 1 January 2019 is
as follows:
KD’000
31 December
Increase/ 1 January
2018 (decrease)
2019
Right of use of assets (including held for sale assets)
Trade and other receivables
Lease liabilities (including held for sale liabilities)

2.2.2.

537,999
-

199,571

199,571

(32,730)

505,269

205,774

205,774

Accrued expenses

-

(195)

Retained earnings

287,143

(21,282)

265,861

(195)

Non-controlling interests

366,070

(17,456)

348,614

Impact of adoption of IFRIC 23 Uncertainty over Income Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current year. IFRIC 23 sets out how to determine
the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires
the Group to:


determine whether uncertain tax positions are assessed separately or as a group; and



assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed
to be used, by an entity in its income tax filings:
-

If yes, the Group should determine its accounting tax position consistently with the tax treatment
used or planned to be used in its income tax filings.

-

If no, the Group should reflect the effect of uncertainty in determining its accounting tax position
using either the most likely amount or the expected value method.
12

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
The Group has not restated comparative information, instead recognised the cumulative effect of initially
applying the Interpretation as an adjustment to the opening balance of retained earnings.
Accordingly the management determined an additional tax liability of KD 45.140 million for the years 2011 to
2018 which was adjusted to opening retained earnings as on 1st January 2019.
Other amendments to IFRSs which are effective for annual accounting period starting from 1 January 2019
did not have any material impact on the accounting policies, financial position or performance of the Group.
Standards issued but not effective
At the date of authorization of these financial statements, the Group has not applied the following new and
revised IFRS Standards that have been issued but are not yet effective:
Effective for annual periods
beginning on or after

New and revised IFRSs
Definition of Material - Amendments to IAS 1 Presentation of Financial
Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors

January 1, 2020

The new definition states that, ‘Information is material if omitting,
misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial statements
make on the basis of those financial statements, which provide financial
information about a specific reporting entity.’
Definition of a Business – Amendments to IFRS 3 Business Combinations

January 1, 2020

The amendments clarify that to be considered a business, an integrated set
of activities and assets must include, at a minimum, an input and a
substantive process that together significantly contribute to the ability to
create output. IASB also clarify that a business can exist without including
all of the inputs and processes needed to create outputs. That is, the inputs
and processes applied to those inputs must have ‘the ability to contribute to
the creation of outputs’ rather than ‘the ability to create outputs’.
The amendments introduce an optional concentration test that permits a
simplified assessment of whether an acquired set of activities and assets is
not a business. Under the optional concentration test, the acquired set of
activities and assets is not a business if substantially all of the fair value of
the gross assets acquired is concentrated in a single identifiable asset or
group of similar assets.
Amendments to references to the Conceptual Framework in IFRS Standards.

January 1, 2020

Amendments to references to the Conceptual Framework in IFRS Standards
related to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37,
IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32 to update those
pronouncements with regard to references to and quotes from the
framework or to indicate where they refer to a different version of the
Conceptual Framework.
IFRS 7 Financial Instruments: Disclosures and IFRS 9 — Financial
Instruments

January 1, 2020

Amendments regarding pre-replacement issues in the context of the IBOR
reform
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28
Investments in Associates and Joint Ventures (2011) relating to the
treatment of the sale or contribution of assets from an investor to its
associate or joint venture.

Effective date deferred
indefinitely. Adoption is still
permitted.

The management does not expect the adoption of the Standards and Interpretations listed above to have a
material impact on the consolidated financial statements of the Group in future periods.

13

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
2.3

Business combinations
A business combination is the bringing together of separate entities or businesses into one reporting entity
as a result of one entity, the acquirer, obtaining control of one or more other businesses. The acquisition
method of accounting is used to account for business combinations. The consideration transferred for the
acquisition is measured as the fair values of the assets transferred, equity interests issued and liabilities
incurred or assumed at the date of the exchange. The consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration arrangement. The acquisition related costs are
expensed when incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination (net assets acquired in a business combination) are measured initially at their fair
values at the acquisition date. Non-controlling interest in the subsidiary acquired is recognized at the noncontrolling interest’s proportionate share of the acquiree’s net assets.
When a business combination is achieved in stages, the previously held equity interest in the acquiree is remeasured at its acquisition-date fair value and the resulting gain or loss is recognized in the consolidated
statement of profit or loss. The fair value of the equity of the acquiree at the acquisition date is determined
using valuation techniques and considering the outcome of recent transactions for similar assets in the same
industry in the same geographical region.
The Group separately recognizes contingent liabilities assumed in a business combination if it is a present
obligation that arises from past events and its fair value can be measured reliably.
An indemnification received from the seller in a business combination for the outcome of a contingency or
uncertainty related to all or part of a specific asset or liability that is recognized at the acquisition date at its
acquisition-date fair value is recognized as an indemnification asset.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which
the combination occurs, the Group reports provisional amounts for the items for which the accounting is
incomplete. Those provisional amounts are adjusted during the measurement period (one year from
acquisition date), or additional assets or liabilities are recognised, to reflect new information obtained about
facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognised as of that date.

2.4

Consolidation
The Group consolidates the financial statements of the Company and subsidiaries (i.e. investees that it
controls) and investees controlled by its subsidiaries.
The Group controls an investee if and only if the Group has:


Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities
of the investee);



Exposure, or rights, to variable returns from its involvement with the investee, and



The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an investee, including:


The contractual arrangement with the other vote holders of the investee;



Rights arising from other contractual arrangements;



Voting rights and potential voting rights;

The financial statements of subsidiaries are included in the consolidated financial statements on a line-by-line
basis, from the date on which control is transferred to the Group until the date that control ceases.

14

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
Non-controlling interest in an acquiree is stated at the non-controlling interest’s proportionate share in the
recognized amounts of the acquiree’s identifiable net assets at the acquisition date and the non-controlling
interest’s share of changes in the equity since the date of the combination. Total comprehensive income is
attributed to the non-controlling interests, even if this results in the non-controlling interests having a deficit
balance. Changes in the Group’s ownership interest in a subsidiary that do not result in loss of control are
accounted for as equity transactions. The carrying amounts of the controlling and non-controlling interests
are adjusted to reflect the changes in their relative interest in the subsidiary and any difference between the
amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or
received is recognized directly in equity and attributed to the Company’s shareholders. Non-controlling
interest is presented separately in the consolidated statements of financial position, consolidated statement
of profit or loss and consolidated statement of profit or loss and other comprehensive income. The noncontrolling interests are classified as a financial liability to the extent there is an obligation to deliver cash or
another financial asset to settle the non-controlling interest.
Consolidated financial statements are prepared using uniform accounting policies for like transactions and
other events in similar circumstances based on latest audited financial statements of subsidiaries. Intra group
balances, transactions, income, expenses and dividends are eliminated in full. Profits and losses resulting
from intra group transactions that are recognized in assets are eliminated in full. Intragroup losses that
indicate an impairment is recognized in the consolidated financial statements.
When the Company loses control of a subsidiary, it derecognizes the assets (including any goodwill) and
liabilities of the subsidiary at their carrying amounts at the date when control is lost as well as related noncontrolling interests. Any investment retained is recognized at fair value at the date when control is lost. Any
resulting difference along with amounts previously directly recognized in equity is transferred to the
consolidated statement of profit or loss.
2.5

Financial instruments
In the normal course of business the Group uses financial instruments, principally cash and bank balances,
trade and other receivables, investments, trade and other payables, lease liabilities, due to banks and
derivatives.
Classification
The Group classifies its financial assets as follows:


Financial assets at amortised cost



Financial assets at Fair Value Through Other Comprehensive Income (FVOCI)



Financial assets at Fair Value Through Profit or Loss (FVTPL)

To determine their classification and measurement category, all financial assets, except equity instruments
and derivatives, is assessed based on a combination of the entity’s business model for managing the assets
and the instruments’ contractual cash flow characteristics.
The derivatives embedded in contracts where the host is a financial asset in the scope of the standard are
never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.
Business model assessment
The Group determines its business model at the level that best reflects how it manages groups of financial
assets to achieve its business objective. That is, whether the Group’s objective is solely to collect the
contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising
from the sale of assets. If neither of these are applicable (e.g. financial assets are held for trading purposes),
then the financial assets are classified as part of ‘Sell’ business model. The business model assessment is
based on reasonably expected scenarios without taking 'worst case' or 'stress case’ scenarios into account.
Contractual cash flow characteristics test
The Group assesses whether the financial instruments’ cash flows represent Solely for Payments of Principal
and Interest (the ‘SPPI’). The most significant elements of interest within a lending arrangement are typically
the consideration for the time value of money and credit risk.
The Group reclassifies a financial asset only when its business model for managing those assets changes. The
reclassification takes place from the start of the first reporting period following the change. Such changes are
expected to be very infrequent.
15

Mobile Telecommunications Company K.S.C.P.
Notes to the Consolidated Financial Statements – 31 December 2019
Financial liabilities
All financial liabilities are classified as “other than at fair value through profit or loss”.
Recognition/derecognition
A financial asset or a financial liability is recognized when the Group becomes a party to the contractual
provisions of the instrument.
A financial asset (in whole or in part) is derecognized when the contractual rights to receive cash flows from
the financial asset has expired or the Group has transferred substantially all risks and rewards of ownership
and has not retained control. If the Group has retained control, it continues to recognize the financial asset
to the extent of its continuing involvement in the financial asset.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and recognition of a new liability. On derecognition of a
financial liability, the difference between the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
If the modification is not substantial, the difference between: (1) the carrying amount of the liability before
the modification; and (2) the present value of the cash flows after modification is recognised in profit or loss
as the modification gain or loss within other gains and losses.
All regular way purchase and sale of financial assets are recognized using settlement date accounting.
Changes in fair value between the trade date and settlement date are recognized in the consolidated
statement of profit or loss or in the consolidated statement of comprehensive income in accordance with the
policy applicable to the related instrument. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the time frame generally established by regulations or conventions
in the market place.
Measurement
All financial assets or financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue are added except for those financial instruments classified as “at fair
value through profit or loss”.
Financial assets at amortised cost
A financial asset is measured at amortised cost if it satisfies the SPPI test and is held within a business model
whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise, on
specified dates, to cash flows that are solely payments of principal and profit on the principal amount
outstanding.
Cash and cash equivalents, trade and receivables, due from associates and other assets are classified as
financial assets at amortised cost.
Financial assets at FVOCI
A debt instrument is measured at FVOCI if it satisfies the SPPI test and is held within a business model whose
objective is to hold assets to collect contractual cash flows and to sell. These assets are subsequently
measured at fair value, with change in fair value recognized in OCI. Interest income calculated using effective
interest method, foreign exchange gains/losses and impairment are recognized in the consolidated statement
of profit or loss. On de-recognition, gains and losses accumulated in the OCI are reclassified to SOI.
Financial asset at FVTPL
Financial assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. This also
includes equity instruments held-for-trading and are recorded and measured in the consolidated statement
of financial position at fair value.

16

Mobile Telecommunications Company K.S.C.P.
Note...

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Rice University

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