Etisalat 2012 Annual report

Annual Report 2012

Head Office:

Etisalat BuildingIntersection of Zayed The 1st Street andSheikh Rashid Bin Saeed Al Maktoum StreetP.O. Box 3838Abu Dhabi, UAE

Regional Offices:Abu Dhabi, Dubai, Northern Emirates

01Annual Report 2012

Table of contents

Key Highlights of 2012 02

Business Snapshot 04

Timeline 06

Chairman’s Statement 08

Board of Director’s 10

Chief Executive Officer’s Statement 12

Management Team 16

Etisalat Group Strategy 20

Awards 22

Operational Highlights 24

Management Review

• Middle East 28

• Africa 34

• Asia 37

• Etisalat Services Holding 40

• Our International Presence 42

• Human Capital 44

• Corporate Social Responsibility 46

• Corporate Governance 48

Independent Auditors Report to the Shareholders 50

Consolidated Income Statement 52

Consolidated Statement of Comprehensive Income 53

Consolidated Statement of Financial Position 54

Consolidated Statement of Changes in Equity 56

Consolidated Statement of Cash Flows 58

Notes to the Consolidated Financial Statements 60

Notice of General Annual Shareholders Meeting 108

139 millionAggregate Subscribers

32.9 AED

billionRevenue

16.9 AED

billionEBITDA

6.7 AED

billionNet Profit

4.2AED

billionCAPEX

70 Fils

Dividendper share

Key highlights of 2012

04

Business snapshot

Annual Report 2012 05Annual Report 2012

Since its inception in 1976, Etisalat has been at the forefront of the Middle East’s technological revolution. Over the last forty years, it has developed and grown to become one of the world’s leading telecommunications companies.

Etisalat focuses on delivering innovative solutions to transform the communities in which it operates and accelerate social development and economic growth. This has been underpinned by its commitment to actively develop and engineer platforms for growth within the local markets in which it operates.

Etisalat’s international acquisition programme began in earnest in 2004 by winning the second mobile license, and the first 3G license in Saudi Arabia. Since then the company has witnessed rapid expansion, positioning Etisalat as one of the world’s fastest growing operators, with its subscriber numbers rocketing from 4 million in 2004 to over 139 million at the end of 2012. Etisalat now has access to a population of about seven hundred million people, and its satellite network provides services to over two thirds of the planet’s surface.

For nearly 40 years, Etisalat has helped the UAE sustain its position as the region’s hub for business, trade and foreign investment by providing reliable and high quality services. It is one of the global telecommunication industry’s innovation pacesetters - powering its home country into the Top 10 nations list by providing the latest technologies first.

Etisalat is a pioneer in next-generation

networks for both fixed line and wireless connections. The company deployed a nationwide fibre optic network in the UAE, which led to Abu Dhabi being the world’s first city to be covered by a powerful, high-speed fibre network.

Etisalat also launched 4G mobile services in the UAE, and today operates the Middle East’s largest LTE network where population coverage exceeds 82 per cent. Presently Etisalat offers both the Middle East’s fastest fixed line broadband service with speeds of up to 100Mbps to the home, and the highest speed mobile broadband connectivity. In 2012, Etisalat succeeded in completing the highest 4G LTE speed test in the world, reaching 300 Mbps. This lightning-fast speed is a breakthrough for the international telecommunications industry and establishes Etisalat as a global leader in mobile broadband.

This technological expertise has helped Etisalat capture significant market share as it expands across the region, most notably in Egypt and Saudi Arabia, where the introduction of mobile broadband services, including video call and mobile TV, has changed market dynamics and provided affordable internet access for millions.

Etisalat is pioneering several advanced ‘green’ technologies and is a regional leader in providing environmentally friendly information and communication solutions. This includes smart building technologies, the latest Machine-to-Machine (M2M) solutions and the deployment of alternative power within

its regional networks. Etisalat is also ensuring that its infrastructure meets the highest international standards; its fibre optic network in the UAE is expected to reduce carbon emissions and energy consumption by over 80 per cent and 70 per cent respectively.

Etisalat is committed to the principles of corporate social responsibility and is partnering with many governments and non-government organisations to increase access to education and health care via technology.

Etisalat’s innovative services have received over 60 regional and international accolades since 2008 including an unprecedented three GSMA Global Mobile Awards at Mobile World Congress in March 2012 for two of its transformational initiatives: The Mobile Commerce cashless payment system using Near Field Communications (NFC) technology, and The Mobile Baby mHealth platform, a remarkable pre-natal application deployed in sub-Saharan Africa that allows medical practitioners to send ultrasound images, video clips and 3D scans from ultrasound machines for remote medical analysis via mobile broadband. Moreover, Etisalat has been named ‘Best Overall Operator’ in the Middle East 10 times since 2006, and was named Best International Carrier at the World Communications Awards in 2008.

Etisalat is a multinational, blue-chip organisation with operations in 15 countries across the

Middle East, Africa and Asia.

2012

Etisalat won 3G license in Afghanistan and Ivory Coast and launched the first 3G services in history of Afghanistan. Etisalat won three GSMA awards in the ‘Best Mobile Health Innovation’ and ‘mWomen Best Mobile Product’ categories for its mobile health innovation Etisalat Mobile Baby, as well as the ‘Best Mobile Money Innovation’ award. Etisalat UAE successfully completed the highest 4G LTE speed test in the world, reaching speeds of 300 Mbps.Etisalat suspends its operation in India post Supreme Court decision of India cancellation of 122 2G licenses issued in 2008.

2011Etisalat introduces the first real 4G (LTE) experience to its customers in the UAE

Etisalat wins the third mobile license in Egypt and plans to introduce the country’s first 3G network. It is also awarded a license to provide mobile services in Afghanistan. In the UAE, Etisalat begins offering BlackBerry®services.Etisalat Services Holding is formed to manage eight business units that offer mission-critical telecoms related services to the industry. This includes EDCH, e-Marine, Ebtikar, Etisalat Academy, E-Facility Management, e-Real Estate, Etisalat Directory Services and Tamdeed.

1976The Emirates Telecommunication Corporation is founded.

1982

Emirates Telecommunications Corporation launches the Middle East’s first mobile network.

1983The ownership structure changes: The United Arab Emirates government gets a 60% share in the company and the remaining 40% is publicly traded.

1991The UAE central government issues Federal Law No. 1, which gives the corporation the right to provide wired and wireless telecommunications services in the country, and between UAE and other countries.

1995Internet services are rolled out across the country, another first in the region. Etisalat opens its SIM card factory, Ebtikar, in Ajman - now regarded as one of the best industrial organisations in the UAE and a leading provider of smart card solutions.

1998e-Marine is founded to provide maintenance and services to the growing number of international telecommunications cables passing through the Gulf.

2000Mobile subscribers exceed the 1 million mark as mobile data services is introduced using eWap.Etisalat introduces the E-Vision brand for its cable TV services. Etisalat Academy is established to provide professional and technical training.

1989

Etisalat establishes the Etisalat University College to create a talent pool of engineers to drive its future growth. 1996

Etisalat becomes one of the founding investors in satellite telecommunications provider, Thuraya.

1994

The Middle East’s first GSM service is introduced in the UAE. Etisalat also launches Emirates Data Clearing House, now one of the world’s leading clearing houses - providing a complete solution to GSM operators to provide roaming facilities to their customers in turn.

2004

Etisalat wins the second license to operate in Saudi Arabia thereby introducing Etihad Etisalat – Mobily. It also buys a stake in Canar, a new fixed line operator in Sudan.

2008

Etisalat successfully takes a stake in Swan Telecom, which is later renamed Etisalat DB. This ensures Etisalat’s entrance to India, and consolidates its presence in the Asian subcontinent. Etisalat completes the rollout of a nationwide fibre optic backbone over which next generation services will be provided in the UAE. Etisalat is named ‘Largest Carrier in the Middle East’ in the Financial Times Top 500 list.

2010

Etisalat deploys new services across its fibre network including 3DTV, making the UAE one of the first five countries in the world to offer this service. Etisalat UAE starts offering faster mobile broadband speeds using HSPA+, and announces commercial trials of LTE.

1999

Etisalat’s mobile subscribers exceed 800,000.The Middle East’s first broadband Internet service using the latest ADSL technologies is introduced. Etisalat buys a stake in Tanzanian operator Zantel, its first step towards becoming a major international telecoms group.

2002

Etisalat subscribers reach 2 million.It develops its mobile network to offer GPRS.

20031 million new customers are added in the year, bringing the total number of subscribers for Etisalat’s UAE operations to 3 million. Etisalat launches the Middle East’s first 3G network, and offers MMS services to its customers.

2007Etisalat acquires a stake in a green-field operator in Nigeria, the largest and fastest growing market in Africa. It also invests in Excelcomindo, one of the leading mobile service providers in Indonesia. UAE mobile subscribers exceed 6.7 million and internet penetration crosses the 60% mark. Etisalat introduces mobile TV and officially launches its wholesale business unit as ‘The Smart Hub for the Middle East’

2009Etisalat achieves 500,000 broadband subscribers, and mobile subscribers in the UAE exceed 7.2 million. Etisalat offers the iPhone across the UAE and Saudi Arabia, for the first time.Etisalat acquires Tigo, a Sri Lankan operator, which is later rebranded to Etisalat Lanka.

2005

2006

Subscribers exceed 4.5 million, which equates to mobile penetration exceeding 100% for the first time. Internet adoption is also on the increase and 51% of households have access. Etisalat acquires a stake and takes management control of PTCL, the incumbent operator in Pakistan. Etisalat expands into West Africa by taking a stake in Atlantique Telecom whose operations in Benin, Burkina Faso, the Central African Republic Gabon, Ivory Coast, Togo, and Niger catapult Etisalat’s participatory markets into double figures.

06

Timeline - History of Etisalat

2012

Etisalat won 3G license in Afghanistan and Ivory Coast and launched the first 3G services in history of Afghanistan. Etisalat won three GSMA awards in the ‘Best Mobile Health Innovation’ and ‘mWomen Best Mobile Product’ categories for its mobile health innovation Etisalat Mobile Baby, as well as the ‘Best Mobile Money Innovation’ award. Etisalat UAE successfully completed the highest 4G LTE speed test in the world, reaching speeds of 300 Mbps.Etisalat suspends its operation in India post Supreme Court decision of India cancellation of 122 2G licenses issued in 2008.

2011Etisalat introduces the first real 4G (LTE) experience to its customers in the UAE

Etisalat wins the third mobile license in Egypt and plans to introduce the country’s first 3G network. It is also awarded a license to provide mobile services in Afghanistan. In the UAE, Etisalat begins offering BlackBerry®services.Etisalat Services Holding is formed to manage eight business units that offer mission-critical telecoms related services to the industry. This includes EDCH, e-Marine, Ebtikar, Etisalat Academy, E-Facility Management, e-Real Estate, Etisalat Directory Services and Tamdeed.

1976The Emirates Telecommunication Corporation is founded.

1982

Emirates Telecommunications Corporation launches the Middle East’s first mobile network.

1983The ownership structure changes: The United Arab Emirates government gets a 60% share in the company and the remaining 40% is publicly traded.

1991The UAE central government issues Federal Law No. 1, which gives the corporation the right to provide wired and wireless telecommunications services in the country, and between UAE and other countries.

1995Internet services are rolled out across the country, another first in the region. Etisalat opens its SIM card factory, Ebtikar, in Ajman - now regarded as one of the best industrial organisations in the UAE and a leading provider of smart card solutions.

1998e-Marine is founded to provide maintenance and services to the growing number of international telecommunications cables passing through the Gulf.

2000Mobile subscribers exceed the 1 million mark as mobile data services is introduced using eWap.Etisalat introduces the E-Vision brand for its cable TV services. Etisalat Academy is established to provide professional and technical training.

1989

Etisalat establishes the Etisalat University College to create a talent pool of engineers to drive its future growth. 1996

Etisalat becomes one of the founding investors in satellite telecommunications provider, Thuraya.

1994

The Middle East’s first GSM service is introduced in the UAE. Etisalat also launches Emirates Data Clearing House, now one of the world’s leading clearing houses - providing a complete solution to GSM operators to provide roaming facilities to their customers in turn.

2004

Etisalat wins the second license to operate in Saudi Arabia thereby introducing Etihad Etisalat – Mobily. It also buys a stake in Canar, a new fixed line operator in Sudan.

2008

Etisalat successfully takes a stake in Swan Telecom, which is later renamed Etisalat DB. This ensures Etisalat’s entrance to India, and consolidates its presence in the Asian subcontinent. Etisalat completes the rollout of a nationwide fibre optic backbone over which next generation services will be provided in the UAE. Etisalat is named ‘Largest Carrier in the Middle East’ in the Financial Times Top 500 list.

2010

Etisalat deploys new services across its fibre network including 3DTV, making the UAE one of the first five countries in the world to offer this service. Etisalat UAE starts offering faster mobile broadband speeds using HSPA+, and announces commercial trials of LTE.

1999

Etisalat’s mobile subscribers exceed 800,000.The Middle East’s first broadband Internet service using the latest ADSL technologies is introduced. Etisalat buys a stake in Tanzanian operator Zantel, its first step towards becoming a major international telecoms group.

2002

Etisalat subscribers reach 2 million.It develops its mobile network to offer GPRS.

20031 million new customers are added in the year, bringing the total number of subscribers for Etisalat’s UAE operations to 3 million. Etisalat launches the Middle East’s first 3G network, and offers MMS services to its customers.

2007Etisalat acquires a stake in a green-field operator in Nigeria, the largest and fastest growing market in Africa. It also invests in Excelcomindo, one of the leading mobile service providers in Indonesia. UAE mobile subscribers exceed 6.7 million and internet penetration crosses the 60% mark. Etisalat introduces mobile TV and officially launches its wholesale business unit as ‘The Smart Hub for the Middle East’

2009Etisalat achieves 500,000 broadband subscribers, and mobile subscribers in the UAE exceed 7.2 million. Etisalat offers the iPhone across the UAE and Saudi Arabia, for the first time.Etisalat acquires Tigo, a Sri Lankan operator, which is later rebranded to Etisalat Lanka.

2005

2006

Subscribers exceed 4.5 million, which equates to mobile penetration exceeding 100% for the first time. Internet adoption is also on the increase and 51% of households have access. Etisalat acquires a stake and takes management control of PTCL, the incumbent operator in Pakistan. Etisalat expands into West Africa by taking a stake in Atlantique Telecom whose operations in Benin, Burkina Faso, the Central African Republic Gabon, Ivory Coast, Togo, and Niger catapult Etisalat’s participatory markets into double figures.


08

The strides taken by Etisalat in 2012 will have a positive impact on the Company’s future growth, and its vision of becoming one of the most admirable telecommunications companies in the world


Chairman’s Statement

As the global telecommunications industry continues to transform, as it has for decades, Etisalat Group’s commitment to ensure that investment decisions are based on several key criteria, including the real value they add to the social development and economic growth of a country, will allow Etisalat to manage risk while growing its foundation in 2013.

Etisalat knows that the telecommunications business is no longer just about a voice call or carrier signal – It is about data and, specifically, delivering innovative services that drive social development and accelerate economic growth. Our job is to ensure that we deliver those innovative services across robust networks and offer the best customer experience to help maximise revenues from the growing data pipeline.

Our commitment to providing cutting edge services across our markets remains unwavering. This year, we announced the successful trial of the world’s fastest mobile network, providing speeds of up to 300Mbps. We also announced that we have deployed over three million kilometres of fibre optic cables across the UAE, making the UAE one of the most connected nations in the world in Fibre-To-The-Home (FTTH). We are also continuing to roll out innovative services such as near field communication (NFC), money transfer facilities and machine-to-machine (M2M) solutions across our markets – solutions that provide value to our customers and position Etisalat Group as a leader in innovation.

Etisalat Group also recognizes the potential that emerging markets, including Pakistan and Nigeria, offer to Etisalat and its shareholders. Our global footprint, which includes operations in 15 markets, positions Etisalat Group well to capitalize on the benefits associated with broadband growth. Nigeria, for example, represents tremendous growth potential for Etisalat Group. As one of the strongest and most rapidly growing economies in Africa, and with

Internet penetration at approximately 28 per cent, Nigeria represents a real opportunity for 3G operators like Etisalat Group.

We do believe that our assets in high-population, high-growth markets present real growth opportunities, especially if we focus on three key areas: networks, innovation and partnerships. For example, Etisalat Group has invested in state-of-the-art Next Generation Networks to ensure that we can manage the influx in data. And, our development of innovative digital services, specifically in the fields of mobile health (mHealth) and mobile commerce (mCommerce) has already positioned us ahead of our competitors and established our strong track record in developing services that contribute to social development and economic growth. Finally, our partnerships with key network vendors, device manufacturers and content providers will allow Etisalat Group to grow and better connect customers with services that they want and need in our growing markets.

The telecoms industry is redefining itself once more and becoming increasingly reliant on new sources of revenue including data, which is expanding globally at a rapid pace.

In the years to come, Etisalat believes that tele-media, which brings together a new technology ecosystem of inter-connected business models that involves telcos and operators with content providers and third parties, will begin to transform the customer experience, increasing availability, content and broadband uptake and adding new revenue models for the company, allowing Etisalat to maintain a position of leadership.

In 2013, our CEO will be taking on an additional leadership role within our industry. Not only will this new opportunity allow Etisalat to contribute to the growth of the Etisalat Group, but it will position Etisalat to help grow

the industry as a whole. I am proud to announce that Etisalat Group’s CEO will be joining the GSMA Board alongside 24 other CEOs and senior executives from our peers across the global telecommunications industry to work together to develop policies and tactics that will benefit individuals, organizations and governments throughout the world.

Etisalat Group now has an outstanding senior management team that is strongly committed to the growth of the organization and its contribution to its shareholders, the UAE and the markets we operate in. The senior management team is also supported by thousands of dedicated employees around the globe whose commitment to excellence allows Etisalat to achieve its goals of creating and delivering better services that positively impact people’s lives, and I would like to thank them for their unwavering dedication.

Our achievements in 2012 would not have been achieved without the support of H.H. the President of the UAE, H.H. the Prime Minister, H.H. the Crown Prince of Abu Dhabi and the UAE government’s continued support for Etisalat. I’d also like to acknowledge the support of the governments and regulators in all of our operating countries and thank our customers for their loyalty throughout the year.

It has been an honour to lead such a strong team in 2012, and I look forward to another year of growth and prosperity in 2013, through delivering new and innovative technologies and services to our clients across our markets of operation.

Respectfully yours,

Eissa Mohamed Al SuwaidiChairman

10

Mohamed Hadi Ahmed Abdulla Al Hussaini

MemberInvestment & Finance Committee

Abdulla Mohamed Saeed Ghobash Al MarriMemberInvestment & Finance Committee

Shoaib Mir Hashim KhooryMemberNomination & Remuneration Committee

Abdelmonem Bin Eisa Bin Nasser Alserkal

MemberNomination & Remuneration

Committee

Board of Directors

Sheikh Ahmed Mohamed Sultan Bin Suroor Al DhaheriMemberAudit Committee

Eissa Mohamed Al SuwaidiChairman

Investment & Finance Committee


Abdulla Salem Al DhaheriMemberChairman-Nomination & Remuneration Committee

Mana Mohamed Saeed Al MullaMemberAudit Committee

Mubarak Rashed Al MansouriMember

Nomination & Remuneration Committee

Hasan Al HosaniCorporate Secretary

Essa Abdulfattah KazimMember

Chairman-Audit Committee

Khalaf Bin Ahmed Al OtaibaVice Chairman

Member-Investment & Finance Committee

12

Etisalat’s long-term strategy guided us through the opportunities and challenges presented by market forces


Chief Executive Officer’s Statement

In 2012, the company’s long-term strategy guided us through the opportunities and challenges presented by market forces, and this is reflected in our strong performance. Our long-term strategy also guided us through growth in international emerging markets – and will continue to set the tone as we introduce new services to customers around the globe and expand our portfolio.

Over the course of 2012, Etisalat Group operations demonstrated growth in terms of both size and revenue, retaining and acquiring more customers and attracting higher revenues across our international operations. The aggregate number of subscribers, including subsidiaries and associates, reached over 139 million. Group revenues increased by 2% to reach AED 32.9 billion, driven by growth in our international operations that now contribute 29% of our consolidated revenue.

Etisalat Group’s overall financial results show a steadily increasing revenue base from our diverse portfolio of operations. Operating profits before federal royalty increased by 13% from last year. Etisalat achieved a net profit before Federal Royalty of AED 13.2 billion. Net profit after Federal Royalty amounted to AED 6.7 billion and EPS of 85 fils, compared to AED 5.8 billion and 74 fils in 2011. Meanwhile, capital expenditure decreased by 3% to reach AED 4.2 billion, representing 13% of the current year’s revenues.

In late 2012, the Cabinet of Ministers of UAE issued decision in respect of a new royalty mechanism applicable to

Etisalat. Under the new mechanism a distinction is made between revenue earned from services regulated by Telecommunications Regulatory Authority (“TRA”) and non-regulated services as well as between foreign and local profits.

Etisalat is required to pay 15 % royalty fee on the UAE regulated revenues and 35 % of net profit after deduction of the 15 % royalty fee on the UAE regulated revenues. In respect of foreign profit, the 35 % royalty is reduced by the amount that the foreign profit has already been subject to foreign taxes.

In 2012, our strategy enabled cash liquidity and wise investments for sustainable growth for both the Group and our investors. Reported earnings for the year were positively impacted by the sale of a 9.1% stake in PT XL Axiata Tbk (“XL”). The sale of 775 million shares to institutional investors capitalized on a rally in XL Axiata’s stock price and resulted in gross proceeds of AED 1,870 million to Etisalat Group.

In addition, we maintained our historically strong cash position, allowing us to reaffirm our investment-grade credit ratings in the annual review. Etisalat Group has been rated AA- by S&P, A+ by Fitch and Aa3 by Moody’s, making it the highest overall rated telecommunications company in the GCC and the fourth-highest rated telecommunications company in the world. In light of these results, and in line with what has occurred in previous years, the board has proposed dividends of 70 fils per

14

share, a pay-out of 82% of earnings per share.

On a global level, our international operations witnessed strong growth, achieving AED 9.5 billion in revenues during 2012, registering a healthy growth of 11%. International revenues for the year accounted for 29% of consolidated Group revenues, led by the solid performance of Etisalat Misr in Egypt. On the operating profit level, international operations have increased their contribution to Group results.

In the UAE, our operations have witnessed further competitive pressure, especially in the mobile segment. In 2012, we were able to maintain our market share in the UAE market, and we were also able to retain a dominant share of revenues due in large part to customer loyalty linked to superior services and quality of the network. We were also notably able to achieve a healthy gain in our mobile subscriber base throughout the year, thanks to our continuing efforts to revamp of our sales channels and a focus on value proposition in our latest mobile offerings.

Over the past decade, the telecoms industry has seen noticeable growth in the data and Internet segments. To capitalize on this trend, the Corporation spent in the UAE AED 1.8 billion during the year on infrastructure, mainly to enhance the fiber-optic network and develop the LTE core and access network.

Those investments are paying

dividends, underlined by the achievement of the highest 4G LTE speed test in the world, reaching speeds of 300 Mbps. Etisalat Group has now deployed over three million kilometres of fibre optic across the UAE – a significant accomplishment. The UAE is now one of the most “fibre-to-the-home” connected nations in the world.

Over the past year, Etisalat Group’s performance and innovative offerings have been recognized with several international awards, including three GSMA awards for ‘Best Mobile Health Innovation’, ‘mWomen Best Mobile Product’ and ‘Best Mobile Money Innovation’, as well as three International Business Awards for Most Innovative Company of the Year in the Middle East and Africa, Best New Product or Service of the Year - Health & Pharmaceuticals Service and Corporate Social Responsibility Program of the Year, in addition to myriad other awards from the World Communication Awards, the Nigerian Communications Commission (NCC), CSR Business Excellence, Forbes Middle East, the Connected World Awards and Telecom Review.

In 2012, Etisalat Group continued its policy of supporting and engaging across international industry platforms. The United Arab Emirates hosted significant International Telecommunication Union (ICT) events in 2012 including ITU Telecom World 2012, the World Telecommunication Standardization Assembly (WTSA-12) and the World Conference on

International Telecommunications (WCIT-12). The ITU events gave us a platform and a significant opportunity to positively influence and shape a new era for the telecommunications sector, and its vision for the future of ICT regulations and the importance of developing policies that enables the creation of a competitive business environment both on a local and global scale. They allowed Etisalat Group to address the challenges to standardisation in the ICT and telecommunications industries, the opportunities that cooperation can deliver in areas including healthcare, transportation and utilities, and strategies for bridging the gaps in establishing standards across regions and markets.

Etisalat Group also made a significant contribution to the shape of the industry’s future at 2012’s Mobile World Congress leadership Summit in Barcelona with top group executives presenting our vision to delegates from around the globe. And, in December 2012, Etisalat being elected to the Board of GSMA, among top Global executives from the industry.

One key focus for 2013 is the delivery of innovative solutions through applied technology – such as mHealth and mCommerce, M2M and cloud networking – and how they are helping to shape the future of the way we live and work and accelerate social development and economic growth. Digital services are set to grow from $57billion to $213billion by 2015. This year, like 2012, will see Etisalat Group


introducing a number of innovative solutions across our markets that will benefit our consumers and society as a whole.

Recognising the potential revenues in digital services, Etisalat Group continued its progress on restructuring with the introduction of the Digital Services Unit in 2012. The new division, which will focus on various industry verticals such as Machine-to-Machine (M2M), cloud services, commerce, digital advertisement, advanced communications, digital entertainment, and video services, aims to boost the Group’s position in the digital eco-system and drive innovation and advanced services to Group customers across all areas of operation. As part of its development in M2M technology, Etisalat Group signed an agreement with Pacific Controls to jointly work towards offering M2M applications and support to clients across the Group’s footprint.

As we look forward to the opportunities 2013 will present to us, I’d like to reflect on the contributions our employees and management team made towards the success we achieved in 2012. Our results were strong; we received international recognition regarding innovation and our contributions towards transforming communities and economies; and, we debated shoulder-to-shoulder with our peers at global industry events. Our achievements are the result of the dedication, hard work and professionalism of our employees, and I wish to take this opportunity to recognise their efforts and applaud their successes.

It has been an honour to lead the Company over the past year, and I look forward to leading our dedicated team into the opportunities and challenges that 2013 will bring.

Few global telecommunications corporations have had the year-over-

year success that Etisalat Group has had.

Our success is tied to our strategy to enrich customer experience, nurture advanced technologies, govern decisively, achieve broadband leadership, grow with a sustainable portfolio and excel in execution – and our commitment to providing value to our shareholders.

Connectivity matters to all of us. Across the UAE, and around the globe, in 2013, and in the years to come, Etisalat Group will continue to provide customers with the solutions and services they need, with the highest levels of integrity and reliability.

Respectfully yours,

Ahmad Abdulkarim JulfarChief Executive Officer

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Ahmad Abdulkarim JulfarChief Executive Officer- Etisalat Group

Mr. Julfar was appointed as the CEO of the Etisalat Group in August 2011. Prior to this appointment, he was the Chief Operating Officer of EG. Mr. Julfar has more than 25 years’ experience in the telecommunication sector and has served in various management positions including General Manager of eCompany, ComTrust and Etisalat’s Dubai region. In addition, Mr. Julfar serves on the boards of Mobily, where he is the Chairman of the Risk Management committee, Etisalat Misr and Etisalat Services Holding. Mr. Julfar holds Bachelor’s Degrees in Civil Engineering and Computer Science from the USA.

Essa Al HaddadChief Regional Officer /Africa, Etisalat Group

Essa Al Haddad was appointed as the Chief Regional Officer, Africa, of the Etisalat Group in January 2013. Prior to this appointment, he was the Chief Commercial Officer of EG. In his 34 years of experience, Mr. Al Haddad has served in various senior leadership positions including Executive Vice President of Engineering of Etisalat UAE, Chief Marketing Officer Etisalat UAE and Chief Marketing Officer of EG. Mr. Al Haddad is Chairman of Zantel, Vice Chairman of Etisalat Nigeria and board member of Atlantique Telecom, Mobily and Canar. He holds a higher diploma in Telecom Engineering and an MBA from the UK.

Serkan OkandanChief Financial Officer, Etisalat Group

Mr. Okandan joined Etisalat in January 2012 as Chief Financial Officer of the Etisalat Group. Prior to his appointment, he was the Group Chief Financial Officer of Turkcell. Mr. Okandan started his professional career at PricewaterhouseCoopers in 1992, and worked for DHL and Frito Lay as a Financial Controller before joining Turkcell. Mr. Okandan is a board member and Chairman of the audit committee of Etisalat Nigeria, PTCL, Ufone and a board member of Etisalat Services Holding. Mr. Okandan graduated from Bosphorus University with a degree in Economics.

Dr. Daniel Ritz, Ph.DChief Strategy Officer, Etisalat Group

Daniel Ritz was appointed as Chief Strategy Officer for EG in February 2012. Prior to this appointment, he was the CSO at Swisscom Group where he held various positions including Board member of each of the Group’s Executive Board, Fastweb, Belgacom and Swisscom IT Services. He also served as Chairman of Swisscom’s Hospitality Services and as CEO of Swisscom (Central & Eastern Europe). Prior to joining Swisscom, he was a partner at BCG. Dr. Ritz also serves on the Board of Atlantique Telecom, Thuraya, PTCL and Ufone. Dr. Ritz holds a Ph.D from the Hochschule St. Gallen in Switzerland.

Management Team


Saleh Al Abdooli Chief Executive Officer, Etisalat UAE

Engineer Saleh Al Abdooli was appointed as Chief Executive Officer of Etisalat UAE in April 2012. A strong and charismatic leader, Saleh rose to international fame after his resounding success in Egypt as the CEO of Etisalat Misr. He built and launched the first 3G operator in Egypt in 7 months. In less than five years, he achieved 27% of revenue share, 28% market share, 36% of EBITDA margin, and 99% 2G/3G coverage. Al Abdooli holds Bachelor’s and Master’s in Electrical Eng. and Telecom from University of Colorado at Boulder, USA.

Saeed Al Hamli Chief Executive Officer, Etisalat Misr

Mr. Al Hamli was appointed as Chief Executive Officer of Etisalat Misr in April 2012. Prior to this role, he was the Chief Executive Officer of Etisalat Afghanistan since 2007. Mr. Al Hamli has more than 20 years of experience at Etisalat and Thuraya where he was the Chief Commercial Officer before moving to Afghanistan. Mr. Al Hamli also serves on the board of Etisalat Misr. Mr. Saeed holds a Bachelor’s of Science degree in Electrical Engineering from USA and Executive Master’s of Business Administration degree from the American University of Sharjah.

Jamal AljarwanChief Regional Officer/ Asia, Etisalat Group

Jamal Al Jarwan was appointed as the Chief Regional Officer of the Asian cluster of EG in October 2011. Prior to this position, he was the Chief International Investments Officer of EG. Mr. Al Jarwan started his career at Etisalat in 1988 and held various positions including Chief Commercial Officer at Thuraya. Mr. Al Jarwan is a member of the Board of Etisalat Afghanistan, Etisalat Sri Lanka, PTCL and Ufone. He holds a Bachelor’s degree in Business from Dayton University in the United States and an MBA in International Management Development from Lausanne University, Switzerland.

Abdulaziz Al SawalehChief Human Resources Officer, Etisalat Group

Mr. Al Sawaleh is the Chief Human Resources Officer (CHRO) of the Etisalat Group. Prior to this position, he was the CHRO of Etisalat UAE. Mr. Al Sawaleh has more than 25 years’ experience in various leadership positions. He is responsible for leading the global Human Capital strategies including the areas of talent development, organization effectiveness, compensation & benefits and Performance Management. He is a board member of Atlantique Telecom and Etisalat Services Holding. Mr. Al Sawaleh holds an MBA degree in Global Leadership Management from UAE University and a BBA degree from the USA.

Khalid Al KafManaging Director and Chief Executive Officer, Etihad Etisalat (Mobily)

Khalid Al Kaf was appointed as Chief Executive Officer and Managing Director of Etihad Etisalat (Mobily) in July 2005. Prior to this appointment, Mr. Al Kaf worked for over 19 years with Etisalat in various capacities. He was the General Manager of Etisalat’s Network Services division before being appointed as the start up project manager and later CEO for Mobily. Mr. Al Kaf is the Chairman of the Board of Directors of Etisalat Sri Lanka and is a board member of Mobily. Mr. Al Kaf holds a Bachelor of Science degree from George Washington University, USA.

18

Khalifa Al ShamsiChief Digital Services Officer, Etisalat Group

Khalifa Al Shamsi was appointed as Chief Digital Services Officer of the EG in 2012. Prior to this role, Mr. Al Shamsi held the position of Senior Vice President of Technology Strategy of the Etisalat Group. Since joining Etisalat in 1993, Mr. Al Shamsi has held various key senior positions including Vice President and Senior Vice President of Marketing of Etisalat UAE. Mr. Al Shamsi serves on the Boards of Etisalat Afghanistan and E-vision. Mr. Al Shamsi has a Bachelor’s degree in Electrical Engineering from the University of Kentucky, USA

Rainer RathgeberChief Commercial Officer, Etisalat Group

Rainer Rathgeber was appointed as Chief Commercial Officer of EG in January 2013. Prior to joining Etisalat, he was Senior Vice President of Marketing in Europe of the OTE Group. Mr. Rathgeber joined Deutsche Telekom in 2002 as Head of Strategy for T-Mobile Germany, and Executive Vice President of Sales and Service Strategy for T-Mobile International. He then went on to serve in various positions including Executive Vice President of Market Management for T-Mobile International, CEO of T-Mobile Croatia and Member of the Executive Management Committee of T-Mobile International. Mr. Rathgeber holds a Diplom-Kaufmann Degree in Economics.

Dr. Kamal Shehadi, PhDChief Legal & Regulatory Officer, Etisalat Group

Kamal Shehadi was appointed as Chief Legal & Regulatory Officer of EG in November 2012. He Joined Etisalat in 2010 as Head of the Regulatory Department. Prior to that, Dr. Shehadi was the Chairman and CEO of TRA, Lebanon. He has more than 17 years of experience in consulting and advisory services for telecom regulatory authorities and telecom service providers. Dr. Shehadi serves on the board of Atlantique Telecom. Dr. Shehadi has a B.A. in Economics from Harvard University and a PhD in International Political Economy from Columbia University, USA.

Nasser Bin Obood Chief Government Relations and Corporate Communications Officer, Etisalat Group

Nasser Bin Obood was appointed as Group Chief Government Relations and Corporate Communications Officer at EG in April 2012. Prior to this, he was Acting CEO for Etisalat UAE. Mr. Bin Obood joined Etisalat in 1986 and held various senior positions including General Manager of Al Ain region, Deputy CEO and Chief Corporate Affairs Officer for Etisalat UAE and Chief Corporate Affairs Officer of the Etisalat Group. Mr. Bin Obood serves on the boards of Thuraya and Atlantique Telecom. Mr. Bin Obood holds a Bachelor’s degree in Science from the UAE University, Al Ain.

Management Team


Obaid Bokisha Chief Procurement Officer, Etisalat Group

Obaid Bokisha was appointed as Chief Procurement Officer of the EG in June 2012. Since joining Etisalat, he was assigned various responsibilities contributed to the network implementation of all existing systems covering GSM, UMTS, LTE and WiFi networks. Positions held include Vice President Mobile Networks Planning & Int’l Support of Etisalat UAE and Senior Vice President – Mobile Networks Optimization EG.Mr. Bokisha serves on the board of Etisalat Misr, Zantel and Etisalat Nigeria. Mr. Bokisha has a degree in Communications Engineering from the Etisalat College of Engineering.

Javier GarciaChief Internal Auditor, Etisalat Group

Javier Garcia joined Etisalat in December 2012 as Chief Internal Auditor of the EG. Mr. Garcia was the head of Internal Audit at Telefonica Group before joining Etisalat. He held various positions with Telefonica including Business Process Audit Director and Vice President of Internal Audit (Chile) before becoming the Group Head of Internal Audit. Mr. Garcia holds a Bachelor’s in Economics and a Master’s in Financial Markets from the Autonomous University of Madrid

John WilkesChief Internal Control Officer, Etisalat Group

John Wilkes was appointed as the Chief Internal Control Officer for EG in January 2013. Prior to this, Mr. Wilkes was the General Manager of Risk & Supply Chain of the Vodafone Hutchison Company. He has more than 24 years of experience in companies such as KPMG Air in New Zealand where he was the Group Internal Auditor and Stockland in Australia where he held the position of Chief Risk Officer. Mr. Wilkes is a qualified chartered accountant.

20

In recent years, the Etisalat Group (EG) has been successfully engaged in a strategy of growing its international operations at record rates, while also maintaining the core strength of its domestic business in the UAE. In 2012, the group updated its corporate strategy from the ENGAGE pillars that were presented in the past to a newer, fresher outlook that sets Etisalat at the heart of a rapidly evolving telecoms industry.

Etisalat’s refreshed corporate strategy aims to enhance the company’s focus and attention towards the most critical internal and external factors, which will shape its long-term aspirations. Etisalat Group recognises that within the global telecoms industry it is facing new and exciting opportunities; the sector is transforming rapidly due to changes in consumption patterns and strong innovations in technology, and the company believes that telecom operators will remain the key enablers of the “Connected Society” of the future. Operators, like EG, will play a vital role in enhancing the customer’s experience by leveraging their in-depth knowledge of the customer, deploying enabling platforms for the overall industry and providing the much needed access infrastructure. With the increased complexity in the market comes further emphasis on operators to engage collaboratively with newer entrants in the digital world, which Etisalat is embracing through a wide range of international partnerships.

Looking forward, the worldwide telecommunications industry – with revenues of approximately USD1.7 trillion at the end of 2011 – will continue to represent a sizeable and attractive industry. In the coming years, the sector’s growth potential will be driven largely by emerging markets,

where Etisalat Group will continue to play an active role. In Etisalat’s current footprint alone, it is envisaged that there will be significant growth potential in the telecommunications industry, providing EG ample room for further growth. This growth will be driven primarily by broadband, as well as voice in some markets, and new revenue streams across the company’s footprint. The potential opportunities from the enterprise segment, as well as the fixed line business, also remain significant in selected markets. Etisalat fully intends to be one of the leaders of this growth and the company’s new ‘six pillars’ strategy captures its plans to achieve that ambition.

Etisalat Group’s 2017 vision and mission have been established with these thoughts in mind. The new strategy also has several principal pillars designed to deliver the objectives of the organisation. Etisalat Group believes that the pillars of Service Offering, Customer Experience, Operational Excellence, Portfolio, One Company and People & Culture are the cornerstones of the organisation’s five-year strategy.

Service OfferingEtisalat will provide differentiation and innovation in services based on the dynamics of each market in which it operates. EG will enhance its customised and innovative products and services through a wide range of strategic partnerships, which will be supported by its state-of-the-art broadband infrastructure. In particular, new digital services such as Commerce, M2M and Cloud solutions will be spearheaded by the company’s newly created Digital Services Unit, which is supporting the rollout of relevant services across Etisalat Group’s international footprint. New

enterprise services will solve customer needs to ensure strengthening of the company’s position in all relevant business segments.

Customer ExperienceEtisalat works continuously on customer insight-based and focused propositions, and the enhancement of positive customer experience across all touchpoints. Knowing its customers and ensuring positive interactions with them throughout their lifecycle is a core competence to compete in Etisalat Group’s regions. On the technology front, Etisalat Group aims to reinforce its positioning as the most trustworthy and reliable operator through superior network and services quality.

Operational ExcellenceBoasting one of the highest margins in the business, Etisalat Group has firmly put in place several strategic initiatives to maintain strong profitability. Important efficiency improvement targets have been set across the organisation which will be implemented in the future through procurement measures, operational efficiencies, commercial synergies, and capital structure optimisation across the Group.

PortfolioRecognising the strong relevance of the three areas where Etisalat operates today (MENA, Africa and Asia), Etisalat Group’s investment strategy has been built around a continued focus on these regions. The strategy also includes a clear decision to position Etisalat Group as a strategic rather than financial investor and to focus on investments which provide Etisalat Group with operational influence over its assets. Etisalat Group’s future portfolio will therefore consist

Etisalat Group Strategy

To be the leading and most admired emerging markets telecom group


of strategic assets that will reinforce its presence in core markets and regions internationally.

One CompanyWith a strong footprint across 15 markets, Etisalat has the scale to deliver exceptional returns. The organisation is reinforcing a strategy which leverages this scale by enabling a common set of brand values, enhancing Etisalat’s integrated systems and processes, and ensuring robust and consistent governance, as well as maximised economies of scale across the Group.

People & CultureEtisalat’s people and corporate culture are at the heart of its strategy. Having the right talent and processes in place will continue to enable Etisalat Group to successfully execute its strategic pillars. For this reason, the company’s objectives are twofold: firstly, to attract, nurture and retain top talent within the organisation through succession planning, management reinforcement, and rewarding long-term performance, and secondly to streamline processes through delegation and accountability measures. Not compromising on these

areas, Etisalat views both its people and culture as a key priority for achieving success.

As Etisalat grows over the next five years, it aims to deliver exceptional customer service and an innovative and dynamic range of services across an optimised and efficient portfolio. With these key principles in place, Etisalat will be well positioned to achieve its vision of becoming the leading and most admired emerging markets telecom group.

Vision To be the leading and most admired emerging markets telecom group

Mission• Provide best in class total customer experience for retail and business• Deliver attractive returns to shareholders while investing in the company’s long term future• Support economic development and job creation through ICT & socially responsible behavior

Strategic Pillars

Service offering

Customer Experience

Operational Excellence Portfolio One Company People &

culture

22

Awards

Awards - Corporate

Awards - Innovation and Engineering

Corporate Social Responsibility Program of the Year

International Business Awards

Best Multinational Company Middle East & Africa


SAMENA TelecommunicationsCouncilBest Telecom Company MENASA

International Leaderin Telecommunications Sector – Asia & Africa

Telecom World Middle East Awards

Middle East BusinessLeaders Summit

Best Operator

2011

Leader in Telecoms

Arab Achievement Awards

International Business AwardsMost Innovative Company

Training Excellence

Technical Leadership

African Investor of the Year

Asia BrandEmployer Awards

SAMENA Awards

Africa Business Awards

First Runner-Up in NGO-partnership

Arabia CSR Awards

Most powerful company in the UAE

Forbes Middle East

2010 2012

2010

Best FMC Operator of the Year

Best Customer Experience Provider of the Year

SAMENA

COMMS MEA

Fixed Line Operator of the year

Best Mobile Health InnovationBest Mobile Money Innovation

GSMA Global Mobile Awards


Most Innovative Company in the Middle East and Africa

Video Services

Global Telecom Business Innovation Awards

TMT Finance Middle EastBest Broadband Provider

Best Fixed Line Provider

COMMS MEA

2011 2012


Awards - Marketing and Customer Care

Awards - Management

Best CEO


Honorable mentionGreen Company

Middle East Business Leaders SummitLeadership in Corporate Social Responsibility

CMO Asia AwardsBest Telecoms Brand

2011International Business Awards

International Business Awards International

Business Awards

Asian Brand Employer Awards

Best Customer Care

Honourable MentionGreen ProgrammeHonourable MentionCSR Programme

Asia’s Most Preferred Brand

2010 2012

Best Mobile Product and Service for Women in Emerging Markets

GSMA Global Mobile Awards

Best New Product or Service of the Year Health

Best Telecom Operator Leader Award

CEO of the Year IT & Telecoms

SAMENA

Lifetime Achievement Award

Best Chairman Best Chairman

Best Executive of the Year in Telecommunications

Honorable Mention Best CFOHonorable MentionBest Executive

Middle East Excellence Awards Institute

Middle East Business Leaders Summit

2011

2012




World Communications Awards

2010

24

Operational Highlights

Global Subscribers (m)

117

2011(1) 2012

139

Revenue (AED b)2011 2012

32.2 32.9

Subscribers(1)

Etisalat Group aggregate subscriber base grew to 139 million by end of December 2012 representing year-over-year growth of 18%. The Group reported strong net additions of 21 million subscribers as a result of growth across all of our operations. In the UAE active subscriber base grew to 9.0 million subscribers representing year-over-year growth of 8%. Mobile subscribers grew to 7 million representing a year over year growth of 12%. Fixed line subscribers reached 1.1 million representing year over year decline of 6%. However, this decline is due to the successful migration of customers to eLife segment (double play and triple play) that grew by 46% surpassing half million subscribers. Fixed broadband subscribers grew by 8% to 0.8 million. Africa cluster consolidated subscriber base grew by 29% to 12 million at the end of December 2012. While Asia cluster consolidated subscriber base reached 8.2 million declining year over year by 9% as year 2011 included the subscriber numbers of the Indian operation that was deconsolidated in March 2012.

RevenuesFor full year 2012, Etisalat Group consolidated revenues totaled AED 32.9 billion, increasing by 2% in comparison to last year. Etisalat UAE revenues of AED 22.7 billion for the year were 1% lower than revenues of prior year. The decline in revenues is mainly attributed to decrease in voice revenues in both mobile and fixed segments that were mostly compensated by growth in the internet and data segments. Revenues from international operations grew by 11% to AED 9.5 billion, representing 29% of group consolidated revenues. This growth in revenues is across all clusters. In Egypt, revenues of AED 5.1 billion, up 13% compared to the reported results of the last year. Revenue growth was mainly driven by customer acquisition and growth in mobile data segment. Africa cluster consolidated revenues grew to AED 2.8 billion representing an increase of 9% in comparison to the same period of last year. This revenues growth is mainly attributed to the operations in Benin, Togo and Canar. In Asia cluster, consolidated revenues grew to AED 1.6 billion representing a growth of 11% in comparison to the same period of last year. Growth is mainly driven by subscriber uptake in both Etisalat Afghanistan and Sri Lanka and launch of 3G services in Afghanistan.

(1) Subscriber number reported in FY 2011 had been adjusted to exclude XL Axiata operations due to reclassification of XL Axiata investment as “other investment available for sale” effective September 1, 2012.


2011 2012

EBITDA (AED b)

15.916.9

Net Profit (AED b) EPS(Fils)

2011

7485

5.8

6.7

2012

EBITDAGroup Consolidated EBITDA grew to AED 16.9 billion representing a year-over-year growth of 6%. EBITDA growth was mainly due to revenue growth accompanied with more effective cost management that led to lower network cost and project based expenses. EBITDA margin improved to 51%, representing 2 points increase in comparison to last year. In the UAE, EBITDA increased year-over-year by 2% to AED 13.5 billion leading to EBITDA margin of 59% in comparison to 58% of last year. EBITDA of international consolidated operations increased year-over-year by 61% to AED 2.9 billion resulting in 18% contribution to group EBITDA, an improvement of 6 points over last year. In Egypt, EBITDA increased by 13% to AED 2.0 billion and EBITDA margin were maintained at 39%. In Africa cluster, EBITDA increased year-over-year by 18% to AED 0.7 billion and EBITDA margin improved by 2 points to 26%. In Asia cluster, EBITDA increased to AED 0.2 billion and EBITDA margin increased to 11%.

Net Profit and EPSConsolidated net profit post Federal Royalties increased year-over-year by 15% to AED 6.7 billion. Net profit during the year was mainly impacted by three items. These relate to the new royalty scheme that was applied effective 2012, profit recognised on disposal of asset in XL Axiata and impairment charges related to investments in Pakistan and Sudan.

Earnings per share (EPS) increased to 85 fils per share of which 70 fils will be distributed as dividend to our shareholders subject to the approval of the AGM.

26

2011 2012

CAPEX (AED b)

4.34.2 CAPEX

Consolidated capital expenditures declined year-over-year by 3% to AED 4.2 billion resulting in capital intensity ratio of 13%. Capital spending during the year focused on capacity and coverage and deployment of 3G networks and expanding LTE rollout. In the UAE, capital spending in year 2012 increased by 2% to AED 1.8 billion while capital intensity ratio remained at 8%, same level of last year. Capital investment in the UAE focused on enhancing capacity and ensuring 4G leadership. In Egypt, capital expenditures increased by 4% to AED 1.2 billion as compared to the same period of last year resulting in a capital intensity ratio of 23%. In Africa cluster, capital expenditure declined by 29% to AED 0.5 billion resulting in a capital intensity ratio of 17%. In Asia, capital expenditure decreased by 14% to AED 0.6 billion impacted by the deconsolidation of the Indian operation in March 2012.

Impairment Charges on InvestmentsThe net impairment losses recognised in the consolidated income statement in respect of carrying amount of investment, goodwill, license and property, plant and equipment amounted to AED 2,825 million. Impairment losses in relation to the Group’s investments in PTCL amounted to AED 2,366 million is charged against the carrying amount of the investment. Impairment losses in relation to the Group’s investments in Canar of AED 459 million relates to goodwill of AED 337 million and property, plant and equipment of AED 122 million. Impairment losses were primarily driven by increased discount rates as a result of increases in inflation in the operating countries and challenging economic and political conditions, as well as by the downtrend in real estate prices combined with the negative local currency fluctuation.

Operational Highlights

Profit and Loss Summary

(AED m) FY’11 FY’12 YoYRevenue 32,242 32,946 +2%EBITDA 15,882 16,855 +6% EBITDA Margin 49% 51% +2pp Federal Royalty 5,839 6,451 +10%Net Profit 5,839 6,742 +15%Net Profit Margin 18% 20% +2pp

Balance Sheet Summary

(AED m) FY’11 FY’12Cash & Cash Equivalents 9,972 13,934Total Assets 72,892 80,146Total Debt 6,696 5,806Net Cash 3,276 8,128Total Equity 41,704 46,275


Cash flow Summary

(AED m) FY’11 FY’12Operating 7,481 10,486Investing (2,552) 111Financing (5,387) (6,663)Net change in cash (459) 3,934Effect of FX rate changes 154 28Ending cash balance 9,972 13,934

Reconciliation of Non-IFRS Financial MeasurementsWe believe that EBITDA is a measurement commonly used by companies, analysts and investors in the telecommunications industry, which enhances the understanding of our cash generation ability and liquidity position, and assists in the evaluation of our capacity to meet our financial obligations. We also use EBITDA as an internal measurement tool and, accordingly, we believe that the presentation of EBITDA provides useful and relevant information to analysts and investors.

Our EBITDA definition includes revenue, staff costs, direct cost of sales, regulatory expenses, operating lease rentals, repairs and maintenance, general financial expenses, and other operating expenses.

EBITDA is not a measure of financial performance under IFRS, and should not be construed as a substitute for net earnings (loss) as a measure of performance or cash flow from operations as a measure of liquidity. The following table provides a reconciliation of EBITDA, which is a non-IFRS financial measurement, to Operating Profit before Federal Royalty, which we believe is the most directly comparable financial measurement calculated and presented in accordance with IFRS.

(AED m) FY’11 FY’12EBITDA 15,882 16,855Depreciation & Amortization (3,388) (3,385)Exchange gain/(loss) (216) (58)Share of results of associates and Joint ventures 1,208 1,263Impairment losses (3,044) (2,825)Operating Profit Before Federal Royalty 10,442 11,851

28

Etisalat UAE continues to introduce innovative services across the country creating value for its customers

Middle East - Etisalat UAE

Management Review

In 2012, Etisalat UAE focused on several strategic fronts to support its market leadership and future prospects. This included improving the quality of service, enhancing governance and processes, building capabilities, and automating systems and tools, while maintaining a focus on key commercial imperatives to improve its competitive advantage.

The company managed to further establish its leadership in the mobile segment by introducing innovative solutions and products to the market and launching aggressive promotions. Etisalat was the first to introduce a “Rollover Minutes” option for all postpaid customers, which allows them to keep their unused monthly minutes until the following month. This offer extends the validity of local or international unused minutes included in all bundled plans.

Given its aspiration to achieve mobile broadband leadership, the company revamped its offerings to become simpler, more affordable, and more tailored to customer needs of various segments. Mobile data usage was maximised with the 4G LTE Mobile Wi-Fi. Additionally, several smart handsets were launched (iPhone 5, Samsung Galaxy SIII, HTC 1X, Blackberry Curve 9320) and value for money competitive data packages were introduced. As a result of these efforts, the company’s broadband customer base witnessed a steady increase, positioning Etisalat as the No 1 operator in the Middle East for broadband growth.

Another key focus of 2012 was monetising the fiber investment by migrating fixed line subscribers to double play and triple play eLife services. The look and feel of eLife TV was enhanced with added interactive features for triple

play users with over 350 TV channels. As a result, the eLife segment grew significantly by 46 per cent to over 500,000 subscribers.

In 2012, Etisalat UAE continued to introduce innovative services across the country in order to create value for its customers. As leaders in home entertainment, Etisalat was the first in the UAE and the region to bring 3D to its customers with the broadcast of the 2010 FIFA World Cup. In 2012, the company once again introduced a first by launching a dedicated 3D entertainment and lifestyle channel, which substantiates its commitment to offering the best-in-class TV service to its viewers.

Etisalat has started SIM card registrations for its customers in line with the ‘My Number, My Identity’ campaign launched by the UAE’s Telecom Regulatory Authority (TRA). The process has taken off smoothly as planned. Trained and professional teams at Etisalat’s Business Centers and Outlets in the UAE ensured quick and easy registration for its customers. All channels and points of sales have been provided with new equipment and systems to handle the process.

In addition, Etisalat expanded its roaming agreements to over 721 operators worldwide, which allowed the corporation to increase inbound roaming traffic and enhance voice roaming aspects, thereby enhancing its customer experience.As for network investments, the focus in 2012 was on enhancing customer experience by ensuring capacity, expanding coverage and improving the network quality. As a result, Etisalat expanded the LTE network coverage

to over 82 per cent of the population. FTTH roll out progressed to reach 1.5 million home pass. In addition, Etisalat completed the highest 4G LTE speed test in the world, which reached 300 Mbps. This lightning-fast speed is a breakthrough for the international telecommunications industry and establishes Etisalat as a global leader in mobile broadband.

In 2012, Etisalat ICT solutions, in partnership with Attinad Software, developed a tablet and smartphone based patient management solution for the Friends Of Cancer Patients Association (FOCP). The new Mobile Health Patient Management Solution has been developed in line with the company’s strategy to leverage on the advancements of mobile technology to improve the quality of healthcare through real time, collaborative clinical information sharing. It will enable easy patient registration, examination, and record management and help FOCP to conduct dynamic surveys using the application, then analyse the survey response through graphical dashboards.

In 2012, Etisalat continued to look at ways in which to further enhance the high level of customer service that it offers to its customers. With the launch of the Unified Complaint Management System (UCMS), Etisalat is now equipped to handle and accelerate the resolution of complaints from all customers – both consumer and business, with increased efficiency and accuracy. UCMS elevates Etisalat’s complaint management capabilities to international standards through a number of major changes.

It also launched the ‘Prestige Programme 2012,’ which is designed to ensure that the company’s most valued customers


consistently receive the very best of service and privileges. The features of the programme include priority handling by a dedicated team when calling customer care, free mobile back up service, concierge services and medical advice.

In November 2012, Etisalat introduced a new per second billing plan in the UAE, which offers its discerning Wasel prepaid customers higher savings on both local and international calls. This simplifies the billing process and maximises savings for the customer, making it easy to calculate the cost of each local or international call.

Etisalat’s employees continued to be one of the company’s main assets. In 2012, career development and specialised training opportunities were offered to its UAE national employees as part of the company’s ongoing commitment to

developing future leaders and nurturing national talent.

As part of its ongoing CSR activities, Etisalat UAE supported, and contributed to, many different initiatives through sponsorships and donations for sports, educational, health, community and charitable events held across the country and on an international level.

Etisalat is very aware of the need to reduce energy consumption. This not only cuts power costs for businesses but also lowers the UAE’s carbon footprint. Accordingly, its commitment to finding solutions to reduce energy consumption and achieve cost savings is already achieving results through its recent MOU with Sheikh Khalifa Medical City, which is managed by Cleveland Clinic in Abu Dhabi.

Etisalat is dedicated to supporting initiatives that engage and encourage all members of UAE society to progress, particularly in sports, where they are represented on an international level. Etisalat recognises the special efforts of all athletes to overcome obstacles to achieve success and represent the UAE with pride and honor. Therefore, Etisalat extended their support to the UAE National Paralympics Team, which represented the UAE at the London 2012 Paralympics Games.

30

Management Review


Mobily is a regional leader in innovation. Its reputation has been built on its strong technical capabilities,

collaborative partnerships, and an increasing emphasis on the generation and nurture of new ideas

Middle East - Mobily

Of the many market innovations in 2012, a service that was launched to allow Hajj and Omrah returnees to donate their unused credit to charities in Saudi Arabia was one of the most noteworthy. Additionally, an i-Bill feature was offered to subscribers so that they can benefit from detailed and timely billing. Mobily, in collaboration with IBG Star, also launched the m-health product suite, which allows customers to monitor their blood glucose levels on the go for seamless diabetes management.

In 2012, Mobily established a partnership agreement with IBM Global, through which the company will provide comprehensive IT solutions. In addition, partnerships were established with Korea Telecom (KT) and global healthcare leader Sanofi, to facilitate joint projects and new product development through collaborative innovation.

In keeping with the company’s ethos of excellence in customer service, Mobily implemented The Customer Experience (CEX) programme, which was designed to improve overall customer service across all touch points. Through this

programme, a number of milestones were achieved, including a reduced average waiting time in retail stores by 11 per cent and increased call handling within the call centre by 19 per cent.

In order to maintain its leadership in the mobile data segment, Mobily continued to expand its network infrastructure with the latest and most advanced technologies. The advanced 4G network now covers more than 4,500 new sites. This highly developed network will further enhance the performance efficiency of the Mobily network.

Finally, in 2012 Mobily launched a new platform for its employees to propose ideas in response to business challenges. The “innovate Mobily” platform helped generate over 650 ideas and led to an increase in employee engagement.

32

Management Review

Middle East - Etisalat Egypt

Egypt’s mobile market continued to witness impressive growth in 2012. It was estimated that by the end of 2012 Egypt had 99 million mobile subscribers; industry experts expect this figure to double by 2018

Etisalat Misr offered competitive products to its subscribers during 2012 in order to capitalise on the country’s growth potential, and the introduction of various roaming packages was a prominent trend. One promotion offered subscribers the opportunity to roam on local data rates when visiting Saudi Arabia or the UAE, while during Ramadan customers received lower rates when using their roaming service in Saudi Arabia. In addition, Etisalat Misr leveraged its relation with the Etisalat Group to benefit from its agreement with iPass, which owns more than 1 million hotspots worldwide. This offers Etisalat Misr’s customers a more feasible solution when roaming abroad.

As per trends in more advanced markets, it is predicted that a strong broadband uptake is expected in Egypt. Etisalat is well positioned to benefit from this opportunity given its advanced network.

It will commercially launch a 42 Mbps HSPA+ after completing field testing. It is also the first company in the MENA region and the second worldwide to trial an 84 Mbps HSPA+ connection, extending its market leadership position on the technological front.

The company launched a fully-fledged, self-care account management system called Saytar. The application is the first of its kind in Egypt and enables customers to view their bills, submit customer complaints, report network issues and locate payment spots, among other features. The company also recognised the need to address Egypt’s shortage in low value coins, and introduced new recharge cards of the low denominational values of EGP 0.5, 1 and 1.5. Etisalat Misr further expanded its extensive CSR activities through the implementation of Origin – the largest water-related CSR initiative in Egypt, which aims to provide clean water to more than 100,000 Egyptian homes in a very short space of time. In 2012, the award-winning programme succeeded in providing 3,000 water connections to 30,000 people, nine water purifications stations to serve 50,000 people, 6,500

metres of irrigation channels to serve 15,000 people, seven kidney dialysis purification units to increase the efficiency of 70 kidney dialysis machines by 33 per cent, and 12 kidney dialysis machines to help 4,100 patients every month.

Etisalat Misr also continued to encourage its own employees to participate in philanthropic causes. Members of staff were asked to volunteer to donate part of their income in an initiative named Giving Back – Proud to Help Egypt. The proceedings were then donated to Egyptians living below the poverty line in order to address issues such as medical treatment and the provision of food.

The company also made major contributions to help Egypt become more energy efficient. Etisalat Misr adopted a Go Green initiative, through which it built 40 sites powered by renewable energy sources, and plans to deploy 100 solar energy sites and 100 hybrid sites by Q1 of 2013.

Etisalat Misr continued to develop innovative, customer-centric solutions that help make life easier for its subscribers.


In October 2012, Thuraya launched the Thuraya XT-Hotspot, which is the world’s fastest handheld hotspot. Building upon the success of its Thuraya XT handheld, the industry’s most popular and toughest satellite phone, Thuraya launched the XT-Hotspot, which is a pocket-sized router that creates a Wi-Fi zone for multiple users to connect smartphones, laptops, and tablets to the internet over Thuraya’s mobile satellite network. The XT-Hotspot is the only Wi-Fi router on the market offering a plug and play solution, enabling easy and affordable internet access with the fastest satellite data speeds on a handheld of up to 60 kbps in the most remote of areas.

In early 2012, Thuraya launched its Thuraya XT-DUAL which is the world’s first ever GSM/Satellite dual mode mobile satellite phone. It is the most advanced dual mode handheld phone featuring both GSM and satellite capabilities. The introduction of this innovative device uniquely positions Thuraya as the only satellite operator to offer seamless communications. The phone provides users with the flexibility and freedom to switch between GSM and satellite modes. With a growing subscriber base of voice consumers, one of the world’s most powerful networks, and a robust reputation for high-performance and compact

handhelds, Thuraya continues to present an unprecedented consumer experience through the new, state-of-the-art XT-DUAL phone.In July, Thuraya established a Point Of Presence (POP) and Meet Me Point (MMP) in Singapore, further enhancing the performance of its high-speed broadband terminal, Thuraya IP, in the region. Thuraya deployed the infrastructure to allow users in Asia to streamline and relay encrypted data to end destinations with guaranteed service quality. In addition, Thuraya strengthened the sales distribution network in Africa and Asia by partnering with new service providers in these regions.

Thuraya launched its roaming service in the US in partnership with the mobile operator T-Mobile. The new roaming service allows Thuraya subscribers to roam seamlessly with their Thuraya mobile numbers across the T-Mobile network, which reaches 96 percent of the US. Thuraya customers in the region can now make and receive calls, and also send and receive text messages. The company’s GmPRS roaming service will be enabled afterwards on the T-Mobile network. With more than 350 roaming partners worldwide, Thuraya is the only mobile satellite operator offering roaming services over GSM networks.

This facility is particularly beneficial to travellers who want to remain connected all the time. In a partnership with GTNT, Thuraya now provides uninterrupted satellite communications services across Russia to federal, departmental and corporate users in energy, petrochemical, construction, logistics, forestry, relief and media sectors. GTNT is Thuraya’s exclusive Service Partner in Russia, authorised to distribute company products, solutions and services across the country.In October, Thuraya was awarded the first ever ITU Humanitarian Award at the ITU TELECOMS World Conference in Dubai for the company’s contribution to providing mobile satellite communication services in times of emergency and disaster relief operations. Thuraya provides Thuraya handhelds and broadband terminals free of charge along with subsidised tariffs to the ITU to deploy to countries in need of emergency communications support. Once Thuraya learns of a disaster, it proactively contacts local governments and the ITU to offer support vis-à-vis by supplying the company’s mobile satellite handhelds and in some instances Dynamic spot beam reallocation.

Thuraya Despite a general slowing down of the overall mobile

satellite services market, Thuraya has bucked the trend and achieved a healthy year-on-year growth

3434

Atlantique Telecom continued to offer innovative products throughout 2012

Africa - Atlantique Telecom

Management Review

Following the successful launch of the Moovpassport in 2010, which allowed customers to roam at special rates across West and Central Africa, new offers were designed to address specific subscriber needs. Moov Hadj Roaming was launched to enable customers to enjoy low flat rates for both calls and SMS while travelling to Mecca.

In 2012, Atlantique Telecom acquired the 3G license in Ivory Coast – a major achievement that will enable faster mobile broadband connections to be launched, as well as a broader range of products and services. The company made a major network roll out during the year and aims to begin offering the services at the beginning of 2013.

Healthcare has been a particular focus for Atlantique Telecom and its operations across Francophone Africa. The company introduced the first cross-border collect calling service in Africa, as well as an

airtime advance service that allows customers to request advance credit for emergency use.

Atalntique Telecom also began to target the youth segment through the introduction of Epiq Nation – a mobile package that brings a number of benefits to young subscribers.

To address the challenge of connectivity in the Central African Republic, Atlantique Telecom introduced a high-speed internet service to the market. The offer is very competitively priced and non-binding, meaning subscribers can opt out whenever they choose to.

In keeping with the company’s customer-centric ethos, Atlantique Telecom continued to introduce services and initiatives that are designed to ensure customer satisfaction. 150 new Moov points of contact were opened across the company’s footprint, bringing

more proximity to Atlantique Telecom’s customers and assisting in delivering superior customer service. A customer satisfaction survey was also introduced in order to track customer perception, and improve the quality of Atlantique Telecom’s service.

The company further strengthened its CSR initiatives in 2012. At Etisalat Benin, employees donated blood for the National Blood Transfusion Centre, while Moov Gabon partnered with the Rotary Association to raise awareness on the importance of blood donation among the Gabonese population.

35Annual Report 2012 35Annual Report 2012

Etisalat continued to focus on ensuring it provides the best possible network quality to its subscribers.

Africa - Etisalat Nigeria

In 2012, Nigeria became Africa’s biggest mobile market with more than 90 million subscribers.

Despite this statistic and the large number of operators in the country, market penetration is still at a low 60 per cent, providing ample opportunity to Etisalat Nigeria for growth and expansion. Nigeria is the most populous country in Africa, which further augments this potential.

The company signed a deal with Alcatel-Lucent in order to build 1,000 base transceiver stations in 2013, which will further ensure this quality isn’t compromised. The Etisalat network currently covers 77 per cent of the Nigerian population.

During 2012, Etisalat Nigeria continued to expand its operations and subscribers base, which led to the company achieving a market share of 14 per cent; it also captured more than 30 per cent of net subscriptions. In order to stay ahead of what is a competitive market, Etisalat introduced a number of innovative products to customers, which help drive the country’s telecommunications sector forward and, in turn, empower consumers and communities.

One such product is Easy Wallet – a SIM application that allows customers to execute mobile money transfers across

multiple banks and money schemes. The total value of mobile money transfers in Nigeria reached NGN 228mn in 2012 and is expected to hit NGN 151BN by the end of 2015. There is therefore a gap in the market for innovative solutions that will offer consumers easy alternatives to visiting money transfer agents.

Easy Wallet features a user-friendly interface that is preinstalled in all Etisalat SIM cards and provides easy access to the subscriber’s preferred mobile wallet or bank account. Through this service, the user is able to seamlessly send money to other phone numbers and bank accounts.

Etisalat’s primary focus is the country’s youth segment, which accounts for one third of Nigeria’s population. Mobile packages such as Easy Cliq offer the young subscriber a number of benefits such as free midnight calls and an innovative Facebook platform that allows users to update their statuses via SMS or MMS.

The importance of Wi-Fi has continued to grow globally, with the industry moving toward new standards to make it easier for individuals to access networks at home and abroad. In keeping up with market trends, Etisalat is leveraging the agreement between Etisalat Group and iPass to develop a suitable Wi-Fi roaming offering to its subscribers. This

will enable subscribers in Nigeria to use their smartphones, tablets and laptops to connect to the internet while on the go.

In order to enhance its customers’ experience, Etisalat Nigeria implemented the “Next Best Action” programme. Its objective is to enable sales through customer service, generating significant new revenues and reducing churn. This can be accomplished by leveraging every inbound contact as a sales opportunity, generating incremental revenues by promoting contextualised and personalised offers, and implementing a new incentive scheme for front-end agents.

Internally, Etisalat Nigeria continued to offer a world-class working environment for its employees. The company launched its staff recognition scheme, Empact, which is designed to reward employee’s actions, efforts and behaviours. Since then, select Etisalat Nigeria employees have been formally recognised by supervisors, peers and subordinates within and outside their departments and divisions, for living and modelling the company’s values while contributing actively, positively and productively to the business.

36

Management Review

A major success for Zantel continues to be the Epiq Nation youth offer

Africa - Zantel

Which combines lifestyle offers with local businesses. The campaign was further strengthened by expanding Epiq into a talent search television programme, the Epiq Bongo Star, which attracts a weekly viewing audience of 70 per cent of the Tanzanian population. As well as television, the Epiq offer engages with consumers through Facebook and live music concerts creating maximum appeal for young people across the country.

In line with continuing to offer innovative solutions to the Tanzanian market, Zantel launched Epiq Moto. Due to the high cost of calling subscribers on different networks, the majority

of the country’s telephone calls take place through the internet. Zantel therefore developed this package to enable mobile subscribers to call customers on any network at one standard rate. This product has assisted the company in gaining further market share, and has helped drive Tanzania’s telecommunications sector forward through presenting customers with a solution that is not currently offered by any other network.

In 2012, Zantel expanded its CSR portfolio with several community sponsorships. Recognising the potential of youth, the company teamed up with Benchmark Production to sponsor Epiq

Bongo Star – Tanzania’s biggest talent search programme. This programme helps discover new singing talent through auditions, with winners receiving record deals and assistance in building their professional music careers. Similarly, Zantel created a grassroots football tournament that will enable talented players to showcase their skills and gain exposure. The company rounded off its community activities by donating motorcycles to the Zanzibar police force.

Extended WiMAX offer to residential and SME segments

Africa - Canar

With a relatively low mobile penetration rate and limited presence of fixed-line services, there is continuing scope for Canar to expand within Sudan’s telecommunications market.

Capitalising on 2011’s successful launch of the WiMAX service, which was initially offered to business segment, in 2012 Canar extended the offer to residential and SME segments. This high-speed internet connection has a low initial cost investment, as well as a low monthly payment, offering excellent value to the subscriber. In addition, Canar is taking major steps to address the need of the corporate sector by expanding the scope of its service to include the provision of IT solutions.

In 2012, Canar launched its new corporate website. Recognising the importance of social media in engaging customers,

both existing and prospective, Canar also extended their social media presence to include LinkedIn, in addition to the Facebook and Twitter pages that were launched earlier in the year.

Canar recognises that in order to retain customers it is important to ensure staff are fully trained and able to handle queries effectively and efficiently. As part of the company’s ongoing commitment to staff training, an internal awareness programme was implemented, during which skilled team members from all departments led workshops on the tasks and activities of their segment. This presented staff with the opportunity to become more aware of the organisation’s structure and learn how to improve departmental

interrelationships. Additionally, the Canar Weekly Internal Newsletter was launched in order to improve employee awareness, as well as ensure that staff are fully updated on local and international industry media news.

The company also continued to implement initiatives to ensure staff efforts are fully recognised and rewarded. The company launched a number of key incentives, such as the ‘Employee of the Month’ scheme, which was initiated in order to award employees who demonstrate exceptional effort in their duties.


The company was the first operator to acquire a 3G license and launch 3G services in the country

Asia - Etisalat Afghanistan

The telecommunications market in Afghanistan has experienced positive momentum over the past two years despite the country’s sometimes-challenging conditions

The mobile market continued to expand positively, with an estimated growth rate of 25 per cent and a mobile penetration rate at a high 50 per cent. The internet market is also growing steadily.

Etisalat Afghanistan continued to roll out technological upgrades and innovative products to the market in 2012. The company was the first operator to acquire a 3G license and launch 3G services in the country. Major network deployment and rollout was made in 11 provinces allowing the introduction of new products and services; 120,000 customers are currently using the service.

The Talk for Free bundle promotion continued to do well in the market and now has more than 200,000 subscribers enjoying its benefits. The bundle enables customers to call their families and friends who are also on the Etisalat network at rates that are affordable and not offered elsewhere in the market.

In addition, a mobile money platform was launched allowing subscribers more convenience in paying their utility bills and the ability to transfer money securely within the country.

Internally, the focus on human capital continued and a number of training programmes were offered to current and prospective employees. The Graduate Training Programme was designed in order to recruit fresh graduates from some of the country’s top universities and train them on all aspects

of the business. Similarly, through the National Internship Programme the company hires interns from three top universities for three months annually. This is the first corporate internship programme in Afghanistan, showing how Etisalat is helping to cultivate and inspire the country’s young talent.

On the CSR front, another annual Quran recitation competition was held; the winner of each year’s event then represents the country in the international final that is held in the UAE. In 2012, a food distribution service was also organised during Ramadan and the company sponsored the women’s national volleyball team, as well as the country’s national cricket team.

Asia - Etisalat Lanka

The new store launch forms part of the company’s strategic plan to expand operations and coverage in Sri Lanka and offer solutions that enhance the country’s telecommunications market.

The company also continued to lead the way with creative solutions specifically in data and mobile broadband. Etisalat became the first operator in the country and South Asia to introduce the Duel Carrier HSPA+ network, enabling its customers to experience the best mobile broadband speeds in the country. Etisalat Lanka was also the first to introduce

a number of new handsets to the Sri Lankan market, ranging from Apple to Samsung. In addition, Etisalat launched the first eBook hub and first e education web, which was endorsed by the Education Ministry of Sri Lanka.

The company won the highest tally of awards at this year’s GEMAS Effie MENA Awards ceremony in Dubai, taking a total of five Effies. Etisalat Lanka was awarded with two Silver Effies for their ‘Play’ and ‘Easy Loan’ campaigns, while the ‘Android,’ ‘Northern SIM’ and ‘Web Patashala’ campaigns each won Bronze.

The awards reflect how the industry recognises the company’s efforts in developing innovative products that empower the local community.

The customer service call centre continues to be a hallmark of dedication to subscribers. In 2012, the call centre maintained its very low call abandon rates, as well as its short call answering times and short issue resolution times.

Inasignificantmove,EtisalatLankalaunchedits first flagship store in Sri Lanka, serving as a one-stop

shop for customers to purchase and subscribe to products and services

38

Management Review

PTCL (Pakistan)

As the only integrated telecommunications company in Pakistan, PTCL continued to provide a broad range of services that include basic voice telephony, wire-line and wireless data services, broadband internet, video-conferencing and carrier services to consumers and businesses alike.

In 2012, PTCL further enhanced its customer service experience by improving the internet connectivity for all its existing and new broadband subscribers. This was done through upgrading the speed of its 1Mbps and 2 Mbps connection to 2Mbps and 4Mbps with a minimum increase in price.

The company was recognised for its outstanding wireless service and awarded the Best Wireless Broadband Brand of Pakistan at the 7th Annual Consumer Choice Awards. A major focus in 2012 was driving broadband business. As

a result, PTCL invested in its access network; two million copper lines were made broadband enabled. Broadband revenue grows year on year by 58 per cent, while subscriber numbers grow by 43 per cent.

PTCL also launched a number of cutting-edge telecommunications solutions to the market to ensure it continues to offer its low-income population innovative products. The One Wire Does It All Package, which was released in 2012, offers subscribers a multiple range of services through a single landline connection. These include unlimited on-net calling, unlimited broadband downloads, mobile calls at Rs. 1.25 per minute, IPTV service charges waiver, line rent waiver and a free Wi-Fi modem.

Internally, the company provided opportunities to educated and unemployed youngsters through a paid

internship programme. PTCL initiated an open competition and rigorous selection process, which led to 500 candidates being selected to join a number of the company’s departments, including technical, sales and marketing, finance and HR.

In an effort to optimise cost, PTCL offered its non-management staff in certain selected departments a Voluntary Separation Scheme (VSS), which 6,000 employees opted for.

As part of its extensive CSR activities, PTCL donated Rs. 9.7 million worth of medical equipment to a hospital in Islamabad, as well as Rs. 2.3 million to Pakistan Sweet Homes, which is a facility for orphaned children.

PTCLhasPakistan’slargest and fastest growing 3G EVDO wireless broadband network, which covers more than 250 cities and towns across Pakistan.


Ufone (Pakistan)Ufone continued to innovate in the market

by introducing new services and product features during 2012

It introduced a Facebook feature on its USSD email service “MyMail” allowing subscribers to update their profile and view and comment on their friends’ statuses without the need for GPRS or the internet. In addition, Ufone was the only operator to launch the call monitoring service, “UMonitor,” which allowed the implementation of a whitelist on monitored numbers. Ufone was also the first to introduce an auto reply service allowing subscribers to play a customised message to their callers when they cannot answer a call.

In an effort to improve customer experience, Ufone began to control

the number of times its customers are contacted through promotional SMS. All SMS broadcasts are now controlled so that no customer receives more than one SMS in a day. This innovative solution has significantly reduced the number of customer complaints the company receives regarding promotional messages.

Internally, Ufone implemented a new employee orientation programme, which helps give new joiners a comprehensive overview of the company before they begin their duties. The orientation programme enables new entrants to become familiarised with their new working environment and the Ufone’s corporate culture.

On the CSR front, Ufone sent assistance in the form of a relief package to the flood hit areas of Dera Ghazi Khan and Rajanpur. The package included 500 tents and hygiene kits to cater to 1500 families, which were distributed equally between the two districts. A number of mobile public call offices were also set up in both areas so that those affected by the floods could call their families.

40

Etisalat Services Holding

Management Review

ESH’s business units have been serving small and medium enterprises (SMEs), large private corporations, as well as government entities, for many years with value added services and the execution of infrastructure projects.

ETISALAT FACILITIES MANAGEMENTRanging from GSM towers to skyscrapers, Etisalat Facilities Management (EFM) provides integrated Facilities Management solutions to more than 5,000 sites within the UAE. The company serves real estate, education, commercial, hospitality, IT, aviation and Islamic public sectors. The company conducts regular upgrades to stay on a par with the ever evolving global standards.

In 2012, EFM became the biggest facility management service provider to Musanada in Abu Dhabi, as well as the integrated service provider of the Sheikh Zayed Grand Mosque. The company has been MENA’s first and only specialised and fully integrated telecom facility management service provider since 2008 and the largest single energy management contract service provider in the Middle East.

ETISALAT REAL ESTATEEtisalat Real Estate (eRS) was established to facilitate the ownership and management of Etisalat properties and to maximise the business potential of these assets, which include prestigious high-rise buildings, regional headquarter buildings, telecommunications buildings, shelters and antenna supporting structures. With its dedicated approach to managing commercial and technical buildings, eRE is one of the region’s foremost and most experienced real

estate development and management companies.

eRS reengineered the internal management process through the introduction of TRIRIGA – a real estate portfolio management system that is capable of managing records of all land sites, buildings, structures and floors, including graphical drawings, with the breakdown of space use at floor level. It also allows complete space management planning and automated relocation management.

TAMDEED PROJECTSTamdeed Projects was established in 1996 under the name of Special Projects to provide high-end turnkey solutions for all aspects of the cabling infrastructure business. Over the years the company has used its expertise, reliability and professionalism to cater to a number of projects in the UAE and abroad.

Today, Tamdeed Projects stands as a leader in the UAE for outdoor fibre network solutions and is a key player and integrator for indoor structured networks and in-building solutions. By continuing to focus on innovation, expansion and development, Tamdeed Projects is now working towards becoming a UAE and GCC leader in the ICT market, and establishing itself as the preferred and reliable partner for delivering end-to-end ICT turnkey solutions.

E-MARINEE-marine was established early 1984 and since then has enjoyed an impeccable track record of successfully completing numerous projects of local and international importance. Besides being a market leader in Telecommunication Submarine Cables, e-marine also

provides a complete range of solutions in offshore energy and communication cables. Submarine cables play a vital role in telecommunication services and electrical power transmissions by providing cost-effective solutions to customers who require basic as well as advanced facilities in the industry.

Apart from its core activities of submarine cable installation and maintenance, e-marine provides sophisticated storage facilities for submarine cables and accessories in a controlled environment, and in accordance with the highest international jointing standards. These standards, applied to e-marine storage facilities, guarantee longer storage life for the cables.

ETISALAT INFORMATION SERVICESWithin the Business Information domain, Etisalat Information Services (EIS) has been the leading directory provider in the UAE since the publication of its first directory in 1976, offering its services in print, online and mobile format. It publishes the annual white and yellow pages telephone directories for residential and commercial usage. In 2012 it unveiled its new directory Daleel Al Seha – a unique health and wellness guide. EIS is the exclusive owner of the Yellow Pages ™ and Walking Fingers Design ™.

In an effort to extend reach of its products to the maximum number of multi-lingual customers, EIS introduced the Arabic domain name YP.ae (safhatsafraa.emarat) to facilitate easy access offor Arabic speakers.

EBTIKAR CARD SYSTEMSEbtikar Card Systems is a major provider of smart card solutions in the UAE.

Etisalat Services Holding (ESH) is a UAE-based company that provides strategic direction and corporate support to eight independent business units that work in a wide spectrum of industries

41Annual Report 2012 41Annual Report 2012

Established in 1996 to fulfill the growing demand for card and application needs, Ebtikar today offers telecommunication operators and organisations worldwide solutions to deliver airtime and value-added services. Ebtikar’s services include OS development, standalone applications, and SIM management and solutions. The company also manufactures a wide variety of SIM cards, scratch cards and memory cards.

In its endeavour to innovate, Ebtikar constantly develops new products and services such as the eco-friendly SIM card – the LiM SIM (Less is More), and the Micro SIM card, which was first introduced to the Middle East by Ebtikar. The company’s ever expanding customer base now includes leading UAE projects as well as global businesses spread across the Middle East, Africa and Asia.

EMIRATES DATACLEARING HOUSEEmirates Data Clearing House (EDCH) is one of the leading clearing houses in the world, offering complete solutions to GSM operators. Established in 1994 as

one of the first data clearing houses in the Middle East, EDCH today successfully serves clients in Asia, the Middle East, Africa and Europe. Through customised and personalised solutions, EDCH offers both expertise and experience in billing, financial clearing and net settlement of GSM roaming. It constantly enhances its products to support the fast changing mobile industry and applies state-of-the-art solutions by offering services such as mobile money transactions and roaming hub services.

EDCH successfully established a partnership agreement with two new industry partners, Infobip and Telecom Live Content, in order to launch a new SMS and mobile money based service for current and potential mobile operator clients.

ETISALAT ACADEMYEtisalat Academy (ETAC) is the largest single-source provider of training and development solutions in the Middle East. For 30 years ETAC has been providing consultancy and human capital development services to organisations

across all industries and business sectors. ETAC’s partner network spans across two continents and delivers world-class training solutions to customers in the Middle East, Africa and Asia.

ETAC’s offers a wide range of services, from training and development programmes in business, technology and leadership, to consultancy services in the areas of recruitment, team building, performance management, assessment centres and career development.

In 2012, ETAC became the first and only training centre in the Middle East with an LTE Certification programme. It also received the Fiber Optic Association Certification and was approved as the largest training centre in the GCC. Addtionally, ETAC developed a partnership with IE Business School, which is ranked as the eighth best business school by the Financial Times Global MBA Rankings 2012. ETAC was also recognised for excellence in training at the annual Asia’s Best Employer Brand Awards 2012 – an award that it won for the second consecutive year.

Middle East

Asia

AfricaAtlantique Telecom, Moov - West Africamoov.comOperational in 6 countriesLicence type MobileEtisalat ownership 100%Population 61 millionPenetration rate 76% average across all countriesNumber of operators Mobile 2-6 per countryNetwork coverage, population 58%

EMTS – Etisalat Nigeriaetisalat.com.ngLicence type MobileEtisalat ownership 40%Population 165 millionPenetration rate 62%Number of operators Mobile, 5Network coverage, population 78%

Etisalat, UAEetisalat.aeLicence type Mobile,Fixed and internetEtisalat ownership 100%Population 8 millionPenetration rate Mobile 168% Fixed 24%,Internet 12% across all countriesNumber of operators 2Network coverage, population 100%

PTCL - Pakistanptcl.com.pkLicence type Mobile,Fixed and internetEtisalat ownership 23%Population 182 millionPenetration rate Mobile 70% Fixed 3%Number of operators Mobile -5, Fixed, 11 Network coverage, population 85%

Etisalat Lanka – Sri Lankaetisalat.lkLicence type MobileEtisalat ownership 100%Population 21 millionPenetration rate 101%Number of operators Mobile, 5Network coverage, population 74%

Etisalat, Afghanistanetisalat.afLicence type MobileEtisalat ownership 100%Population 32 millionPenetration rate 58%Number of operators Mobile, 4Network coverage, population 77%

Thurayathuraya.comLicence type Satellite telecommunicationEtisalat ownership 28%Population -Number of operators Satellite, 4Network coverage, population -Network coverage, geographical 140 countries

Etihad Etisalat (Mobily) – Saudi Arabiamobily.com.saLicence type Mobile & InternetEtisalat ownership 28%Population 29 millionPenetration rate 158% Number of operators Mobile, 3Network coverage, population 99%

Etisalat Misr - Egyptetisalat.com.ngLicence type Mobile & InternetEtisalat ownership 66%Population 84 millionPenetration rate 120%Number of operators Mobile, 3Network coverage, population 99%

Canar, Sudancanar.sdLicence type FixedEtisalat ownership 89%Population 34 millionPenetration rate Fixed 1 %Number of operators Fixed, 2Network coverage, population 31%

Zantel, TanzaniaZantel.comLicence type Mobile & InternetEtisalat ownership 65%Population 45 millionPenetration rate Mobile 49%, Fixed Line 0.4%Number of operators Mobile - 6, Fixed -2Network coverage, population 44%

42

Our International Presence

Management Review

Middle East

Asia

AfricaAtlantique Telecom, Moov - West Africamoov.comOperational in 6 countriesLicence type MobileEtisalat ownership 100%Population 61 millionPenetration rate 76% average across all countriesNumber of operators Mobile 2-6 per countryNetwork coverage, population 58%

EMTS – Etisalat Nigeriaetisalat.com.ngLicence type MobileEtisalat ownership 40%Population 165 millionPenetration rate 62%Number of operators Mobile, 5Network coverage, population 78%

Etisalat, UAEetisalat.aeLicence type Mobile,Fixed and internetEtisalat ownership 100%Population 8 millionPenetration rate Mobile 168% Fixed 24%,Internet 12% across all countriesNumber of operators 2Network coverage, population 100%

PTCL - Pakistanptcl.com.pkLicence type Mobile,Fixed and internetEtisalat ownership 23%Population 182 millionPenetration rate Mobile 70% Fixed 3%Number of operators Mobile -5, Fixed, 11 Network coverage, population 85%

Etisalat Lanka – Sri Lankaetisalat.lkLicence type MobileEtisalat ownership 100%Population 21 millionPenetration rate 101%Number of operators Mobile, 5Network coverage, population 74%

Etisalat, Afghanistanetisalat.afLicence type MobileEtisalat ownership 100%Population 32 millionPenetration rate 58%Number of operators Mobile, 4Network coverage, population 77%

Thurayathuraya.comLicence type Satellite telecommunicationEtisalat ownership 28%Population -Number of operators Satellite, 4Network coverage, population -Network coverage, geographical 140 countries

Etihad Etisalat (Mobily) – Saudi Arabiamobily.com.saLicence type Mobile & InternetEtisalat ownership 28%Population 29 millionPenetration rate 158% Number of operators Mobile, 3Network coverage, population 99%

Etisalat Misr - Egyptetisalat.com.ngLicence type Mobile & InternetEtisalat ownership 66%Population 84 millionPenetration rate 120%Number of operators Mobile, 3Network coverage, population 99%

Canar, Sudancanar.sdLicence type FixedEtisalat ownership 89%Population 34 millionPenetration rate Fixed 1 %Number of operators Fixed, 2Network coverage, population 31%

Zantel, TanzaniaZantel.comLicence type Mobile & InternetEtisalat ownership 65%Population 45 millionPenetration rate Mobile 49%, Fixed Line 0.4%Number of operators Mobile - 6, Fixed -2Network coverage, population 44%


44

Management Review


Human Capital

For example, 2012 saw the first high potential employees graduating from the Group-wide HiPo programme, with a second programme to be launched in 2013. The progamme is supported by world-class partners such as Duke University Corporate Education, Informa Telecoms Academy and Harvard Manage Mentor. Turnover of staff after attending such programmes is always a concern, but we are particularly proud that our employee retention after completing the programme is high at 96.3%, compared with the regional benchmark of 79.5%.

In a region where organisations still compete fiercely for the top talent, we have attracted many high performing employees into pivotal roles, and retained them. These roles include Finance, Strategy, M&A, Commercial, and the fast expanding Digital area. We use our Global Mobility programme to foster individuals’ growth and the sharing of knowledge Group-wide by providing opportunities for development across our footprint. This not only enhances employee retention, it also supports our succession planning activities as we develop our talent for future leadership positions. This is particularly important as we focus on supporting nationalization not only in the UAE, but in other countries that we operate such as Afghanistan, Saudi Arabia and Nigeria.

Employee satisfaction and engagement are critical as we strive to deliver an outstanding customer experience in all the markets we operate. 2011 saw the introduction of the first Global annual employee engagement survey to provide a baseline for all our operations, with the survey being conducted in 3 languages to facilitate a response from as many employees as possible. The results showed that as a company, Etisalat compared well against the benchmarks. As we wait for the receipt of the 2012 results, which was conducted in 8 languages, the indications are very positive as we have seen a major improvement in the response rate for the survey. This implies that staff feel they can provide their feedback and that such feedback will be acted upon.

Alongside delivering an outstanding customer experience, there is a need to deliver operational excellence in everything we do. This involves delivering maximum value as efficiently as possible. All HR departments are working as business partners, supporting other functions to achieve this aim. To help them in 2011, Group introduced its innovative HR Excellence scheme. This measures HRs functional capabilities in Etisalat’s Operating Companies (OpCos), and inspires continuous improvement.

Etisalat continues to invest in its people through a number of innovative talent development initiatives.

46

Corporate Social Responsibility


This included pledging its support to the principles of the United Nations Global Compact. The company has since reinforced its focus on important initiatives that help reduce the environmental impact of its business and that of its customers; increasing connectivity to the markets that need it most; and in providing value added and community-enriching services such as healthcare and education.

The key highlight for the year has been the success of Etisalat’s Mobily Baby Programme in Africa – a mobile health initiative that is supporting pregnant women in rural areas. The programme, which was launched in partnership with Qualcomm, Great Connections, and D-Tree International, has now saved hundred of lives, and is being offered in a number of countries, including Tanzania and Nigeria.

The Mobily Baby Programme has being recognised globally and has won several awards this year. These include two GSMA’s Global Mobile Awards, two International Business Awards in Seoul, and an award at the World Communications Awards in London.

The initiative has also captured the industry’s imagination. The Etisalat Group, along with other major operators, have joined hands to form a programme that will bring together the major African operators to work across borders to provide rudimentary healthcare services under the banner of the GSM’s Pan-African mHealth Initiative.

Etisalat’s commitment to the environment remains strong. In 2012, the company continued to promote the success of the Emirates Energy Star Initiative – a joint initiative with Pacific Controls that aims to cut the greenhouse emissions from buildings in the UAE. More than seven million square feet of facility space from 20 of the UAE’s largest companies are now being managed through the Emirates Energy Star Project. It is calculated that over 3,000 tonnes of CO2 emissions were eliminated in the first eight months of 2012, with participants seeing a 15 – 20 per cent reduction in electricity consumption. Etisalat Group has extended this strategic agreement with Pacific Controls to cover the company’s entire footprint and aims to roll the programme out in Saudi Arabia in 2013.

Etisalat is also in the process of pursuing tower sharing partnerships and deploying hybrid and alternative power solutions, including wind and solar power, across its footprint. Significant projects are currently under development in Nigeria, Egypt and Afghanistan. These programmes will not only ensure that emissions are reduced and improve Etisalat’s operating expenses, but will also provide greater resilience to the company’s services. By stabilising its power supply, Etisalat is meeting its requirements to its regulators, and protecting the brand’s reputation.

On the education front, most of the company’s operators continue to be engaged with their local education ministries. Notably in the UAE, the Ayaadi programme has been developed to support the local youth through a variety of projects, including the provision of an electronic library and the awarding of scholarships to gifted students. Similar worthy projects have been undertaken in Nigeria and Sri Lanka.

In 2012, the Etisalat Group’s sustainability and social responsibility strategy was transformed as the company undertook several commitments to

ensure that its efforts are better coordinated across all operations

48

Corporate Governance 2012

The General AssemblyThe General Assembly is composed of all the shareholders of the Corporation, and it exercises all its powers in accordance with the law and the Articles of Association. The General Assembly is entrusted with approving the Board’s Annual Report on the Corporation’s activities and financial position during the preceding financial year.

The General Assembly is also entrusted with appointing external auditors and approving their report, discussing and approving the balance sheet and the profit and loss account for the previous year, as well as the Board of Director’s recommendation with regards to the distribution of dividends.

Board of DirectorsThe Board of Directors carries out the Corporation’s business and for that purpose, exercises all powers of the Corporation, except those reserved by Law or the Articles of Association for the General Assembly of the Corporation.

The Board of Directors of Etisalat consists of eleven members, seven of which were appointed, including the Chairman of the Board pursuant to the Federal Decree No.74 of 2012, Appointing the Government’s Representatives in the Board of Emirates Telecommunications Corporation.

The other four members of the Board of Directors were elected by National (non-government) shareholders who holds 40% per cent of the Corporation shares.

The Corporation is committed to apply best practices and corporate governance standards, taking into account best international standards in this regard and the applicable laws in the UAE. Therefore, the Corporation, took into

account when composing its Board of Directors the requirements of Ministerial Resolution No 518 of 2009 Concerning Governance Rules and Corporate Discipline Standards with respect to the capacity of Board members, whereas all current Board members are non-executives and Independent members.

Committees of the Board of Directors:There are currently three Board Committees that have been established to assist the Board with its responsibilities, those Committees are (1) Audit Committee (2) Nomination and Remuneration Committee (3) investment and Finance Committee.

It is worth noting that during the past year, the Corporation made a comprehensive review of the way the Board Committees operates, their numbers, the charter of each Committee and renaming each one of them in accordance with Ministerial Resolution No 518 of 2009 Concerning Governance Rules and Corporate Discipline Standards.

Audit CommitteeAs the Corporation is committed to implement governance best international practice standards which are also compatible with applicable Laws and Regulation in the UAE, The Board of Directors has composed the Audit Committee to support him in discharging its duties.

The Audit Committee undertakes its duties in accordance with its Charter which comply with Ministerial Resolution No518 of 2009 Concerning Governance Rules and Corporate Discipline Standards, this Charter is considered to be a delegation from Board to the

Audit Committee to undertake the tasks mentioned therein which include the following:

• Ensuring the safety and integrity of the Corporation’s financial statements.

• Review and implement systems and internal control policies, and to supervise the Internal Control Department to ensure that it is undertaking its duties accurately.

• Monitoring the Corporation’s commitment to the laws and regulations.

• Developing and implementing a policy contract with the external auditor and ensuring its independence.

• Reviewing financial control systems and risk management.

The Committee’s Charter has clarified its duties in details and how it shall be comprised and the conditions to convene its meetings and the quorum for same, in addition to the way it shall take its decisions.

The Committee is comprised of three(3) non-executive and independent members of the Board of Directors, in addition to an external member experienced in accounting and finance, The Committee convene quarterly or whenever necessary.

Nomination and Remuneration Committee: To implement governance best practice, and in compliance with applicable Laws in this regard, the Board of Directors has composed the Nomination and Remuneration Committee to undertake its duties according to its Charter, which comply with Ministerial Resolution No


518 of 2009 Concerning Governance Rules and Corporate Discipline Standards. This Charter is considered to be a delegation from the Board of Directors to the Committee to discharge its duties mentioned therein.

The main objective of the Nomination and Remuneration Committee is to ensure that the Board of Directors is undertaking its duties diligently and is complying with Governance Rules and Discipline Standards. The Committee also is responsible of organizing the procedures regarding the Nomination to the Board of Directors and to constantly ensure that the independence of independent Board of Directors Members and to report to the Board of Directors in the event that an independent Board member lost his independency.

The Committee is further entrusted with developing policies with respect to determining the Corporation’s needs for talents at the level of executive management and employees as well as developing policies with respect to granting awards, incentives, Board Members Remunerations and Salaries of the Executive Management and employees in a manner that achieves the Corporation’s objectives and suits its performance.

The Committee’s Charter provided for the detailed powers of the committee and how to be constituted and formed, the terms of convention of its meetings, the required quorum for convention of its meetings and how to make its decision.

In the course of exercising its functions, the Committee shall take into consideration the competitive nature

of the Corporate Strategy and the fair compensations commensurate with the same to attract and retain talented employees for achievement of best results.

Nomination and Remuneration Committee comprise 4 non-executive independent members from the Board of Directors.

Investment and Finance CommitteeIn addition to the Audit Committee and the Nominations and Remunerations Committee provided for in the Ministerial Resolution No 518 of 2009 Concerning Governance Rules and Corporate Discipline Standards, the Board of Directors of Etisalat constituted the Investment and Finance Committee to assist the Board to carry out his functions related to Corporation’s internal and external investments. The Charter of the Committee defined the functions and duties assigned to the Committee and specified the cases where the Committee is entitled to make decisions as it deems appropriate. On the other hand it defined the cases where the Committee’s role is exclusive to issuance of recommendations for the Board to pass appropriate resolution thereon. This Charter is deemed an authorization by the Board for the Committee to carry out the functions and responsibilities stipulated therein.

The Investment and Finance Committee comprises 4 independent non-executive members from the Board Members. The Committee convened 6 meetings during 2012.

Operating Structure of the CorporationDuring 2012 Etisalat Group continued to implement its revised group structure which was commenced in 2009. The purpose was to manage its international expansion strategy, protect value from the Corporation’s United Arab Emirates operations, secure value creation from its fifteen international operations, and to gain the trust of its stakeholders by putting in place a solid structure and governance and adherence to best practices.

At the level of the United Arab Emirates, the Group organization structure features two autonomous Operating Units: Etisalat UAE Unit (which is entrusted with provisioning Licensed Telecom Services in the United Arab Emirates); and the Etisalat Services Unit (a wholly owned holding company entrusted with providing certain non-core, non-telecom services to the Corporation, as well as to third parties).

The Group exercises and sets its various activities and responsibilities and sets its key corporate policies, prepares plans, and monitors the operational and financial performance of its operating companies, and reports the same to the Board of Directors on a regular basis.

50

Independent Auditors’ Report to the Shareholders


Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated financial statements of Emirates Telecommunications Corporation (“the Corporation”) and its subsidiaries (together “the Group”) which comprise the consolidated statement of financial position as at 31 December 2012 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory RequirementsWe have obtained all the information and explanations considered necessary for the purposes of our audit. The Corporation has maintained proper books of account and has carried out physical verification of inventories in accordance with properly established procedures and the financial information included in the Chairman’s statement is consistent with the books of account of the Corporation. Nothing has come to our attention which causes us to believe that the Corporation has breached any of the applicable provisions of the UAE Federal Act No. (1) of 1991, as amended by Decretal Federal Code No. 3 of 2003, or of its Articles of Association, which would materially affect its activities or its financial position as at 31 December 2012.

Deloitte & Touche (M.E.) PricewaterhouseCoopersAbu Dhabi, United Arab Emirates Abu Dhabi, United Arab EmiratesMutasem M. Dajani

(Reg. No. 726)

Jacques E. Fakhoury

(Reg. No.379)

19 February 2013

52

Financials

Notes 2012AED’000

2011AED’000

Revenue 32,946,300 32,241,873

Operating expenses 5 (19,533,493) (19,964,444)Impairment losses 9 (2,825,365) (3,044,064)Share of results of associates and joint ventures 13 1,263,155 1,208,472 Operating profit before federal royalty 11,850,597 10,441,837 Federal royalty 5 (6,451,252) (5,839,019)

Operating profit 5,399,345 4,602,818

Gain on partial disposal of investment in an associate 14 860,138 - Finance income 6 721,111 696,057Finance costs 7 (322,938) (663,375)

Profit before tax 6,657,656 4,635,500

Taxation 8 (85,910) (25,352)

Profit for the year 6,571,746 4,610,148

Profit attributable to:The equity holders of the Corporation 6,741,818 5,839,019Non-controlling interests (170,072) (1,228,871)

6,571,746 4,610,148Earnings per shareBasic and diluted 34 AED 0.85 AED 0.74

____________________ ________________

Chairman Board Member

The accompanying notes on pages 60 to 107 form an integral part of these consolidated financial statements. The Independent Auditors’ report is set out on page 51.

Consolidated income statement for the year ended 31 December 2012


Consolidated statement of comprehensive income for the year ended 31 December 2012

2012AED’000

2011AED’000

Profit for the year 6,571,746 4,610,148

Other comprehensive loss Exchange differences on translation of foreign operations (735,385) (653,695) Loss on revaluation of available-for-sale financial assets (2,351) (59,560)

Total other comprehensive loss (737,736) (713,255)

Total comprehensive income for the year 5,834,010 3,896,893

Total comprehensive income attributable to:The equity holders of the Corporation 6,120,719 5,434,165Non-controlling interests (286,709) (1,537,272)

Total comprehensive income for the year 5,834,010 3,896,893


54

Financials

Notes 2012AED’000

2011AED’000

Non-current assets

Goodwill 9 7,523,132 1,872,893Other intangible assets 9 9,444,781 10,277,623Property, plant and equipment 10 25,572,642 20,613,995Investment property 11 41,681 42,775Investments in associates and joint ventures 9,14 6,325,335 16,999,448Other investments 15 1,451,495 364,806 Loans to associates 16 2,906,069 2,953,472Deferred tax assets 8 482,138 303,814

53,747,273 53,428,826

Current assetsInventories 17 422,756 345,219Trade and other receivables 18 11,533,817 8,732,715Due from associates and joint ventures 16 508,441 308,712Finance lease receivables - 12,673Other investments 15 - 91,850Cash and cash equivalents 19 13,934,076 9,971,647

26,399,090 19,462,816

Total assets 80,146,363 72,891,642

Consolidatedstatementoffinancialpositionasat 31 December 2012



Notes 2012AED’000

2011AED’000

Current liabilitiesTrade and other payables 20 20,487,584 17,944,597Borrowings 21 1,323,597 2,435,092Payables related to investments and license 22 3,005,899 2,967,240Finance lease obligations 23 5,980 59,261Provisions 24 643,569 778,494

25,466,629 24,184,684

Non-current liabilitiesTrade and other payables 20 698,541 651,802Borrowings 21 4,482,841 4,260,919Payables related to investments and license 22 67,369 -Derivative financial instruments 25 - 354,861Deferred tax liabilities 8 1,464,612 672,602Finance lease obligations 23 3,508 55,006Provisions 24 169,971 179,906Provision for end of service benefits 26 1,518,036 828,011

8,404,878 7,003,107

Total liabilities 33,871,507 31,187,791

Net assets 46,274,856 41,703,851

EquityShare capital 27 7,906,140 7,906,140Reserves 28 29,257,241 28,686,726Retained earnings 3,563,697 2,786,813

Equity attributable to the equity holders of the Corporation 40,727,078 39,379,679Non-controlling interests 5,547,778 2,324,172

Total equity 46,274,856 41,703,851

____________________ ________________Chairman Board Member

Consolidatedstatementoffinancialpositionasat 31 December 2012


56

Consolidated statement of changes in equity for the year ended 31 December 2012

Financials

Attributable to the equity holders of the Corporation Attributable to the equity holders of the Corporation

Reserves Reserves

Share capital

AED’000

Developmentreserve

AED’000

Assetreplacement

reserveAED’000

Statutory reserve

AED’000

Translation reserve

AED’000

General reserve

AED’000

Investment revaluation

reserveAED’000

TotalreservesAED’000

Retained earningsAED’000

Total shareholders’

equityAED’000

Non-controlling

interestsAED’000

Totalequity

AED’000

Balance at 1 January 2011 7,906,140 7,650,000 7,822,000 10,332 9,429 12,402,383 142,019 28,036,163 2,773,622 38,715,925 3,849,400 42,565,325

Total comprehensive incomefor the year - - - - (345,294) - (59,560) (404,854) 5,839,019 5,434,165 (1,537,272) 3,896,893

Other movements in equity - - - - - - - - (9,696) (9,696) (4,987) (14,683)

Transfer to reserves - 200,000 248,000 46,309 - 561,108 - 1,055,417 (1,072,448) (17,031) 17,031 -

Dividends (Note 33) - - - - - - - - (4,743,684) (4,743,684) - (4,743,684)

Balance at 31 December 2011 7,906,140 7,850,000 8,070,000 56,641 (335,865) 12,963,491 82,459 28,686,726 2,786,813 39,379,679 2,324,172 41,703,851

Balance at 1 January 2012 7,906,140 7,850,000 8,070,000 56,641 (335,865) 12,963,491 82,459 28,686,726 2,786,813 39,379,679 2,324,172 41,703,851

Total comprehensive incomefor the year - - - - (618,748) - (2,351) (621,099) 6,741,818 6,120,719 (286,709) 5,834,010

Other movements in equity (note12) - - - - (4,330) - - (4,330) (9,955) (14,285) 332,860 318,575

Transfer to reserves - - 38,000 40,920 - 1,117,024 - 1,195,944 (1,211,295) (15,351) 15,351 -

Consolidation of PakistanTelecommunication CompanyLimited (PTCL) ( Note 29)

- - - - - - - - - - 3,162,104 3,162,104

Dividends (Note 33) - - - - - - - - (4,743,684) (4,743,684) - (4,743,684)




Consolidated statement of changes in equity for the year ended 31 December 2012

Attributable to the equity holders of the Corporation Attributable to the equity holders of the Corporation

Reserves Reserves

Share capital

AED’000

Developmentreserve

AED’000

Assetreplacement

reserveAED’000

Statutory reserve

AED’000

Translation reserve

AED’000

General reserve

AED’000

Investment revaluation

reserveAED’000

TotalreservesAED’000

Retained earningsAED’000

Total shareholders’

equityAED’000

Non-controlling

interestsAED’000

Totalequity

AED’000

Balance at 1 January 2011 7,906,140 7,650,000 7,822,000 10,332 9,429 12,402,383 142,019 28,036,163 2,773,622 38,715,925 3,849,400 42,565,325

Total comprehensive incomefor the year - - - - (345,294) - (59,560) (404,854) 5,839,019 5,434,165 (1,537,272) 3,896,893

Other movements in equity - - - - - - - - (9,696) (9,696) (4,987) (14,683)

Transfer to reserves - 200,000 248,000 46,309 - 561,108 - 1,055,417 (1,072,448) (17,031) 17,031 -

Dividends (Note 33) - - - - - - - - (4,743,684) (4,743,684) - (4,743,684)


Balance at 1 January 2012 7,906,140 7,850,000 8,070,000 56,641 (335,865) 12,963,491 82,459 28,686,726 2,786,813 39,379,679 2,324,172 41,703,851

Total comprehensive incomefor the year - - - - (618,748) - (2,351) (621,099) 6,741,818 6,120,719 (286,709) 5,834,010

Other movements in equity (note12) - - - - (4,330) - - (4,330) (9,955) (14,285) 332,860 318,575

Transfer to reserves - - 38,000 40,920 - 1,117,024 - 1,195,944 (1,211,295) (15,351) 15,351 -

Consolidation of PakistanTelecommunication CompanyLimited (PTCL) ( Note 29)

- - - - - - - - - - 3,162,104 3,162,104

Dividends (Note 33) - - - - - - - - (4,743,684) (4,743,684) - (4,743,684)


58

Consolidatedstatementofcashflowsfortheyearended 31 December 2012

Financials

Notes 2012AED’000

2011AED’000

Operating profit 5,399,345 4,602,818Adjustments for: Depreciation 10, 11 2,670,013 2,574,038 Amortisation 9 714,725 813,802 Impairment losses 9 2,825,365 3,044,064 Share of results of associates and joint ventures 13 (1,263,155) (1,208,472) Provisions and allowances (15,873) 702,631 Dividend income from other investments - (15,056) Other non-cash movements 4,449 -

Operating profit before changes in working capital 10,334,869 10,513,825

Changes in working capital: Inventories 46,035 (23,951) Due from associates and joint ventures (198,345) (48,088) Trade and other receivables (1,516,093) (193,240) Trade and other payables 2,188,102 (2,443,761)

Cash generated from operations 10,854,568 7,804,785 Income taxes paid (188,627) (200,615) Payment of end of service benefits 26 (179,985) (123,354)

Net cash generated from operating activities 10,485,956 7,480,816

Cash flows from investing activitiesPurchases of property, plant and equipment (3,881,356) (4,093,060)Proceeds on disposal of property, plant and equipment 12,337 97,142Purchase of other intangible assets (282,992) (207,036)Proceeds on disposal of intangible assets 11,392 5,201Acquisition of other investments (124,164) -Cash acquired on consolidation of PTCL 29 1,452,608 -Proceeds from disposal of investment in associates 14 1,856,268 -Cash derecognised upon deconsolidation of Etisalat DB Telecom Pvt Ltd (EDB) 12 (654,926) -

Dividend income received from associates and other investments 1,006,038 751,021

Finance income received 715,784 894,318

Net cash from/(used in) investing activities 110,989 (2,552,414)



Consolidatedstatementofcashflowsfortheyearended 31 December 2012

Notes 2012AED’000

2011AED’000

Cash flows from financing activities

Proceeds from borrowings and finance lease obligations 1,404,134 4,958,802

Repayments of borrowings and finance lease obligations (2,547,119) (4,439,600)Loans to associates (335,996) (546,076)Finance costs paid (440,056) (616,899)Dividends paid (4,743,684) (4,743,684)

Net cash used in financing activities (6,662,721) (5,387,457)

Net increase/(decrease) in cash and cash equivalents 3,934,224 (459,055)Cash and cash equivalents at the beginning of the year 9,971,647 10,276,744Effect of foreign exchange rate changes 28,205 153,958

Cash and cash equivalents at the end of the year 19 13,934,076 9,971,647


60

1 General informationThe Emirates Telecommunications Corporation Group (“the Group”) comprises the holding company Emirates Telecommunications Corporation (“the Corporation”) and its subsidiaries. The Corporation was incorporated in the United Arab Emirates (“UAE”), with limited liability, in 1976 by UAE Federal Government decree No. 78, which was revised by the UAE Federal Act No. (1) of 1991 and further amended by Decretal Federal Code No. 3 of 2003 concerning the regulation of the telecommunications sector in the UAE. In accordance with Federal Law No. 267/10 for 2009, the Federal Government of the UAE transferred its 60% holding in the Corporation to the Emirates Investment Authority with effect from 1 January 2008, which is ultimately controlled by the UAE Federal Government. The address of the registered office is P.O. Box 3838, Abu Dhabi, United Arab Emirates. The Corporation’s shares are listed on the Abu Dhabi Securities Exchange.

The principal activities of the Group are to provide telecommunications

services, media and related equipment including the provision of related contracting and consultancy services to international telecommunications companies and consortia. These activities are carried out through the Corporation (which holds a full service license from the UAE Telecommunications Regulatory Authority valid until 2025), its subsidiaries, associates and joint ventures.

These consolidated financial statements were approved by the Board of Directors and authorised for issue on 19 February 2013.

2 Significant accounting policiesThe significant accounting policies adopted in the preparation of these consolidated financial statements are set out below.

Basis of preparationThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The consolidated financial statements are prepared under the historical cost convention except for the revaluation of certain financial instruments and in accordance with the accounting policies set out herein.

The consolidated financial statements are presented in UAE Dirhams (AED) which is the Corporation’s functional and presentational currency, rounded to the nearest thousand except where otherwise indicated.

Changes in accounting policiesThere are no Standards or Interpretations that were effective for the first time for the financial year beginning on or after 1 January 2012 that had a material impact on the Group.

At the date of the consolidated financial statements, the following Standards, Amendments and Interpretations which have not been applied in the consolidated financial statements were in issue but not yet effective:

Notestotheconsolidatedfinancialstatementsfortheyear ended 31 December 2012

Financials



Effective for annual periods beginning on or after

Amendments to IAS 19 Employee Benefits 1 January 2013

IAS 27 (revised 2011) Separate Financial Statement 1 January 2013

IAS 28 (revised 2011) Investments in Associates and Joint Ventures 1 January 2013

IFRS 9 Financial Instruments 1 January 2015

IFRS 10 Consolidated Financial Statements 1 January 2013

IFRS 11 Joint Arrangements 1 January 2013

IFRS 12 Disclosure of Interests in Other Entities 1 January 2013

IFRS 13 Fair Value Measurement 1 January 2013Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities 1 January 2014

Amendments to IFRS 1 – Government Loans 1 January 2013

Amendments to IFRS 7 – Disclosures – Offsetting Financial Assets and Financial Liabilities 1 January 2013

Annual Improvements 2009-2011 Cycle 1 1 January 2013

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities : Transition Guidance 1 January 2013

Amendment to IAS 1 Presentation of Financial Statements relating to presentation of items of other comprehensive income 1 July 2012

Amendment to IFRS 7 Financial Instruments: Disclosures relating to transition to IFRS 9 (or otherwise when IFRS 9 is first applied) 1 January 2015

Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements relating to investment entities and exemption of consolidation of particular subsidiaries

1 January 2014

The directors have assessed the full extent of the above standards and interpretations and concluded that the adoption of the standards listed above

will not have a material impact on the consolidated financial statements of the Group, except for some additional disclosures in the consolidated

finanancial statements in future periods and some parts of IFRS 9 which have not been issued as of the reporting date.

62

2 Significant accounting policies (continued)

Basis of consolidationThese consolidated financial statements incorporate the financial statements of the Corporation and entities controlled by the Corporation up to 31 December 2012. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has the power to control another entity.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests share of changes in equity since the date of the business combination. Total comprehensive income within subsidiaries is attributed to the Group and to the non-controlling interest even if this results in non-controlling interests having a deficit balance.

Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are excluded from consolidation from the date that control ceases.

Intercompany transactions, balances and any unrealised gains/losses between Group entities have been eliminated in the consolidated financial statements.

Where necessary, adjustments are made to the financial statements of subsidiaries to

bring the accounting policies used in line with those used by the Group.

Business combinations The acquisition of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the aggregate of the fair value, at the date of exchange, of the assets given, equity instruments issued and liabilities incurred or assumed. The acquiree’s identifiable assets and liabilities that meet the conditions for recognition under IFRS 3 Business Combinations, are recognised at their fair values at the acquisition date. Acquisition-related costs are recognised in the consolidated income statement as incurred.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets and liabilities exceeds the cost of the business combination, the excess is recognised immediately in the consolidated income statement.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Step acquisitionIf the business combination is achieved in stages,the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition

date; any gains or losses arising from such re-measurement are recognised in the consolidated income statement.

Associates and joint ventures Associates and joint ventures are those companies which the Group jointly controls or over which it exercises significant influence but it does not control. Investments in associates and joint ventures are accounted for using the equity method of accounting. Investments in associates and joint ventures are carried in the consolidated statement of financial position at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associates and joint ventures less any impairment in the value of individual investments. Losses of the associates and joint ventures in excess of the Group’s interest are not recognised unless the Group has an obligation to fund such losses. The carrying values of investments in associates and joint ventures are reviewed on a regular basis and if an impairment in the value has occurred, it is written off in the period in which those circumstances are identified.

Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the associates at the date of acquisition is recognised as goodwill and included as part of the cost of investment. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets of the associates at the date of acquisition is credited to the consolidated income statement in the year of acquisition.

The Group’s share of associates’ and joint ventures’ net income is based on the most recent financial statements or


Financials


interim financial statements drawn up to the Group’s reporting date. Accounting policies of associates and joint ventures have been adjusted, where necessary, to ensure consistency with the policies adopted by the Group.

Where a Group company transacts with an associate or joint venture of the Group, unrealised gains and losses are eliminated to the extent of the Group’s interest in the relevant entity. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment.

Dilution gains and losses arising on deemed disposal of investments in associates and joint ventures are recognised in the consolidated income statement.

Revenue Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for telecommunication products and services provided in the normal course of business. Revenue is recognised, net of sales taxes, discounts and rebates, when it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue and associated cost can be measured reliably. Revenue from telecommunication services comprises amounts charged to customers in respect of monthly access charges, airtime usage, messaging, the provision of other mobile telecommunications services, including data services and information provision and fees for connecting users of other fixed line and mobile networks to the Group’s network.

Access charges and airtime used by contract customers are invoiced and recorded as part of a periodic billing cycle and recognised as revenue over the related access period, with unbilled revenue resulting from services already provided from the billing cycle date to the end of each period accrued and unearned revenue from services provided in periods after each accounting period deferred. Revenue from the sale of prepaid credit is recognised on the actual utilisation of the prepaid credit and is deferred as deferred income until such time as the customer uses the airtime, or the credit expires.

Revenue from data services and information provision is recognised when the Group has performed the related service and, depending on the nature of the service, is recognised either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service.

Incentives are provided to customers in various forms and are usually offered on signing a new contract or as part of a promotional offering. Where such incentives are provided on connection of a new customer or the upgrade of an existing customer, revenue representing the fair value of the incentive, relative to other deliverables provided to the customer as part of the same arrangement, is deferred and recognised in line with the Group’s performance of its obligations relating to the incentive.

In revenue arrangements including more than one deliverable that have value to a customer on stand alone basis, the arrangement consideration is allocated to each deliverable based on the relative

fair value of the individual elements. The Group generally determines the fair value of individual elements based on prices at which the deliverable is regularly sold on a standalone basis.

Contract revenue is recognised under the percentage of completion method. Profit on contracts is recognised only when the outcome of the contracts can be reliably estimated. Provision is made for foreseeable losses estimated to complete contracts.

Revenue from interconnection of voice and data traffic with other telecommunications operators is recognised at the time the services are performed based on the actual recorded traffic.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to that asset’s net carrying amount.

LeasingLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessorAmounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.


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2 Significant accounting policies (continued)Revenues from the sale of transmission capacity on terrestrial and submarine cables are recognised on a straight-line basis over the life of the contract. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Group as lesseeRentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Foreign currencies Functional currencies The individual financial statements of each of the Group’s subsidiaries, associates and joint ventures are presented in the currency of the primary economic environment in which they operate (its functional currency). For the purpose of the consolidated financial statements, the results, financial position and cash flows of each Group company are expressed in UAE Dirhams, which is the functional currency of the Corporation, and the presentation currency of the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions

in currencies other than the entity’s functional currency are recorded at exchange rates prevailing at the dates of the transactions. At each year end, monetary assets and liabilities that are denominated in foreign currencies are retranslated into the entity’s functional currency at rates prevailing at the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated except that the recoverable amount is translated at the date of revaluation if a non- monetory item is impaired.

ConsolidationOn consolidation, the assets and liabilities of the Group’s foreign operations are translated into UAE Dirhams at exchange rates prevailing on the date of the consolidated statement of financial position. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are also translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences are recognised in other comprehensive income and are presented in the translation reserve in equity. On disposal of overseas subsidiaries or when significant influence is lost, the cumulative translation differences are recognised as income or expense in the period in which they are disposed of.

Foreign exchange differencesExchange differences are recognised in the consolidated income statement in the period in which they arise except for exchange differences that relate to assets under construction for future productive use. These are included in the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency borrowings. Exchange differences on transactions entered into to hedge certain foreign currency risks; and exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation are recognised in the foreign currency translation reserve and recognised in the consolidated income statement on disposal of the net investment.

Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the consolidated income statement in the period in which they are incurred.


Financials


Government grants Government grants relating to non-monetary assets are recognised at nominal value. Grants that compensate the Group for expenses are recognised in the consolidated income statement on a systematic basis in the same period in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in the consolidated income statement on a systematic basis over the expected useful life of the related asset upon capitalisation.

End of service benefits Payments to defined contribution schemes are charged as an expense as they fall due. Payments made to state-managed pension schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution scheme.

Provision for employees’ end of service benefits for non-UAE nationals is made in accordance with the Projected Unit Cost method as per IAS 19 Employee Benefits taking into consideration the UAE Labour Laws. The provision is recognised based on the present value of the defined benefit obligations.

The present value of the defined benefit obligations is calculated using assumptions on the average annual rate of increase in salaries, average period of employment of non-UAE nationals and an appropriate discount rate. The assumptions used are calculated on a consistent basis for each period and reflect management’s best estimate. The discount rates are set in line with the

best available estimate of market yields currently available at the reporting date with reference to high quality corporate bonds or other basis, if applicable.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method.

Deferred tax is calculated using relevant tax rates and laws that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax is charged or credited in the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax liabilities are generally recognised for all taxable temporary

differences and deferred tax assets are recognised to the extent that it is probable that sufficient taxable profits will be available in the future against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit nor the accounting profit.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.


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2 Significant accounting policies (continued)Property, plant and equipmentProperty, plant and equipment are only measured at cost, less accumulated depreciation and any impairment. Cost comprises the cost of equipment and materials, including freight and insurance, charges from contractors for installation and building works, direct labour costs, capitalised borrowing costs and an estimate of the costs of dismantling and removing the equipment and restoring the site on which it is located.

Assets in the course of construction are carried at cost, less any impairment. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets commences when the assets are ready for their intended use.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs

are charged to consolidated income statement during the period in which they are incurred.

Other than land (which is not depreciated), the cost of property, plant and equipment is depreciated on a straight line basis over the estimated useful lives of the assets as follows:

BuildingsPermanent – the lesser of 20 – 30 years and the period of the land lease.

Temporary – the lesser of 4 – 10 years and the period of the land lease.

Plant and equipment Years

Submarine – fibre optic cables 20 – coaxial cables 10Cable ships 15Coaxial and fibre optic cables 15 – 25Line plant 15 – 25Exchanges 5 – 10Switches 15 Radios/towers 10 – 15Earth stations/VSAT 5 – 10Multiplex equipment 10Power plant 5 – 7Subscribers’ apparatus 3 – 5General plant 2 – 7Other assets

Motor vehicles 5Computers 5Furniture and fittings 4 – 6

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each reporting date.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales

proceeds and the carrying amount of the asset and is recognised in the consolidated income statement.

Investment propertyInvestment property, which is property held to earn rentals and/or for

capital appreciation, is carried at cost less accumulated depreciation and impairment loss.

Investment properties are depreciated on a straight-line basis over the lesser of 20 years and the period of the lease.


Financials


Intangible assets(I) Goodwill Goodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other non-financial assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of an associate, joint venture, or a subsidiary or where Group ceases to exercise control, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(II) LicensesAcquired telecommunication licenses are initially recorded at cost or, if part of a business combination, at fair value. Licenses are amortised on a straight line basis over their estimated useful lives from when the related networks

are available for use. The estimated useful lives range between 10 and 25 years and are determined primarily by reference to the unexpired license period, the conditions for license renewal and whether licenses are dependent on specific technologies.

(III) Internally-generated intangible assetsAn internally-generated intangible asset arising from the Group’s IT development is recognised at cost only if all of the following conditions are met:

• an asset is created that can be identified (such as software and new processes);

• it is probable that the asset created will generate future economic benefits; and

• the development cost of the asset can be measured reliably.

Internally-generated intangible assets are amortised on a straight-line basis over their useful lives of 3-10 years. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

(IV) Indefeasible Rights of Use (“IRU”)IRUs correspond to the right to use a portion of the capacity of a terrestrial or submarine transmission cable granted for a fixed period. IRUs are recognised at cost as an asset when the Group has the specific indefeasible right to use an identified portion of the underlying asset, generally optical fibres or dedicated wavelength bandwidth, and the duration of the right is for the major part of the underlying asset’s economic life. They are amortised on a straight line basis over the shorter of the expected

period of use and the life of the contract which ranges between 10 to 20 years.

Impairment of tangible and intangible assets excluding goodwillThe Group reviews the carrying amounts of its tangible and intangible assets whenever there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life (including goodwill) is tested for impairment annually.

Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.


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Impairment of tangible and intangible assets excluding goodwill (continued)Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

InventoryInventory is measured at the lower of cost and net realisable value. Cost comprises direct materials and where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Allowance is made, where appropriate, for deterioration and obsolescence. Cost is determined in accordance with the weighted average cost method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial instrumentsFinancial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

(I) Fair valueThe fair values of financial assets and financial liabilities are determined as follows:

• the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and

• the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

(II) Financial assetsAll financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial

assets and is determined at the time of initial recognition.

(III) Effective interest methodThe effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis for debt instruments that are held-to-maturity, are available-for-sale, or are loans and receivables.

(IV) Held-to-maturity investmentsBonds and Sukuk bonds with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis. The Group considers the credit risk of counterparties in its assessment of whether such financial instruments are impaired.

(V) Available-for-sale financial assets (“AFS”)Listed securities held by the Group that are quoted in an active market


Financials


are classified as being AFS and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in equity in the investment revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in the consolidated income statement.

Dividends on AFS equity instruments are recognised in the consolidated income statement when the Group’s right to receive the dividends is established.

The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the exchange rate prevailing at the reporting date. The foreign exchange gains/losses that are recognised in the consolidated income statement are determined based on the amortised cost of the monetary asset. Other foreign exchange gains/losses are recognised in the consolidated statement of changes in equity.

The Group assesses at each reporting date whether there is objective evidence that AFS assets are impaired. In the case of equity securities, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

(VI) Loans and receivablesTrade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Appropriate allowances for estimated irrecoverable amounts are recognised in the consolidated income statement where there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The allowance for doubtful debts reflects estimates of losses arising from the failure or inability of the Group’s customers to make required payments. The estimates are based on the ageing of customer’s accounts and the Group’s historical write-off experience.

(VII) Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(VIII) Financial liabilitiesFinancial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ (“FVTPL”) or other financial liabilities.

(IX) Financial guarantee contract liabilities Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of:

• the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and

• the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out above.

(X) Financial liabilities at FVTPLFinancial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as such. A financial liability is classified as held for trading if it has been incurred principally for the purpose of disposal in the near future or it is a derivative that is not designated and effective as a hedging instrument. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in the consolidated income statement.


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Financial instruments (continued)(XI) Other financial liabilitiesOther financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

(XII) Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

(XIII) Derivative financial instrumentsThe Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including forward foreign exchange contracts, interest rate swaps and cross currency swaps.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each

reporting date. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. The Group does not currently designate any financial instruments as hedging instruments, and accordingly all resulting gains or losses arising from the remeasurement of derivatives are recognised in the consolidated income statement immediately.

(XIV) Embedded derivativesDerivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the consolidated income statement.

(XV) Hedge accountingThe Group may designate certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign exchange risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges where appropriate criteria are met.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents

whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

(XVI) Put option arrangementsThe potential cash payments related to put options issued by the Group over the equity of subsidiary companies are accounted for as financial liabilities when such options may only be settled other than by exchange of a fixed amount of cash or another financial asset for a fixed number of shares in the subsidiary.

The amount that may become payable under the option on exercise is initially recognised at fair value within borrowings with a corresponding charge directly to equity. The charge to equity is recognised separately as written put options over non-controlling interests, adjacent to non-controlling interests in the net assets of consolidated subsidiaries. For options that involve a fixed amount of cash for a fixed number of shares in the subsidiary, the Group recognises the cost of writing such put options, determined as the excess of the fair value of the option over any consideration received, as a financing cost.

Such options are subsequently measured at amortised cost, using the effective interest rate method, in order to accrete the liability up to the amount payable under the option at the date at which it first becomes exercisable. The charge arising is recorded as a financing cost. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.


Financials


(XVII) Derecognition of financial assetsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset or substantially all the risk and rewards of ownership to another entity. If the Group neither transfer nor retains substantially all the risks and reward of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

ProvisionsProvisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material.

Transactions with non-controlling interestsThe Group applies a policy of treating transactions with non-controlling interest holders as transactions with parties external to the Group. Disposals to non-controlling interest holders result in gains and losses for the Group and are recorded in the consolidated income statement. Purchases from non-controlling interest holders result in goodwill, being the difference between

any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

DividendsDividend distributions to the Group’s shareholders are recognised as a liability in the consolidated financial statements in the period in which the dividends are approved.

3 Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s ac-counting policies, which are described in Note 2, the directors are required to make judgements, estimates and as-sumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assump-tions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the fu-ture, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a mate-rial adjustment to the carrying amounts of assets and liabilities within the next financial year, are disclosed below.

(I) Fair value of other intangible assetsOn the acquisition of mobile network operators, the identifiable intangible assets may include licenses, customer bases and brands. The fair value of these assets is determined by discounting es-timated future net cash flows generated by the asset, where no active market for the assets exist. The use of different as-sumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets.

The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives critical to the Group’s financial position and performance.

The useful lives used to amortise intangible assets relate to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset.

(II) Impairment of goodwill and associatesDetermining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating unit to which the goodwill has been allocated. The value-in-use calculation for goodwill and associates requires the Group to calculate the net present value of the future cash flows for which certain assumptions are required, including management’s expectations of:

• long term growth rates in cash flows;

• timing and quantum of future capital expenditure; and

• the selection of discount rates to reflect the risks involved.


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3 Critical accounting judgements and key sources of estimation uncertainty (continued)The key assumptions used and sensitivities are detailed on Note 9 of the consolidated financial statements. A change in the key assumptions or forecasts might result in an impairment of goodwill and investment in associates.

(III) Impairment of intangiblesImpairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:

• long term growth rates in cash flows;

• timing and quantum of future capital expenditure; and

• the selection of discount rates to reflect the risks involved.

(IV) Property, plant and equipmentProperty, plant and equipment represents a significant proportion of the total assets of the Group. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Group’s financial position and performance. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s

expected useful life and the expected residual value at the end of its life. Increasing/decreasing an asset’s expected life or its residual value would result in a reduced/increased depreciation charge in the consolidated income statement.

(V) Impairment of trade receivables The Group determines the impairment of trade receivables based on their ageing when objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the trade receivables. Management exercises significant judgments in assessing the impact of adverse indicators and events on recoverability of trade receivables.

(VI) Classification of associates, joint ventures and subsidiariesThe appropriate classification of certain investments as subsidiaries, associates and joint ventures requires significant analysis and management judgement as to whether the Group exercises control, significant influence or joint control over these investments. This may involve consideration of a number of indicators, including ownership and voting rights, the extent of Board representation, contractual arrangements and indicators of de fact control.

Changes to these indicators and management’s assessment of the power to control or influence may have a material impact on the classification of such investments and the Group’s consolidated financial position, revenue and results.

(VII) Federal royaltyThe computation of Federal Royalty in accordance with the Cabinet of Ministers of UAE decision No. 320/15/23

of 2012 and guidelines issued by the UAE Ministry of Finance (“the MoF”) dated 21 January 2013 requires a number of calculations. In performing these calculations, management have made certain critical judgements, interpretations and assumptions. These mainly relate to the segregation of items between regulated and other activities and items which the Corporation judges as not subject to Federal royalty or which may be set off against profits which are subject to Federal royalty. The Corporation is currently in discussion with the MoF and is seeking clarification on the computation for the year ended 31 December 2012. The amounts computed in the consolidated financial statements are provisional and may differ from actual settlements. The Corporation does not expect that any changes which may arise from the ongoing discussions with the MoF would result in a material impact in the context of the Group’s overall financial position and results.

The calculation basis and methodology to be applied for future periods is still subject to ongoing discussion and may change.

4 Segmental information Information regarding the Group’s operating segments is set out below in accordance with IFRS 8 Operating Segments. IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Group’s chief operating decision maker and used to allocate resources to the segments and to assess their performance.


Financials


The following is an analysis of the Group’s revenue and results by reportable segment:

(a) Products and services from which reportable segments derive their revenuesThe Group is engaged in a single line of business, being the supply of telecommunications services and related products. The majority of the Group’s revenues, profits and assets relate to its operations in the UAE. Outside of the UAE, the Group operates through its subsidiaries and associates in sixteen countries which are divided in to the following operating segments:

1. Pakistan

2. Egypt

3. International - others

Revenue is attributed to an operating segment based on the location of the Group company reporting the revenue. Inter-segment sales are charged at arms’ length prices.

(b) Segment revenues and results Segment results represent operating profit earned by each segment without allocation of finance income, finance

costs and federal royalty. This is the measure reported to the Group’s Board of Directors (“Board of Directors”) for the purposes of resource allocation and assessment of segment performance.

The Group’s share of results from associates and joint ventures has been allocated to the segments based on the geographical location of the operations of the associate and joint venture investments. The allocation is in line with how results from investments in associates and joint ventures are reported to the Board of Directors.

InternationalUAE

AED’000Egypt

AED’000PakistanAED’000

OthersAED’000

EliminationsAED’000

ConsolidatedAED’000

31 December 2012RevenueExternal sales 23,598,041 5,050,125 - 4,298,134 - 32,946,300Inter-segment sales 240,271 25,060 - 96,116 (361,447) -Total revenue 23,838,312 5,075,185 - 4,394,250 (361,447) 32,946,300 Segment results 9,385,496 1,026,484 8,441 1,430,176 - 11,850,597Federal royalty (6,451,252)Gain on partial disposal of investment in an associate 860,138

Finance income 721,111Finance costs (322,938)Profit before tax 6,657,656Taxation (85,910)Profit for the year 6,571,746


74


Financials

UAE segment includes revenue from the services regulated by the Telecommunications Regulatory Authority amounting to AED 22,010 million (2011:AED 22,199 million) and revenue from non-regulated services amounting to AED 1,828 million

(2011: AED 1,839 million).

(c) Segment assets

For the purposes of monitoring segment performance and allocating resources between segments, the Board of Directors monitors the tangible,

intangible and financial assets attributable to each segment. All assets are allocated to reportable segments. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments.

2012AED’000

2011AED’000

UAE 57,848,198 53,325,573

Egypt 14,323,902 15,452,189Pakistan 15,038,185 -International- others 18,094,266 28,050,024

Total segment assets 105,304,551 96,827,786Eliminations (25,158,188) (23,936,144)

Consolidated total assets 80,146,363 72,891,642

4 Segmental information (continued)

(b) Segment revenues and results (continued)

InternationalUAE

AED’000Egypt

AED’000PakistanAED’000

OthersAED’000

EliminationsAED’000

ConsolidatedAED’000

31 December 2011RevenueExternal sales 23,908,293 4,499,876 - 3,833,704 - 32,241,873Inter-segment sales 129,702 40,101 - 129,324 (299,127) -Total revenue 24,037,995 4,539,977 - 3,963,028 (299,127) 32,241,873Segment results 10,773,973 877,668 82,096 (1,291,900) - 10,441,837Federal royalty (5,839,019)Finance income 696,057Finance costs (663,375)Profit before tax 4,635,500Taxation (25,352)Profit for the year 4,610,148


2012AED’000

2011AED’000

Staff costs 4,373,783 4,280,846Direct cost of sales 6,126,961 5,950,554Depreciation (Notes 10,11) 2,670,013 2,574,038Amortisation (Note 9) 714,725 813,802Regulatory expenses 951,527 922,251Foreign exchange losses 57,687 216,431Operating lease rentals 248,165 319,945Repairs and maintenance 467,485 537,559General financial expenses 1,022,672 1,291,401Marketing and selling expenses 937,191 933,988Network and other related expenses 844,687 878,296Administration expenses 543,674 679,593Other operating expenses 574,923 565,740Total operating expenses (before federal royalty) 19,533,493 19,964,444

Certain 2011 “Other operating expenses” have been further analysed into “Network and other related expenses”, “marketing and selling expenses” and “Administration expenses” to conform with the current year’s presentation. There is no impact on account of this on the consolidated statement of financial position.

b) Federal royalty In accordance with the Cabinet decision No. 558/1 for the year 1991, the Corporation was required to pay a federal royalty, equivalent

to 40% of its annual net profit before such federal royalty, to the UAE Government for use of federal facilities. With effect from 1 June 1998, Cabinet decision No. 325/28M for 1998 increased the federal royalty payable to 50%.

On 9 December 2012 the Cabinet of Ministers of UAE issued decision no. 320/15/23 of 2012 in respect of a new royalty mechanism applicable to Etisalat.

Under the new mechanism a distinction is made between revenue earned from services

regulated by Telecommunications Regulatory Authority (“TRA”) and non-regulated services as well as between foreign and local profits.

Etisalat is required to pay 15 % royalty fee on the UAE regulated revenues and 35 % of net profit after deduction of the 15 % royalty fee on the UAE regulated revenues. In respect of foreign profit, the 35 % royalty is reduced by the amount that the foreign profit has already been subject to foreign taxes.

Depreciation andamortisation

Additions tonon-current assets

2012AED’000

2011AED’000

2012AED’000

2011AED’000

UAE 1,723,105 1,591,225 1,939,353 1,830,372Egypt 907,708 797,929 1,174,053 1,128,846International-Others 753,925 998,686 1,050,942 1,329,337

3,384,738 3,387,840 4,164,348 4,288,555


5 Operating expenses and federal royalty(a) Operating expenses (before federal royalty)

(d) Other segment information

76

2012AED’000

2011AED’000

Interest on bank deposits and held-to-maturity investment 317,966 358,439

Interest on loans to associates 342,278 295,414Other finance income 60,867 42,204

721,111 696,057

2012AED’000

2011AED’000

Interest on bank overdrafts, loans and other financial liabilities 315,706 609,588

Interest on other borrowings 4,905 50,758Unwinding of discount on payables related to investments andlicenses 2,327 3,029

322,938 663,375Total borrowing costs 348,590 664,094Less: amounts included in the cost of qualifying assets (Note 10) (25,652) (719)

322,938 663,375

All interest charges are generated on the Group’s financial liabilities measured at amortised cost. Borrowing costs included in the cost of qualifying assets during the year arose on specific and

general borrowing pools. Borrowing costs attributable to general borrowing pools are calculated by applying a capitalisation rate of 9.4% (2011: 10.7%) to expenditure on such assets. Borrowing

costs have been capitalised in relation to loans by certain of the Group’s subsidiaries.


Financials

2012AED’000

2011AED’000

Current tax expense 119,554 82,676

Deferred tax credit (33,644) (57,324)

85,910 25,352

5. Operating expenses and federal royalty (continued)b) Federal royalty (contined)

Discussions with the Ministry of Finance are still ongoing; the outcome of these discussions may impact the royalty amount that is accounted for in the consolidated financial statements on a provisional basis.

The federal royalty has been treated as an operating expense in the consolidated income statement on the basis that the expenses the Corporation would otherwise have had to incur for the use of the federal facilities would have been classified as operating expenses.

8 Taxation

7 Finance costs

6 Finance incomeIncome earned on financial assets is as follows:


2012AED’000

2011AED’000

Profit before tax 6,657,656 4,635,500

Tax at the UAE corporation tax rate of 0% (2011: 0%) - -Effect of different tax rates of subsidiaries operating in other jurisdictions 119,554 82,676

Current tax expense for the year 119,554 82,676

Accelerated tax depreciation

AED’000

Deferred tax on overseas earnings

AED’000

OthersAED’000

TotalAED’000

At 1 January 2011 730,249 42,250 - 772,499

(Credit)/charge to the consolidated income statement (179,239) 121,915 - (57,324)

Exchange differences (42,573) - - (42,573)At 31 December 2011 508,437 164,165 - 672,602(Credit)/charge to the consolidated income statement (111,799) 48,369 8,215 (55,215)

Payment during the year - (52,952) - (52,952)Consolidation of PTCL (Note 29) 879,313 - 32,622 911,935Exchange differences (11,589) - (169) (11,758)At 31 December 2012 1,264,362 159,582 40,668 1,464,612

(a) Current taxCorporate income tax is not levied in the UAE for telecommunication companies

and accordingly the effective tax rate for the Corporation is 0% (2011: 0%). The table below reconciles the difference between the expected tax expense of nil

(2011: nil) (based on the UAE effective tax rate) and the Group’s tax charge for the year.

(b) Deferred taxThe following represent the major

deferred tax liabilities recognised by the Group and movements thereon during

the current and prior reporting period.

At 31 December 2012, the Group has unused tax losses of AED 1,706 million (2011: AED 1,599 million) available for offset against future profits. Deferred tax assets have been recognised in respect of AED 1,104 million (2011: AED 1,090

million) of such losses. No deferred tax asset has been recognised in respect of the remaining AED 602 million losses (2011: AED 509 million) due to the unpredictability of future taxable profit streams. Included in unrecognised tax

losses are losses of AED 602 million (2011: AED 695 million) that will expire within the next three years.


78


Financials

9 Goodwill, other intangible assets and impairment losses

GoodwillAED’000

Other intangibleassets

AED’000Total

AED’000

CostAt 1 January 2011 3,120,704 15,933,885 19,054,589Additions - 195,495 195,495Disposals - (55,352) (55,352)Exchange differences (7,121) (672,705) (679,826)

At 31 December 2011 3,113,583 15,401,323 18,514,906

Accumulated amortisation and impairmentAt 1 January 2011 - 3,504,288 3,504,288Charge for the year - 813,802 813,802Impairment losses 1,240,690 975,465 2,216,155Disposals - (50,151) (50,151)Exchange differences - (119,704) (119,704)

At 31 December 2011 1,240,690 5,123,700 6,364,390

Carrying amount At 31 December 2011 1,872,893 10,277,623 12,150,516

CostAt 1 January 2012 3,113,583 15,401,323 18,514,906Additions - 282,992 282,992 Consolidation of PTCL (Note 29) 5,986,251 129,339 6,115,590 Disposals - (12,543) (12,543)Exchange differences 2,808 (596,597) (593,789)Deconsolidation of a subsidiary (Note 12) (1,192) (92,611) (93,803)

At 31 December 2012 9,101,450 15,111,903 24,213,353


GoodwillAED’000

Other intangibleassets

AED’000Total

AED’000

Accumulated amortisation and impairmentAt 1 January 2012 1,240,690 5,123,700 6,364,390Charge for the year - 714,725 714,725Impairment losses 337,130 - 337,130Disposals - (1,152) (1,152) Deconsolidation of a subsidiary (Note 12) - (19,881) (19,881)Exchange differences 498 (150,270) (149,772)

At 31 December 2012 1,578,318 5,667,122 7,245,440

Carrying amount At 31 December 2012 7,523,132 9,444,781 16,967,913

Other intangible assets include licenses, software and IRUs having net book values of AED 8,629 million (2011: AED 9,451 million), AED 234 million (2011: AED 367 million), and AED 582 million

(2011: AED 459 million), respectively.

(a) Impairment losses The net impairment losses recognised in the consolidated income statement

in respect of carrying amount of investments, goodwill, licenses and property, plant and equipment are as follows:

2012AED’000

2011AED’000

Cash generating unit

Pakistan Telecommunication Company Limited (“PTCL”) (Note 14 (b)) 2,365,953 -Canar Telecommunications Co. Limited (“Canar”) 459,412 -Etisalat DB Telecom Private Limited (“Etisalat DB”) - 3,044,064

2,825,365 3,044,064

Impairment losses in relation to the Group’s investment in PTCL amounting to AED 2,366 million have been charged against the carrying amount of the investment.

Impairment losses in relation to the Group’s investment in Canar of AED 459 million relates to goodwill of AED 337 million and property, plant and equipment of AED 122 million (Note 10).

Impairment losses were primarily driven by increased discount rates as a result

of increases in inflation in the operating countries and challenging economic and political conditions, as well as by the downtrend in real estate prices combined with the negative local currency fluctuation.

During the year ended 31 December 2011 as a result of the Indian Supreme Court ruling on 2 February 2012 relating to the cancellation of 2G licenses issued from 2008 onwards and as a consequence of

the significant uncertainties surrounding its Indian operation, Etisalat management recognised an impairment charge of AED 3,044 million before Federal royalty against the full carrying value of goodwill of AED 1,227 million and the Indian operations - “Etisalat DB” net assets comprising of “licenses and other intangibles” amounting to AED 989 million and “plant and equipment” of AED 828 million.


80

9 Goodwill, other intangible assets and impairment losses (continued)

(a) Impairment losses (continued)

Sensitivity to changes in assumptions

The changes in the following table to assumptions used in the impairment review would, in isolation, lead to an (increase)/decrease to the aggregate impairment loss recognised in the year ended 31 December 2012.

PTCL Canar

Increase by 2percentage pointsAED million

Decrease by 2percentage pointsAED million

Increase by 2percentage pointsAED million

Decrease by 2percentage pointsAED million

Pre-tax adjusted discount rate (173) 187 (11) 11Growth rate 342 (257) 7 (7)

(b) Cash generating unitsGoodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to

benefit from that business combination. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The carrying amount of

goodwill (all relating to operations within the Group’s International reportable segment) is allocated to the following CGUs:

2012AED’000

2011AED’000

Atlantique Telecom, S.A. (“AT”) 1,256,345 1,253,530

Canar Telecommunications Co. Limited - 337,130

Etisalat Misr (Etisalat) S.A.E 29,518 31,215

Zanzibar Telecom Limited (“Zantel”) 44,896 44,896

Etisalat Lanka (Pvt) Limited (“Etisalat Lanka”) 206,122 206,122

Pakistan Telecommunication Company Limited (“PTCL”) (provisional) (Note 29) 5,986,251 -

7,523,132 1,872,893

(c) Key assumptions for the value in use calculationsThe key assumptions for the value in use calculations are those regarding the long term forecast cash flows, discount rates and capital expenditure.

(i) Long term cash flowsThe Group prepares cash flow forecasts

derived from the most recent annual business plan approved by management for each location for the next five years. The business plans take into account local market considerations such as the revenues and costs associated with future customer growth, the impact of local market competition and consideration of the local macro-economic and political trading

environment. These cash flows are sometimes extrapolated beyond this period, up to a maximum of ten years. This rate does not exceed the average long-term growth rate for the relevant markets and it ranges between 0.8% to 6.8% (2011: 2% to 8.6%).


Financials


(ii) Discount ratesThe discount rates applied to the cash flows of each of the Group’s operations are based on an internal study conducted by the management. The study utilised market data and information from comparable listed mobile telecommunications companies

and where available and appropriate, across a specific territory. The pre-tax discount rates use a forward looking equity market risk premium and ranges between 5.7% to 37.9% (2011: 11.8% to 17.9%).

(iii) Capital expenditureThe cash flow forecasts for capital expenditure are based on past experience

and include the ongoing capital expenditure required to continue rolling out networks in emerging markets, providing enhanced voice and data products and services, and meeting the population coverage requirements of certain licenses of the Group. Capital expenditure includes cash outflows for the purchase of property, plant and equipment and other intangible assets.

10 Property, plant and equipment

BuildingsAED’000

Plant andequipment

AED’000

Motor vehicles,

computers, furnitureAED’000

Assets under

constructionAED’000

TotalAED’000

CostAt 1 January 2011 3,705,169 24,438,148 2,518,854 7,461,740 38,123,911Additions 15,298 427,830 97,495 3,552,437 4,093,060Transfers 28,680 3,251,847 311,040 (3,591,567) -Transfer - investment property 3,031 - - - 3,031Disposals (1,192) (630,874) (35,825) - (667,891)Exchange differences (15,957) (421,598) (82,753) (275,858) (796,166)

At 31 December 2011 3,735,029 27,065,353 2,808,811 7,146,752 40,755,945

Accumulated depreciation and impairment At 1 January 2011 2,041,965 13,705,912 1,640,842 59,833 17,448,552Charge for the year 166,890 2,006,522 397,573 - 2,570,985Transfer - investment property 519 - - - 519Impairment losses - 827,911 - - 827,911Disposals (697) (555,241) (14,811) (570,749)Exchange differences (1,955) (96,775) (36,538) - (135,268)

At 31 December 2011 2,206,722 15,888,329 1,987,066 59,833 20,141,950

Carrying amountAt 31 December 2011 1,528,307 11,177,024 821,745 7,086,919 20,613,995


82

10 Property, plant and equipment (continued)

BuildingsAED’000

Plant andequipment

AED’000

Motor vehicles,

computers, furnitureAED’000

Assets under

constructionAED’000

TotalAED’000

CostAt 1 January 2012 3,735,029 27,065,353 2,808,811 7,146,752 40,755,945Additions 44,302 924,467 109,840 2,800,706 3,879,315Transfers 61,013 2,907,232 370,611 (3,338,856) -Disposals (1,268) (415,386) (82,743) - (499,397)Exchange differences (34,240) (430,476) (52,615) 26,894 (490,437)Deconsolidation of a subsidiary - (108,294) - (1,318,755) (1,427,049)Net additions arising on consolidation of PTCL (Note 29) 357,296 4,321,466 184,225 756,653 5,619,640

At 31 December 2012 4,162,132 34,264,362 3,338,129 6,073,394 47,838,017

Accumulated depreciation and impairmentAt 1 January 2012 2,206,722 15,888,329 1,987,066 59,833 20,141,950Charge for the year 209,268 2,027,668 429,942 - 2,666,878Impairment losses (Note 9) - 122,282 - - 122,282 Disposals (42) (407,854) (79,165) - (487,061)Exchange differences (9,202) (130,997) (38,411) (64) (178,674)

At 31 December 2012 2,406,746 17,499,428 2,299,432 59,769 22,265,375

Carrying amountAt 31 December 2012 1,755,386 16,764,934 1,038,697 6,013,625 25,572,642

The carrying amount of the Group’s buildings includes a nominal amount of AED 1 (2011: AED 1) in relation to land granted to the Group by the Government. There are no contingencies attached to this grant and as such no additional amounts have been included in the consolidated income statement or the consolidated statement of financial position in relation to this.

An amount of AED 25.7 million (2011: AED

0.72 million) is included in property, plant and equipment on account of capitalisation of borrowing costs for the year.

Borrowings are secured against property, plant and equipment with a net book value of AED 3,060 million (2011: AED 3,175 million).

Assets under construction include multiplex equipment, line plant, exchange and network equipment.

During the current year, the Group carried out a review of the useful lives of certain property, plant and equipment. Accordingly, management has revised its estimate of the useful lives. The change in estimate was applied prospectively effective 1 October 2012 and did not result in a material impact on current year’s depreciation and is not expected to have material impact in future periods.


Financials


11 Investment propertyInvestment property, which is property

held to earn rentals and/or for capital appreciation, is stated at depreciated cost and included separately under

non-current assets in the consolidated statement of financial position.

2012AED’000

2011AED’000

CostAt 1 January 52,169 54,770Additions 2,041 430Transfer to property, plant and equipment - (3,031)

At 31 December 54,210 52,169

Accumulated depreciationAt 1 January 9,394 6,860Charge for the year 3,135 3,053Transfer to property, plant and equipment - (519)

At 31 December 12,529 9,394

Carrying amount at 31 December 41,681 42,775

Fair value at 31 December 62,706 59,720

The fair value of the Group’s investment property at 31 December 2012 has been arrived at on the basis of a valuation carried out by internal valuers that are not independent from the Corporation.

The property rental income earned by the Group from its investment property, all of which is leased out under operat-ing leases, amounted to AED 14.6 million (2011: AED 16.2 million).

Direct operating expenses arising on the investment property in the period amounted to AED 1.3 million (2011: AED 1.2 million).


84

12 SubsidiariesThe Group’s principal subsidiaries at 31 December 2012 and 31 December 2011 were as follows:

NameCountry of incorporation Principal activity

Percentage shareholding

Emirates Telecommunications and Marine Services FZE

Jebel Ali Free Zone, Dubai Telecommunications services 100%

Emirates Cable TV and Multimedia LLC UAE Cable television services 100%

Etisalat International Pakistan LLC UAE Holds investment in Pakistan Telecommunication Co. Ltd 90%

E-Marine PJSC UAE Submarine cable activities 100%

EDCH FZE Jebel Ali Free Zone, Dubai Data management services 100%

Etisalat Services FZE Jebel Ali Free Zone, Dubai Management services 100%

Etisalat Services Holding LLC Abu Dhabi Infrastructure services 100%Etisalat Software Solutions (Private) Limited India Technology solutions 100%

Zanzibar Telecom Limited Tanzania Telecommunications services 65%Canar Telecommunications Co. Limited Republic of Sudan Telecommunications services 89%

Etisalat International Nigeria Limited

Jebel Ali Free Zone, Dubai

Holds investment in Emerging Market Telecommunications Services B.V. (Netherlands)

100%

Etisalat International Indonesia Limited

Jebel Ali Free Zone, Dubai

Holds investment in PT XL Axiata TBK 100%

Etisalat Afghanistan Afghanistan Telecommunications services 100%Etisalat Misr S.A.E Egypt Telecommunications services 66%Atlantique Telecom S.A. Cote d’Ivoire Telecommunications services 100%Etisalat Benin Benin Telecommunications services 100%Etisalat Lanka (Pvt.) Limited Sri Lanka Telecommunications services 100%Pakistan Telecommunication Company Limited* Pakistan Telecommunications services 23.4%

Etisalat Mauritius Private Limited Mauritius Holds investment in Etisalat DB Telecom Private Limited 100%

*Effective 31 December 2012


Financials


At 31 December 2012 as a result of a reassessment by management of the Corporation’s ability to control, reflecting changes to the Board of PTCL and falling away of certain prevailing existing control impediments, the Group has commenced treating its investment

in Pakistan Telecommunications Corporation (PTCL) as a subsidiary as disclosed in Note 29.

In March 2012, the Group reviewed the degree of control it has over Etisalat DB Telecom Pvt Ltd (EDB) in respect of the Group’s ability to influence EDB’s

response to events in India and the agreements relating to the investment and concluded it is no longer appropriate to treat EDB as a subsidiary.

The assets and liabilities derecognised as a result of the deconsolidation of EDB are as follows:

AED’000

AssetsProperty, plant and equipment 1,427,049Cash and cash equivalents 654,926Other assets 419,373

Total assets 2,501,348

LiabilitiesTrade and other payables 1,223,915Borrowings 1,083,475Other liabilities 214,687

Total liabilities 2,522,077

The above deconsolidation does not have a material impact on the consolidated

income statement for the year ended 31 December 2012, however the non-

controlling interest in EDB was decreased by AED 332.8 million.

13 Share of results of associates and joint ventures2012

AED’0002011

AED’000

Associates excluding EMTS (Note 14 (b)) 1,641,278 1,572,204

Joint ventures (Note 14 (h)) 5,276 (5,966)

EMTS (Note 14 (b)) (383,399) (357,766)

Total 1,263,155 1,208,472


86

14. Investment in associates and joint ventures

(a) Associates at 31 December 2012



Etihad Etisalat Company (“Mobily”) Saudi Arabia Telecommunications services 27%

Thuraya Telecommunications Company PJSC (“Thuraya”) UAE Satellite communication

services 28%

Emerging Markets Telecommunications Services Limited (“EMTS Nigeria”) * Nigeria Telecommunications

services 40%

* The subsidiary of Emerging Markets Telecommunications Services B.V. (“EMTS”) incorporated in Netherlands.

(b) Movement in investment in associatesAED’000

Net book amount at 1 January 2011 16,071,032

Dividends (743,625)

Share of results (Note 13) 1,572,204

Tax on dividends 11,766

Net book amount at 31 December 2011 16,911,377

Share of results (Note 13) 1,641,278

Reclasifications to “Other investments” (see below) (1,858,736)

Impairment of an associate (Note 9) (2,365,953)

Consolidation of PTCL (Note 29) (7,097,260)

Other movements 1,425

Dividends (1,000,143)

Net book amount at 31 December 2012 6,231,988

Share of losses from EMTS amounting to AED 383 million (2011: AED 357 million) have been offset against loans due from associates as the investment in associate has already been fully written down by prior year losses.


Financials


(c) Aggregated amounts relating to associates

2012AED’000

2011AED’000

Total assets 49,197,169 68,084,706

Total liabilities (31,835,329) (41,499,143)

Net assets of associates 17,361,840 26,585,563

Total revenue 26,704,391 34,111,315

Total results of associates 4,058,795 4,815,665

2012AED’000

2011AED’000

Etihad Etisalat Company 14,307,486 9,884,470

(d) Market value of an associates

The shares of one of the Group’s associates are quoted on public stock markets. The market value of the Group’s shareholding based on the quoted prices is as follows:

(e) Disposal of investment in an associate

On 13 September 2012, the Group sold 775 million shares in PT XL Axiata Tbk (“XL”), previously classified as an associate, representing 9.1% of XL’s issued share capital, at a price of IDR 6,300 per share, retaining a 4.2% stake.

The Group received proceeds of IDR 4.85 trillion (AED 1.86 billion) net of commission and expenses. The partial disposal of the investment in XL resulted in the recognition of gain amounting to AED 860 million before Federal royalty. As part of the disposal, the Group gave up significant influence over XL and, consequently, has classified the remaining stake in XL amounting to AED

860 million as AFS financial assets under “other investments” in the consolidated financial statements.

(f) Key assumptions for the value in use calculation

The key assumptions for the value in use calculations for investment in associates are as disclosed in Note 9.


88


Financials

(g) Joint ventures as at 31 December 2012 and 2011



Ubiquitous Telecommunications Technology LLC UAE Installation and management

of network systems 50%

Smart Technology Services DWC – LLC

DWC Free Zone, Dubai, UAE ICT services 50%

(h) Movement in investment in joint ventures

2012AED’000

2011AED’000

Net book amount at 1 January 88,071 94,037

Share of results 5,276 (5,966)

Net book amount at 31 December 93,347 88,071

(i) Aggregated amounts relating to joint ventures2012

AED’0002011

AED’000

Group’s share of current assets 44,701 23,644

Group’s share of non-current assets 77,391 75,769Group’s share of current liabilities (28,745) (11,289)Group’s share of non-current liabilities - (53)

Group’s share of net assets in joint ventures Ventures 93,347 88,071

Group’s share of income in joint ventures 38,753 12,689Group’s share of expenditure in joint ventures Ventures (33,477) (18,655)

Group’s share of results in joint ventures 5,276 (5,966)

The Group has not identified any contingent liabilities or capital commitments in relation to its interest in joint ventures, nor do the joint ventures themselves have any contingent liabilities or capital commitments for which the Group is contingently liable.


15. Other investmentsOther investments comprise of the following, all of which are classified as available for sale, with the exception of the Sukuk, which are classified as held-to-maturity investments.

Quoted equity

investmentsAED’000

Un-quoted equity

investmentsAED’000

SukuksAED’000

TotalAED’000

At 1 January 2011 346,336 78,954 91,850 517,140

Additions - 541 - 541

Investment revaluation (59,560) - - (59,560)

Exchange differences - (1,465) - (1,465)

At 31 December 2011 286,776 78,030 91,850 456,656

Additions 69,251 10,417 145,524 225,192

Arising on consolidation of PTCL 3,171 - - 3,171

Investment revaluation (2,751) - - (2,751)

Reclassification from(associate (Note 14 859,542 - - 859,542

Sukuk redemption - - (91,850) (91,850)

Exchange differences - 1,535 - 1,535

At 31 December 2012 1,215,989 89,982 145,524 1,451,495

Quoted equity investments represent investments in listed equity securities that present the Group with opportunity for return through dividend income and capital growth. These shares are not held for trading. The fair values of these equity securities are derived from quoted prices in active markets for identical assets, which, in accordance with the fair

value hierarchy within IFRS 7 Financial Instruments: Disclosure, represent Level 1 fair values.

Non-quoted equity investments include those made by AT amounting to AED 67.9 million (2011: AED 60.6 million). These investments are carried at cost as they are unquoted equity instruments that do not have a quoted market price

in an active market and whose fair value cannot be reliably measured.

The Sukuk is a bond structured to conform with the principles of Islamic Sharia law. At 31 December 2012, the market value of the investment in Sukuk was AED 144.6 million (2011: AED 90 million).


90

16 Related party transactions and balancesTransactions between the Corporation and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below.

(a) Federal Government and state controlled entities

As stated in Note 1, in accordance with Federal Law No. 267/10 for 2009,

the Federal Government of the UAE transferred its 60% holding in the Corporation to the Emirates Investment Authority with effect from 1 January 2008, which is ultimately controlled by the UAE Federal Government. The Group provides telecommunication services to the Federal Government (including Ministries and local bodies). These transactions are at normal commercial terms. The credit period allowed to Government customers ranges from 90 to 120 days. At 31 December 2012, trade receivables include an amount of AED 1,232 million (2011: AED 680 million),

receivable from Federal Ministries and local bodies. See Note 5 for disclosure of the royalty payable to the Federal Government of the UAE.

In accordance with IAS 24 (revised 2009) Related Party Disclosures the Group has elected not to disclose transactions with the UAE Federal Government and other entities over which the Federal Government exerts control, joint control or significant influence. The nature of the transactions that the Group has with such related parties is the provision of telecommunication services.

(b) Joint ventures and associatesAssociates Joint ventures2012

AED million2011

AED million2012

AED million2011

AED millionTrading transactionsTelecommunication services – sales 139.9 200.2 - -Telecommunication services – purchases 110.6 205.0 - -Management and other services 456.0 392.9 - 4.3Net amount due from/(to) related parties 533.8 397.0 5.4 (3.8)Loans to related parties -Interest income 560.0 493.6 - -Loan due from related party 4,451.5 3,891.0 - -

Sales to related parties comprise management fees and the provision of telecommunication products and services (primarily voice traffic and leased circuits) by the Group. Purchases relate exclusively to the provision of telecommunication products and services by associates to the Group.

The principal management and other services provided to the Group’s associates are set out below:

(i) Etihad Etisalat Company Pursuant to the Communications and Information Technology Commission’s

(CITC) licensing requirements, EEC (then under incorporation) entered into a management agreement (“the Agreement”) with the Corporation as its operator from 23 December 2004. Amounts invoiced by the Corporation relate to annual management fees, fees for staff secondments and other services provided under the Agreement. The term of the Agreement is for a period of seven years and can be automatically renewed for successive periods of five years unless the Corporation serves a 12 month notice of termination or EEC serves a 6 month notice of termination prior to the

expiry of the applicable period.

(ii) Thuraya Telecommunications Company PJSC The Corporation provides a primary gateway facility to Thuraya including maintenance and support services. The Corporation receives annual income from Thuraya in respect of these services.

(iii) Emerging Markets Telecommunications Services B.V. Amounts invoiced by the Corporation relate to annual management fees, fees for staff secondments and other services.


Financials


In 2010, the Corporation advanced a loan of AED 1.7 billion to EMTS B.V. EMTS B.V. has advanced a loan to its subsidiary EMTS Nigeria. EMTS B.V.’s loan to EMTS Nigeria was subordinated in 2011 as a result of an external borrowing arrangement entered into by EMTS Nigeria.

(c) Remuneration of key management personnel

The remuneration of the Board of Directors, who are the key management personnel of the Group, is set out below

in aggregate for the category specified in IAS 24 Related Party Disclosures.

2012AED’000

2011AED’000

Short-term benefits 34,660 19,626

17 Inventories2012

AED’0002011

AED’000

Subscriber equipment 384,597 293,736

Maintenance and consumables 38,159 51,483

422,756 345,219

18 Trade and other receivables2012

AED’0002011

AED’000

Amount receivable for services rendered 6,554,948 5,683,091

Allowance for doubtful debts (1,227,965) (1,257,814)

Net trade receivables 5,326,983 4,425,277Amounts due from other telecommunication operators/carriers 3,246,681 2,058,779Prepayments 485,754 421,061Accrued income 298,879 584,576Other receivables 2,175,520 1,243,022

11,533,817 8,732,715

An amount of AED 266 million has been reclassified from “other receivables” to “amount receivable for services rendered” in 2011 to conform with the current year presentation.

The Group’s normal credit terms ranges between 30 and 180 days (2011: 30 and 120 days).


92

18 Trade and other receivables (continued)Ageing of net trade receivables:

2012AED’000

Upto 60days 2,081,63261-90 days 432,88890-365 days 1,847,665Over one year 964,798

5,326,983

2012AED’000

2011AED’00

Movement in allowance for doubtful debts

Opening balance as at 1 January 1,257,814 1,217,695Net (decrease)/increase in allowance for doubtful debts (29,849) 40,119

Closing balance as at 31 December 1,227,965 1,257,814

No interest is charged on the receivables. With respect to the amount receivable from the services rendered the Group holds AED 260 million (2011: AED 317 million) of collateral in the form of cash deposits from customers.

“Amounts due from other telecommunication administrations” include interconnect balances with related parties.

19. Cash and cash equivalents2012

AED’0002011

AED’00

Cash and cash equivalents 13,934,076 9,971,647

Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. These are denominated primarily in UAE Dirham, with financial institutions and banks. The carrying amount of these assets approximates to their fair value.

Interest is earned on these deposits at prevailing market rates. Cash and cash equivalents include an amount of AED 2,562 million (2011: AED 2,089 million) representing bank and cash balances of the Corporation’s subsidiaries maintained overseas of which AED 34 million is restricted, (2011: AED 602 million).


Financials


20 Trade and other payables2012

AED’0002011

AED’00Included within current liabilities:Federal royalty 6,466,873 5,839,019Trade payables 3,539,439 2,693,491Amounts due to other telecommunication administrations 2,762,283 1,720,034Deferred revenue 1,392,846 1,255,586Other payables and accruals 6,326,143 6,436,467

20,487,584 17,944,597Included within non-current liabilities:Trade payables 552,037 554,327Other payables and accruals 146,504 97,475

698,541 651,802

“Amounts due to other telecommunication administrations” include interconnect balances with related parties.

Federal royalty for the year ended 31 December 2012 is to be paid as soon as the consolidated financial statements have been approved but not later than 4 months from the year ended 31 December 2012.

21 Borrowings The carrying value and estimated fair value of the Group’s bank and other borrowings (measured at amortised cost) are as follows:

Fair value Carrying value2012

AED’0002011

AED’0002012

AED’0002011

AED’000Bank borrowings

Bank overdrafts 51,298 91,584 51,298 91,584Bank loans 4,230,862 5,192,847 4,203,791 5,361,208

Other borrowingsLoans from non-controlling interests 62,340 277,074 62,340 277,074Vendor financing 871,362 374,327 871,362 374,327Other 34,336 8,507 34,336 8,507

5,250,198 5,944,339 5,223,127 6,112,700Advances from non-controlling interests 583,311 583,311

5,806,438 6,696,011


94

21 Borrowings (continued)The fair values of the Group’s bank and other borrowings are calculated based on discounted cash flows using an appropriate discount factor for similar financial instruments that includes credit risk.

Advances from non-controlling interests represent advances paid by the minority shareholder of Etisalat International Pakistan LLC (“EIP”) towards the Group’s acquisition of its 26% stake in PTCL, net of repayments. The amount is interest free and is not repayable within 12 months of the statement of financial position date and accordingly the

full amount is carried in non-current liabilities. The fair value of advances from non-controlling interests is not equivalent to its carrying value due to the fact that it is non-interest bearing. However, as the repayment dates are variable, a fair value cannot be reasonably determined.

The terms and conditions of the Group’s bank and other borrowings are as follows:

Carrying valueCurrency Year of

maturityInterest rate type

Nominal interest rate

2012 AED’000

2011 AED’000

Secured bank loan EGP 2013-2016 Variable Mid Corridor +1.4% 1,263,184 1,793,897

Secured bank loan EUR 2013-2017 Variable EURIBOR +0.8% 605,725 -

Advances from non-controlling interests USD N/A N/A N/A 583,311 583,311

Secured bank loan USD 2013-2015 Variable LIBOR +2.9% 551,860 1,096,134

Unsecured vendor financing PKR 2013-2015 Fixed Interest free 456,794 -

Secured bank loan USD 2013-2014 Variable LIBOR +4.8% 374,691 314,039

Secured vendor financing USD 2013-2014 Fixed 5.00% 238,220 374,263

Secured bank loan PKR 2014-onwards Variable KIBOR+1.2% 226,800 -

Unsecured bank loan USD 2013 Variable LIBOR +1.3% 203,128 174,003

Secured bank loan PKR 2013-2017 Variable KIBOR+1.8% 189,000 -

Secured bank loan EUR 2013-2015 Variable EURIBOR +4.9% 173,498 227,290


Disclosed as:2012

AED’0002011

AED’00

Due for settlement within 12 months 1,323,597 2,435,092

Due for settlement after 12 months 4,482,841 4,260,919

5,806,438 6,696,011

External borrowings of AED 4,292 million (2011: AED 5,579 million) are secured by property, plant and equipment.


Financials


Carrying valueCurrency Year of

maturityInterest rate type

Nominal interest rate

2012 AED’000

2011 AED’000


Secured bank loan USD 2012-2017 Variable LIBOR +6.2% 111,883 127,232

Unsecured vendor financing PKR 2013 Variable KIBOR+0.2% 83,525 -

Secured bank loan CFA 2013-2017 Fixed 8% 63,224 - Unsecured loans from non-controlling interests EGP 2013-2015 Fixed 10.00% 62,340 277,074

Secured bank loan INR 2012 Fixed 14.30% - 977,869

Secured bank loan EUR 2012 Variable EURIBOR +8.7% - 593,738

Unsecured bank overdrafts LKR 2012 Variable LIBOR +1.0% - 26,821

Secured bank loan USD 2012 Variable LIBOR +5.5% - 5,643

Others Various Various Various Various 316,855 124,697

5,806,438 6,696,011

(a) Interest rates

The weighted average interest rate paid during the year on bank and other borrowings is set out below:

2012 2011

Bank borrowings 7.4% 8.9%

Other borrowings 3.9% 7.1%

(b) Available facilities

At 31 December 2012, the Group had available AED 2,675 million (2011: AED 2,101 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.


96

22 Payables related to investments and licenseCurrent

AED’000Non-current

AED’000Total

AED’000

31 December 2012

InvestmentsEtisalat International Pakistan LLC 2,936,653 - 2,936,653Atlantique 11,022 - 11,022

LicensesRepublic of Benin 56,513 62,793 119,306Pakistan Telecommunication Company Limited (PTCL) 1,711 4,576 6,287

3,005,899 67,369 3,073,268

31 December 2011Investments

Etisalat International Pakistan LLC 2,936,654 - 2,936,654Atlantique 11,022 - 11,022

LicenseRepublic of Benin 19,564 - 19,564

2,967,240 - 2,967,240

According to the terms of the share purchase agreement between Etisalat International Pakistan LLC and the Government of Pakistan (“GOP”) payments of AED 6,612 million (2011: AED 6,612 million) have been made to GOP with the balance of AED 2,937

million (2011: AED 2,937 million) to be paid. The amounts payable are being withheld pending completion of certain conditions in the share purchase agreement related to the transfer of certain assets to PTCL.

All amounts payable on acquisitions are financial liabilities measured at amortised cost and are mostly denominated in either USD or AED and thus do not result in significant exchange rate risk.


Financials


23 Finance lease obligations

Minimum leasepayments

Present value ofminimum lease

payments2012

AED’0002011

AED’0002012

AED’0002011

AED’000

Amounts payable under finance leases

Within one year 6,341 88,720 5,980 59,261In the second to fifth years inclusive 6,173 61,020 3,508 55,006After five years 57 - - -

12,571 149,740 9,488 114,267Less: future finance charges (3,083) (35,473) - -

Present value of lease obligations 9,488 114,267 9,488 114,267

:Disclosed as Amounts due within 12 months 5,980 59,261Amounts due after 12 months 3,508 55,006

9,488 114,267

It is the Group policy to lease certain of its plant and machinery under finance leases. For the year ended 31 December

2012, the average effective borrowing rate was 14.9% (2011: 12.7%). The fair value of the Group’s lease obligations

is approximately equal to their carrying value.


98

24 Provisions

Assetretirement

obligationsAED’000

OtherAED’000

TotalAED’000

At 1 January 2011 60,051 210,454 270,505

Additional provision during the year 5,164 580,986 586,150Utilisation of provision 10,518 (250,532) (240,014)Release of provision - (150,442) (150,442)Reclassification - 514,067 514,067Unwinding of discount 367 692 1,059Exchange differences (2,050) (20,875) (22,925)

At 31 December 2011 74,050 884,350 958,400Additional provision during the year 3,576 450,966 432,778Utilisation of provision - (296,104) (269,554)Release of provision - (113,844) (113,844)

Reclassification (34,370) (118,461) (152,831)Unwinding of discount 342 - 342 Deconsolidation of a subsidiary (Note 12) (9,311) - (9,311)

Exchange differences (610) (27,044) (32,440)

At 31 December 2012 33,677 779,863 813,540

2012AED’000

2011AED’000

Included in current liabilities 643,569 778,494Included in non-current liabilities 169,971 179,906

813,540 958,400

Asset retirement obligations relate to certain assets held by certain Group’s overseas subsidiaries that will require restoration at a future date that has

been approximated to be equal to the end of the useful economic life of the assets. There are no expected reimbursements for these amounts.

“Other” includes provisions relating to certain indirect tax liabilities and other regulatory related items arising from certain Group’s overseas subsidiaries.


Financials


25 Financial instrumentsDetails of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases of recognition of income and expenses) for each class of financial asset and financial liability are disclosed in Note 2.

Capital managementThe Group’s capital structure is as follows:

2012AED’000

2011AED’000

Bank borrowings (4,255,089) (5,452,792)

Other borrowings (1,551,349) (1,243,219)

Finance lease obligations (9,488) (114,267)

Cash and cash equivalents 13,934,076 9,971,647

Net funds 8,118,150 3,161,369

Total equity 46,274,856 41,703,851

Net Equity 38,156,706 38,542,482

The capital structure of the Group consists of bank and other borrowings, finance lease obligations, cash and cash equivalents and total equity comprising share capital, reserves and retained earnings.

The Group monitors the balance between equity and debt financing

and establishes internal limits on the maximum amount of debt relative to earnings. The limits are assessed, and revised as deemed appropriate, based on various considerations including the anticipated funding requirements of the Group and the weighted average

cost of capital. The overall objective is to maximise returns to its shareholders through the optimisation of the net debt and equity balance. The Group is not subject to any externally imposed capital requirements.


100

25 Financial instruments (continued)

Categories of financial instrumentsThe Group’s financial assets and liabilities consist of the following:

2012AED’000

2011AED’000

Financial assets

Loans and receivables, held at amortised cost:Loans to/due from associates and joint ventures 3,414,510 3,262,184Finance lease receivables - 12,673Trade and other receivables, excluding prepayments 11,048,065 8,311,654

14,462,575 11,586,511Available-for-sale financial assets 1,305,971 364,806Held-to-maturity investments 145,524 91,850Cash and cash equivalents 13,934,076 9,971,647

29,848,146 22,014,814

Financial liabilitiesOther financial liabilities held at amortised cost:Trade and other payables, excluding deferred revenue 19,793,278 17,340,813Borrowings 5,806,438 6,696,011Payables related to investments and licenses 3,073,268 2,967,240Finance lease obligations 9,488 114,267Derivative financial instruments - 354,861

28,682,472 27,473,192

Financial risk management objectives The Group’s corporate finance function has overall responsibility for monitoring the domestic and international financial markets and managing the financial risks relating to the operations of the Group. Any significant decisions about whether to invest, borrow funds or purchase derivative financial instruments are approved by either the Board of Directors

or the relevant authority of either the Corporation or of the individual subsidiary. The Group’s risk includes market risk, credit risk and liquidity risk.

The Group takes into consideration several factors when determining its capital structure, with the aim of ensuring sustainability of the business and maximising the value to shareholders. The Group monitors its cost of capital with a goal of optimizing its

capital structure. In order to do this, the Group monitors the financial markets and updates to standard industry approaches for calculating weighted average cost of capital, or WACC. The Group also monitors a net financial debt ratio to obtain and maintain the desired credit rating over the medium term, and with which the Group can match the potential cash flow generation with the alternative uses that could arise at all times. These general principles are


Financials


refined by other considerations and the application of specific variables, such as country risk in the broadest sense, or the volatility in cash flow generation, or the applicable tax rules, when determining the Group’s financial structure.

Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and price risks on equity investments. From time to time, the Group will use derivative financial instruments to hedge its exposure to currency risk. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk during the year.

Foreign currency risk The Group has limited transactional exposure to exchange rate risk as it generally enters into contracts in the functional currency of the entity. These currencies include Nigerian Naira,

Egyptian Pounds, Euros, Pakistani Rupee, Indonesian Rupiah, Tanzanian Shilling and CFA Francs. The Group also enters into contracts in USD and in Euros and as these currencies are pegged to AED and CFA respectively it results in limited exposure.

At 31 December 2012, the Group has financial assets and liabilities in its Egyptian and West African subsidiaries that were in USD and other limited financial liabilities in Tanzania that are in currencies other than its respective functional currency. In instances where the Group has a foreign currency transactional exposure, it considers whether to purchase derivative financial instruments to manage the exposure and reassess this conclusion based on the level of exposure. The Group’s exposure to transactional exchange rate risk has not historically resulted in material impacts on profitability.

In addition to transactional foreign currency exposure, the Group is exposed

to risk upon the translation of the Group’s foreign subsidiaries into AED. The Group recognises the impact of the translation as a movement in equity.

Foreign currency sensitivityThe following table presents the Group’s sensitivity to a 10 per cent change in the Dirham against the Egyptian Pound, the Euro and the Pakistani Rupees. These three currencies account for a significant portion of the impact of net profit, which is considered to materially occur through cash and borrowings within the Group’s financial statements in respect of subsidiaries and associates whose functional currency is not the Dirham. The impact has been determined by assuming a weakening in the foreign currency exchange of 10% upon closing foreign exchange rates. A positive number indicates an increase in the net cash and borrowings balance if the AED/USD were to strengthen against the foreign currency.

2012AED’000

2011AED’000

Increase in profit/(loss) for the year and increase/(decrease) in equity Egyptian pounds 122,085 136,214Euros 34,867 -Pakistani rupees (8,299) -

Interest rate riskThe Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The Group monitors the market interest rates in comparison to its current borrowing rates and determines whether or not it believes it should take action related to the current interest rates. This includes a consideration of the current cost of borrowing, the projected future interest

rates, the cost and availability of derivate financial instruments that could be used to alter the nature of the interest and the term of the debt and, if applicable, the period for which the interest rate is currently fixed.

Interest rate sensitivityBased on the borrowings outstanding at 31 December 2012, if interest rates had been 2% higher or lower during

the year and all other variables were held constant, the Group’s net profit and equity would have decreased or increased by AED 86 million (2011: AED 87 million). This impact is primarily attributable to the Group’s exposure to interest rates on its variable rate borrowings.

The Group’s sensitivity to interest rate has not changed significantly during the year.


102

25 Financial instruments (continued)

Market risk (continued)

Other price riskThe Group is exposed to equity price risks arising from its equity investments. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. See Note 15 for further details on the carrying value of these investments.

The Group’s sensitivity to other prices has not changed significantly during the year.

Credit risk managementCredit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group and arises principally from the Group’s bank balances and trade and other receivables. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are monitored and

the aggregate value of transactions concluded is spread amongst approved counterparties.

For its bank balance, the Group considers various factors in determining with which banks to invest its money including whether the bank is owned by and/or has received government support, the rating of the bank by rating agencies and the level of security by way of governmental deposit guarantees. The assessment of the banks and the amount to be invested in each bank is assessed annually or when there are significant changes in the marketplace.

At 31 December 2012, the Group’s bank balances were invested 82% (2011: 79%) in the UAE and 18% (2011: 21 %) outside of the UAE. Of the amount in the UAE, an aggregate of AED 3.8 billion (2011: AED 1.7 billion) was with a bank rated A+, AED 0.6 billion (2011: AED 1.3 billion) was with a bank rated A by Fitch, AED 1.4 billion (2011: AED nil) was with a bank rated A1 and AED 1 billion (2011: AED nil) was with a bank rated A by Standard and Poor’s.

The Group’s trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts

receivable and, where appropriate, collateral is received from customers usually in the form of a cash deposit.

The carrying amount of financial assets recorded in the consolidated financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained.

Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The details of the available undrawn facilities that the Group has at its disposal at 31 December 2012 to further reduce liquidity risk is included in Note 21. The majority of the Group’s financial liabilities as detailed in the consolidated statement of financial position are due within one year.

2012AED’000

2011AED’000

Financial liabilities are repayable as follows:On demand or within one year 22,307,443 22,150,964In the second year 3,577,394 2,169,336In the third to fifth years inclusive 2,522,549 1,971,295After the fifth year 272,996 826,737

28,680,382 27,118,332

The above table has been drawn up based on the undiscounted cash flows of

financial liabilities based on the earliest date on which the Group can be required

to pay. The table includes both interest and principal cash flows.


Financials


Fair value of financial instrumentsBorrowings are measured and recorded in

the consolidated statement of financial position at amortised cost and their fair values are disclosed in Note 21. The carrying amounts of the other financial

assets and liabilities recorded in the financial statements approximate their fair values.

26 Provision for end of service benefitsThe movement in the provision for end of service benefits is as follows:

2012AED’000

2011AED’000

Balance as at 1 January 828,011 834,283Charge for the year 119,619 127,818Payments during the year (179,985) (123,354)Deconsolidation of a subsidiary (Note 12) (4,591) -Exchange difference (188) -Additional provision from consolidation of PTCL (Note 29) 764,860 -Release of provision (9,690) (10,736)

Balance as at 31 December 1,518,036 828,011

The above provision was based on the following significant assumptions:

2012 2011Discount rate 3.07% 3.61%Average annual rate of salary increase 3.5% 3.94%Average period of employment 14 years 15 years

27 Share capital2012

AED’0002011

AED’000Authorised:8,000 million (2011: 8,000 million) ordinary shares of AED 1 each 8,000,000 8,000,000

Issued and fully paid:7,906.1 million (2011: 7,906.1 million) ordinary shares of AED 1 each 7,906,140 7,906,140

Reconciliation of movement in share capitalAt 1 January 7,906,140 7,187,400Bonus issue of fully paid shares (2011: 718.7 million) - 718,740At 31 December 7,906,140 7,906,140


104

28 Reserves2012

AED’0002011

AED’000Development reserve 7,850,000 7,850,000Asset replacement reserve 8,108,000 8,070,000Statutory reserve 97,561 56,641Translation reserve (958,943) (335,865)General reserve 14,080,515 12,963,491Investment revaluation reserve 80,108 82,459

29,257,241 28,686,726

(a) Development reserve, asset replacement reserve and general reserve These reserves are all distributable reserves and comprise amounts transferred from unappropriated profit at the discretion of the Group to hold reserve amounts for future activities including the issuance of bonus shares.

(b) Statutory reserveIn accordance with the UAE Federal Law No. 8 of 1984, as amended, and the respective Memoranda of Association of some of the Group’s subsidiaries, 10% of their respective annual profits should be transferred to a non-distributable statutory reserve. The Corporation’s share of the reserve has accordingly been disclosed in the consolidated statement of changes in equity.

(c) Translation reserveCumulative foreign exchange differences arising on the translation of overseas operations are taken to the translation reserve.

(d) Investment revaluation reserveThe cumulative difference between the cost and carrying value of available-for-

sale financial assets is recorded in the Investment revaluation reserve.

29 Consolidation of PTCLThe Corporation, through its majority owned subsidiary Etisalat International Pakistan LLC (“EIP”), owns the entire 1.326 billion Class B shares of PTCL. These Class B shares represent 26% of PTCL’s issued capital and, in accordance with PTCL’s Articles of Association, provide the Corporation with 53% of the voting rights. Under the terms of the Shareholders Agreement between EIP and the Government of Pakistan (“GOP”), EIP has the right to appoint five of the nine members of the Board of Directors of PTCL in addition to the appointment of certain key management personnel. In previous periods, management assessed that there were certain significant control impediments, including but not limited to restrictions on the Corporation’s financial and operating decision making ability, and because of these, PTCL was previously accounted for as an associate using the equity method. During the fourth quarter of 2012, management reassessed their position, judging based on a number of recent developments and their experience in practice that the majority of these former control impediments had either

been alleviated or no longer have a significant impact on control. As a result, it was concluded by management that the Corporation can now be demonstrated to have control over the PTCL, which should therefore now be accounted for as a subsidiary.

Accordingly, the Corporation has derecognised its existing investment in PTCL as an associate and has consolidated PTCL as at 31 December 2012. The consolidation has been accounted for as a step acquisition as per IFRS 3, with no additional consideration beyond that paid and payable for the original acquisition in 2006, adjusted for impairment recognised this year, as referred to in note 9. After taking into account this impairment, there was no gain or further loss on derecognition of the investment in PTCL as an associate.

As at the date of the consolidated financial statement, management has not completed the fair valuation of the separately identifiable assets and liabilities of the PTCL or the purchase price allocation exercise. Therefore, the balances consolidated as at 31 December 2012 are mainly the existing PTCL book values with the excess consideration being accounted for as provisional Goodwill, as set out below.


Financials


Provisional fair valuesAED’000

Net assets acquiredIntangible assets 129,339Property, plant and equipment 5,619,640Investments 4,190Inventory 125,305Trade and other receivables 1,525,008Deferred tax assets 195,532Cash and cash equivalents 1,452,608Trade and other payables (1,728,531)Provision for end of service benefits (764,860)Obligations under finance leases (3,901)Bank loans (1,369,283)Deferred tax liabilities (911,934)Net identifiable assets acquired 4,273,113Share of net identifiable assets acquired (26%) 1,111,009Goodwill (Provisional) 5,986,251Fair value of investment in PTCL as at 31 December 2012 7,097,260Net cash inflow arising on acquisition:Cash and cash equivalents acquired 1,452,608

Management expects to complete a detailed fair valuation and purchase price allocation exercise in 2013. It is expected that additional values will be attributed to customer relationships, land, other intangibles and other assets, partially offset by adjustments, if any are required, to liabilities. As a result, management expects that the final goodwill amount will be lower than the current provisional amount and, in accordance with IFRS 3, the 31 December 2012 balances shown as comparative information in the 2013 consolidated financial statements will need to be restated. Any goodwill remaining is expected to be attributable to operating synergies between the Corporation and the PTCL.

The Group’s revenue would have been increased by AED 4,521 million, if the PTCL had been consolidated effective from 1 January 2012.

30 Other significant events Following the Supreme Court of India’s cancellation of all of Etisalat DB Telecom Private Limited’s (“the Company”) licenses removing the Company’s ability to operate its current mobile telecommunications business, on 22 February 2012 the Board of the Company unanimously decided to shut down its network and gave the appropriate notices to the Indian authorities. Furthermore, the resignation of the

directors of the Company appointed by the majority shareholders without replacement adversely affected the ability of the Company’s Board of Directors to take decisions. Subsequent to this, Etisalat Mauritius Limited (owned by Etisalat Corporation) filed proceedings on 12 March 2012 for the just and equitable winding up of the Company, which are ongoing.

On 3 July 2012, the Bombay High Court appointed an Indian law firm, as the Authorised Person to manage the Company pending the Bombay High Court’s decision on the admission of the just and equitable winding up Petition submitted by Etisalat Mauritius Limited.


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31 Commitments (a) Capital commitments

The Group has approved future capital projects and investments commitments to the extent of AED 5,005 million (2011: AED 4,391 million).

(b) Lease commitments

(i) The Group as lessee2012

AED’0002011

AED’000Minimum lease payments under operating leases recognised as an expense in the year (Note 5) 248,165 319,945

At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

2012AED’000

2011AED’000

Within one year 252,133 549,355In the second to fifth years inclusive 1,202,491 2,287,231After five years 740,586 1,273,554

2,195,210 4,110,140

Operating lease payments represent rentals payable by the Group for certain of its office and retail properties. Leases are negotiated for an average term of two years.

(ii) The Group as lessor

Property rental income earned during the year was AED 15 million (2011: AED 16 million). All of the properties held have committed tenants for the next 3-15 years.

At the reporting date, the Group had contracted with tenants for the following future minimum lease payments:

2012AED’000

2011AED’000

Within one year 11,955 11,418In the second to fifth years inclusive 33,696 32,951After five years 5,289 13,195

50,940 57,564

32 Contingent liabilities (a) Bank guarantees

At 31 December 2012, the Group’s bankers had issued performance bonds and

guarantees for AED 1,295 million (2011: AED 1,294 million) in relation to contracts. Guarantees relating to the Corporation’s overseas investments amounted to AED 1,173 million (2011: AED 1,197 million) and promissory notes amounted to AED 866

million (2011: AED 1,400 million).

(b) Derivative financial instruments

Derivative financial instruments representing the fair value of a written


Financials


33 DividendsAmounts recognised as distributions to the equity holders:

AED’00031 December 2012Final dividend for the year ended 31 December 2011 of AED 0.35 per share 2,767,149Interim dividend for the year ended 31 December 2012 of AED 0.25 per share 1,976,535

4,743,68431 December 2011Final dividend for the year ended 31 December 2010 of AED 0.35 per share 2,767,149Interim dividend for the year ended 31 December 2011 of AED 0.25 per share 1,976,535

4,743,684

A final dividend of AED 0.35 per share was declared by the Board of Directors on 20 February 2012, bringing the total dividend to AED 0.60 per share for the year ended 31 December 2011.

An interim dividend of AED 0.25 per share was declared by the Board of Directors on 18 July 2012 for the year ended 31 December 2012.

A final dividend of AED 0.45 per share was declared by the Board of Directors on 19 February 2013, bringing the total dividend to AED 0.70 per share for the year ended 31 December 2012.

34 Earnings per share2012 2011

Earnings (AED’000)Earnings for the purposes of basic earnings per share beingthe profit attributable to the equity holders of the Corporation

6,741,818 5,839,019

Number of shares (‘000)Weighted average number of ordinary shares for the purposes of basic earnings per share 7,906,140 7,906,140

The Group does not have potentially dilutive shares and accordingly, diluted earnings per share equals to basic earnings per share.

put option over the equity of an overseas subsidiary amounting to AED 355 million were derecognised during the three months ended 31 March 2012 and are treated as a contingent liability.

(c) Foreign exchange regulations

On 23 July 2011, Etisalat DB Telecom Pvt Limited (“the Company”) received a show cause notice from the Directorate of Enforcement (ED) of India alleging

certain breaches of the Foreign Exchange Management Act, 1999 (FEMA), by the Company and its Directors. The Company and its Directors have filed their response(s) to the notice and the cases of each of the notices have been part heard by the ED.

(d) Other contingent liabilities

The Group is disputing certain charges from the regulatory and other

Government agencies in the UAE but does not expect any material adverse effect on the Group’s financial position and results from resolution of these.


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Notice of General Annual Shareholders Meeting

The Emirates Telecommunications Corporation’s Board of Directors is pleased to invite their esteemed shareholders to attend the General Annual Shareholders Meeting to be held at 4:30pm on Sunday 17th March 2013 at Etisalat Head Office in Abu Dhabi for the purpose of discussing the following meeting agenda:

1 To hear and approve the report of the Board of Directors on the Corporation’s activities and its financial position for the fiscal year ended 31 December 2012.

2 To hear and approve the External Auditors report for the fiscal year ended 31 December 2012.

3 To discuss and approve the Corporation’s balance sheet and profit and loss statement for the fiscal year ended 31 December 2012.

4 To consider the Board of Director’s recommendation on the distribution of dividends in the amount of 45 fils per share to be distributed for the second half of the year 2012, bringing the full dividend for the fiscal year ended 31 December 2012 to 70 fils per share.

5 To look into the compensations of the Members of the Board of Directors.

6 To absolve the Members of the Board of Directors and the External Auditors of liability in respect of the fiscal year ended 31 December 2012.

7 To appoint External Auditors for the year 2013 and to determine their remunerations.

Based on Board of Director’s directives

Corporate SecretaryNotes:

1 Each shareholder is entitled to delegate a proxy to attend the Annual General Meeting on his/her behalf as per the delegation form attached with the meeting invitation (minors and those who have no legal capacity shall be represented by their legal representative). All delegations forms shall be submitted to the securities department of the National Bank of Abu Dhabi PO Box 6865-Abu Dhabi, at least two days before the meeting date in order to register the same in the respective records. Only original delegations are accepted.

2 Only the owners of the shares as on Thursday, 14 March, 2013 shall be entitled to vote in the Annual General Meeting.

3 The owners of the shares as on Wednesday ,27 March, 2013 shall be entitled to shares dividends.

4 The shareholders can review the Corporation’s financial Statement on Abu Dhabi Exchange website.

5 To ensure good organization of the Annual General Meeting, any shareholder who attends after the beginning of the meeting shall not be entitled to vote.

6 If the quorum of the first Annual General Meeting has not been met, the second meeting shall be held on the 24 March 2013 at the same place and time.

www.etisalat.com

Documents

Etisalat 2012 Annual report