Zain KSA Financial Statement Analysis

ACCT501B, Financial Accounting

Ahmad Aldarrak, Ryan Rakestraw, Maria Surina

4/26/2012

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Table of Contents 1. BACKGROUND ....................................................................................................................................... 2

2. INDUSTRY ANALYSIS .............................................................................................................................. 3

2.1. Saudi Mobile Industry SWOT analysis ........................................................................................... 3

3. MOBILE OPERATORS ............................................................................................................................. 4

3.1. STC ................................................................................................................................................. 4

3.2. Mobily (Etihad Etisalat) ................................................................................................................. 5

3.3. Zain (Subject company) ................................................................................................................. 5

4. FINANCIAL STATEMENT ANALYSIS ........................................................................................................ 6

4.1. Revenue Analysis .......................................................................................................................... 6

4.2. Expense Analysis ........................................................................................................................... 7

4.2.1. Cost of Sales: ......................................................................................................................... 7

4.2.2. Distribution and Marketing ................................................................................................... 8

4.2.3. Capital Expenditures ............................................................................................................. 8

4.2.4. Depreciation and Amortization ........................................................................................... 10

4.2.5. Financial Charges ................................................................................................................ 10

4.2.6. Selling and General Administration .................................................................................... 10

4.2.7. Zakat and Tax Expenses ...................................................................................................... 10

5. CONCLUSIONS FROM FINANCIAL ANALYSIS ....................................................................................... 10

5.1. Licensing Fees ............................................................................................................................. 10

5.2. Economies of Scale and Scope .................................................................................................... 11

5.3. Marketing Efficiency ................................................................................................................... 11

6. FUTURE OUTLOOK .............................................................................................................................. 12

List of Figures

Figure 1: Saudi Mobile Market Share ........................................................................................................... 2

Figure 2: STC Ownership Composition .......................................................................................................... 5

Figure 3: Monthly ARPU ($US) By Operator ................................................................................................. 7

Figure 4: Customer Acquisition Cost ($US) By Operator .............................................................................. 8

List of Tables

Table 1: Saudi Mobile Market Data .............................................................................................................. 4

Table 2: Operator Financial Comparison (000 SAR) ...................................................................................... 6

Table 3: Operator DuPont Analysis ............................................................................................................... 6

Table 4: Cash Flow from Operations to CAPEX Ratio .................................................................................... 9

Table 5: CAPEX By Operator .......................................................................................................................... 9

Table 6: Sales to PP&E Ratio ......................................................................................................................... 9

Table 7: Current Ratio Analysis ................................................................................................................... 11

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1. BACKGROUND

The Kingdom of Saudi Arabia (KSA) began the process of restructuring its telecommunications sector

with the incorporation of the state-run Saudi Telecommunications Company (STC) in 1998.

Responsibility for providing fixed-line and mobile services to the country was shifted from The Ministry

of Post, Telegraph, and Telephone to STC, effectively creating a monopoly. This perfect monopoly

caused comparatively high prices and poor service. Monopolistic structure of the industry meant there

was no incentive to build a telecommunications network outside the metro regions. This, coupled with

the relatively sparse population of the Kingdom, limited the quality and speed of the country’s

telecommunications infrastructure roll-out.

As a result, the Communication and Information Technology Commission (CITC), the regulator of the

Saudi Arabian telecommunications market, was formed in 2001 to promote increased infrastructure

investment. In 2002, CITC issued a second mobile services license, thus allowing Etisalat —a

telecommunication services company based in the United Arab Emirates —to offer mobile services in

the country through its subsidiary company, Mobily, that launched operations in 2005. No additional

mobile licenses were issued until 2007 when Zain (formerly MTC, Kuwait’s state-run telecom) won the

rights to a 25 year license with a bid of $6.1B (USD). Zain KSA launched in 2008 and enrolled 2 million

subscribers within 4 months of launch.

Zain has not been profitable to date, but has been gaining market share (Ref. Figure 1). Both of these

factors can likely be partially attributed to Zain’s lower price strategy. Our goal in this research is to

investigate the reasons behind the losses of Zain and try to figure out how the company can start

generating profits in the rapidly growing telecom industry.

Figure 1: Saudi Mobile Market Share

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2. INDUSTRY ANALYSIS

The Saudi Arabian mobile telecom sector continues to show good growth (Ref. Table 1). Four and a half

million new subscribers were added in 2011 bringing the total mobile subscriber base to 56.1 mm. Saudi

Arabia is one of a handful of countries worldwide, mostly in the Middle East, in which the number of

mobile customers continues to expand despite having a penetration rate which has passed 200%. This is

mostly driven by consumers using multiple short term pre-paid subscription. Despite these gains, this

market is close to saturation; besides, some of these gains have been supported by temporary

subscribers participating in the Hajj (an Islamic pilgrimage to Mecca). Additionally, mobile operators are

facing declining average revenue per user (ARPU), a key industry metric. Overall decline in telecom

ARPU can at least partially be attributed to increased competition from to Zain’s entrance.

2.1. Saudi Mobile Industry SWOT analysis

Strengths:

Strong competition among the three main operators provides reasonably priced mobile access

Advanced high-speed networks (3G/4G/GSM)

Increased foreign investment

Demographic shift towards younger population that demands the latest services and devices

Weaknesses:

Mobile sector close to saturation

Large percentage of pre-paid subscriptions puts downward pressure on revenues

Government involvement remains high (STC is 70% owned by Saudi government)

Opportunities:

Growing demand for high speed data (3G & 4G)

Proliferation of smartphones

Shift from pre-paid phones to post-paid tariffs

Threats:

Increased competition could lead to margin erosion

The Saudi economy is reliant on the price of oil

o Volatility could affect consumer sentiment and lower demand

High unemployment with youth demographic could limit value of data services

Political and social instability

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Table 1: Saudi Mobile Market Data

3. MOBILE OPERATORS

3.1. STC

STC is the largest/dominant telecommunications service provider in Saudi Arabia that was established in

1998. The company was owned by government and remained the only provider of all telecom services

in the country until 2004, when the WTO requested that Saudi Arabia liberalize its mobile and fixed-line

telephony market.

STC incorporates a number of subsidiaries, associates and joint ventures – all involved in a variety of

telecommunications services, including mobile, telephone and internet services, data transmission and

leased lines. STC accounts for most of these companies using consolidation method with except for

three firms where STC uses the Equity method. Refer to Figure 2 outlining the list of companies

comprising STC. While STC remains the dominant player in the telecommunication services market

(accounting for 42.3% of the market), its share has been significantly reduced by the two major

competitors, Mobily and Zain. Both firm fight aggressively offering diversified telecom service packages

at lower rates.

It is important to note that while STC is private company the Saudi government controls the company

with 70% of the company’s equity stake. Twenty percent is held by the public and the remaining 10% is

held by various institutional investors (mainly pension funds). The close relationship between STC the

government and the regulating authority, CITC, in particular, suggests that the industry might not be as

competitive or efficient as it could be if all players were fully private firms. For example, CITC can set

price floor, preventing a price war in the industry, thus eliminating market efficiencies.

2009 2010 2011f 2012f 2013f 2014f 2015f 2016f

No of Cellular Mobile Phone

Subscribers ('000) 44,800.0 51,600.0 58,308.0 60,277.0 62,352.0 64,460.0 66,964.0 68,638.0

No of Mobile Phones per 100

inhabitants 167.1 188.0 207.6 210.0 212.7 215.4 219.3 220.4

No of Mobile Phones per 100 1,074.0 1,249.4 1,392.2 1,433.8 1,475.3 1,518.5 1,574.1 1,611.8

No of 3G Phone Subscribers 5,490.0 7,645.0 10,308.0 13,633.0 17,719.0 22,600.0 28,245.0 32,482.0

3G Market As % of Entire Mobile

Market 12.30% 14.80% 17.70% 22.60% 28.40% 35.10% 42.20% 47.30%

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Figure 2: STC Ownership Composition

3.2. Mobily (Etihad Etisalat)

Mobily is the second largest mobile operator in Saudi Arabia. It is owned by the Etihad Etisalat

consortium, led by Etisalat of United Arabia Emirates with 27% ownership. Mobily was among the first

independent providers in Saudi Arabia by acquiring a GSM license for $3.26B in August 2004. Later,

Mobily paid another $201M for a 3G license. The company enjoys a 39.6% market share. Year over year,

the company’s profits have increased by 8%, but intense competition in the industry has driven profit

margins down.

The company fights aggressively with STC, trying to gain market share, but hasn’t been able to establish

a leadership position. Mobily’s strategy focuses on expanding the quality and coverage of its mobile and

fixed broadband networks. Mobily is the leader in deploying new mobile smart phones, promoting the

usage of mobile data services, which will likely drive future revenue growth in the industry. Mobily has

recently entered the WiMax/internet broadband segment after the acquisition of Bayanat Al-Oula,

which expanded the company’s customer pool.

3.3. Zain (Subject company)

Zain is the third mobile phone operator to enter the Saudi Arabian market. It started operating in 2008,

and managed to attract 2 million users in the first 4 months. Since then, the company has been growing

in number of subscribers; now, Zain sits at a 17% market share. Zain of Saudi Arabia (Zain KSA) is a

subsidiary of the Zain of Kuwait. The company operates in multiple countries in the Middle East, and has

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a “One Network” brand image where subscribers can enjoy local rates in all the countries that Zain

operates in.

Unlike its profitable parent company in Kuwait, Zain KSA has been generating losses every quarter since

its inception. In addition, the company is burdened with a large debt that was issued to pay the $6.1

billion license fee, and to build the infrastructure needed for the service coverage. With the consecutive

losses, the company is at a risk of defaulting on its interest expenses.

4. FINANCIAL STATEMENT ANALYSIS

To analyze the reasons behind the consecutive losses, and see what the future of Zain will look like we

have compared the three firms on different scales: profitability, efficiency and leverage. In addition, we

examined some strategic steps that Zain can undertake in order to improve its performance.

Table 2: 2011 Operator Financial Comparison (000 SAR)

Table 3: 2011 Operator DuPont Analysis

STC Mobily Zain

Profit Margin 13.88% 25.35% -28.74%

Asset Turnover 49.97% 53.47% 25.05%

Financial Leverage 237.49% 203.94% 622.95%

ROE (book) 16.48% 27.65% -44.84%

4.1. Revenue Analysis

Revenue in the telecom industry is generated from the three prime sources: usage charges, subscription

fees and activation fees. Operators enroll most of their customers in pre-paid plans. While this strategy

allows more control of bad debt (payment default of the mobile users), it significantly reduces the

upside potential for revenues. In addition, operators need to find ways to incentivize their customers to

Revenue and Expense of 2011

Sales

Expenses % of Sales Absolute % of Sales Absolute % of Sales Absolute

Cost of Sales 43.72% (24,333,827) 48.51% (9,727,832) 52.23% (3,498,893)

Distribution and Marketing 13.34% (7,424,448) 5.42% (1,086,069) 29.44% (1,972,132)

General Admin. 6.97% (3,878,940) 8.90% (1,784,031) 4.91% (329,185)

Depreciation and Amortization 15.91% (8,853,844) 10.72% (2,148,963) 25.53% (1,710,328)

Financial Charges 4.02% (2,237,858) 1.06% (213,320) 16.63% (1,113,856)

55,662,079 20,052,254 6,699,060

STC Mobily Zain

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spend more on mobile services. This could possibly be achieved by launching promotions such as free

text messages or offering discounted services. Hence, marketing becomes a significant expense for the

operators as it accounts for between 20% and 50% of the total operating expenses.

With pre-paid plans, an operator has less information on its current users because pre-paid subscribers

can terminate their usage easily, contrary to the post-paid (contract) plan. This becomes especially

apparent for the Saudi operators because the usage of phones increase significantly during the Hajjj

pilgrimage that brings high number of temporal users.

The profitability in the industry is a strong function of the Average Revenue per User (ARPU) (See Figure

3). Again, this number is reliable only to a certain extent because none of the mobile operators can track

their user base precisely.

STC remains the most profitable company in the industry with an ARPU of $24.38. We note that STC has

multiple revenue streams where GSM (telecom) accounts for 63% of it. Our analysis adjusted the

revenue numbers to ensure consistent comparison with other telecom companies: Zain and Mobily.

Figure 3: Monthly ARPU ($US) By Operator

4.2. Expense Analysis

One way to investigate the reasons behind Zain’s losses is to compare the expense level across the three

companies. Table 2 shows the main five expenses of the three firms, and the ratios of these expenses to

2011 sales.

4.2.1. Cost of Sales:

The largest expense is attributable to cost of sales, with STC having the lowest ratio at roughly 44%, and

Zain the highest at 52%. The lower ratios of STC and Mobily could possibly be due to economies of scale

$24.38

$32.58

$20.06

STC Mobily Zain

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given the size of these firms and the efficiencies that arise from their other services, such as DSL and

other broadband services.

4.2.2. Distribution and Marketing

Distribution and marketing expenses are significant across all three companies. In this category, Mobily

is the most efficient is this respect as distribution and marketing accounts for only 5.4% of revenue. STC

has a higher ratio at 13.3%, while Zain is much higher at almost 30%. Looking mainly at Zain and Mobily

as they are more focused on the mobile phone segment, which makes a significant differenc. Even in

absolute numbers, Zain spent almost twice what Mobily spent in 2011 (which amounts to roughly a

billion Saudi Riyals). The footnotes don’t detail the breakup of the expense very well for Mobily. Yet,

Zain’s expenses are well above Mobily’s numbers in advertising, promotions and sales commissions.

Although the company is by far the least efficient marketer in terms of revenue generated, Zain is

reasonably efficient in terms of customer acquisition cost, as shown in Figure 4.

Figure 4: Customer Acquisition Cost ($US) By Operator

From the chart above we can see that STC was the least efficient one, which might not be surprising

given the overall state-owned mentality of the STC. Yet, Zain managed to spend 20% more than its

major rival, Mobily. This suggests that either Zain is beyond its maximum return in terms of dollars of

advertising over increase in sales; or it should review its marketing strategy all together, and perhaps

investigate how Mobily spends its advertising dollars.

4.2.3. Capital Expenditures

Consistent with the industry trend, all firms are constantly looking for ways to expand the capacities of

their mobile broadband network; increase efficiency and meet the growing demand for internet

services, data transfer and storage. In fact, competition in the industry is driven to a major extent by

technological performance and innovation. The magnitude of capital expenditures in this industry

suggests that only few big players can in fact remain profitable.

$461.53

$219.63 $262.95

STC Mobily Zain

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The recent announcement of the LTE launch (mobile technology which is sometimes referred to as 4G)

was made by the three major operators in the market within days of each other in September 2011. This

demonstrates the importance of innovation for this industry.

One way to assess industry’s ability to acquire long-term assets or invest in infrastructure would be to

compare the ratio of Cash Flow from Operating Activities to Capital Expenditure. It becomes apparent

that Zain’s current operations do not cover its capital expenditures. These are mainly financed through

issuance of long-term debt

Table 4: Cash Flow from Operations to CAPEX Ratio

STC Mobily Zain

CFO/Capital Expenditures 2.24 1.81 0.12

In absolute terms, STC spent twice that of what Mobily spent and ten times what Zain spent.

Investment in telecommunications infrastructure and equipment represents 75% of the total PP&E

account. This proportion is consistent among the three operators.

Table 5: CAPEX By Operator

STC Mobily Zain

Capital Expenditures (SAR) -$7,837,438 -$3,700,297 -$712,601

Capital Expenditures (USD) $2,090 $987 $190

(in '000,000)

Clearly, STC has the largest amount of investment capital available for its expansion. At the same time

we should note that Zain utilizes its PP&E the best with each dollar in PP&E generating $1.65 in sales.

Table 6: Sales to PP&E Ratio

STC Mobily Zain

Sales / PP&E 1.010 1.222 1.650

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4.2.4. Depreciation and Amortization

The depreciation expense includes depreciation of tangible assets (such as PP&E) and amortization of

intangible assets (such as GMS license). Although Zain’s depreciation expense was only 1.7 billion riyals,

compared to 2.1 billion and 8.9 billion riyals for Mobily and STC respectively, Zain’s expense as a

percentage of sales is much higher than that of the other two firms. We confirmed that all three

companies depreciate their telecommunication equipment (PP&E contribution to depreciation) using

useful lives of between 7 and 8 years. However, Zain’s depreciation is much higher due to the high

underlying book value of its GMS license, which accounts for more than 50% of the depreciation

expense for Zain and only 23% for Mobily. STC does not report its amortization for intangible assets.

4.2.5. Financial Charges

This is a very critical expense as it amounts to 16% of Zain’s revenue, compared to only 4% and 1% for

STC and Mobily. Due to the high debt that Zain had to incur to finance its license, Zain is paying more

than a billion Saudi Riyals every year on interest expenses. With a very minimal tax rate (around 1%),

there is virtually no tax shield advantage from this debt.

4.2.6. Selling and General Administration

General administration expenses for all three firms are below 10%. Zain has lower spending in this

category, which might be partially due to lower bonuses and profit sharing as a result of the losses.

4.2.7. Zakat and Tax Expenses

Zakat is simply an Islamic Finance term for taxes in Saudi Arabia. Zakat expense is very low with an

average effective rate of roughly 1% of pre-Zakat income, based on the earning statements of STC and

Mobily. As a result, the value of the tax shield is very minimal. As for the tax expense in STC’s financial

statement, that is due to the company’s operations in foreign countries, which is not relevant to Zain

KSA.

5. CONCLUSIONS FROM FINANCIAL ANALYSIS

5.1. Licensing Fees

There are a number of reasons behind the losses of Zain. The first is the high license fee that Zain had to

incur to operate in the Saudi market. Zain had to pay $6.1 billion for the license in 2008, which is almost

twice what Mobily had to pay in 2005 ($3.45 billion). STC never even had to pay for its 2G license

because of its public-private structure. All three operators paid approximately $200M for their 3G

licenses.

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This initial high capital expenditure had various negative effects on Zain. First, due to the high license

fee, the depreciation and amortization expense would be significantly higher compared to Mobily,

resulting in bigger operating losses. Even though depreciation isn’t an actual cash flow, the accumulated

net losses of the firm can trigger a freeze on the stock of the firm to force a restructuring and

recapitalization, which is likely to happen in the coming months.

The high license fee has forced Zain to take on a lot of debt to finance the operating license. This raised

the firm’s leverage (debt to value) to 66%, compared to 42% at STC and 31% at Mobily. High leverage

increased the cost of equity and burdened the company with high interest expenses.

The short-term liquidity of Zain is also worrisome when compared to its two counterparts. The current

ratio indicates that the company barely has any liquid assets to meet its short term debt obligations.

Table 7: Current Ratio Analysis

STC Mobily Zain

Current Ratio 0.870 0.548 0.157

5.2. Economies of Scale and Scope

Aside from the initial high CAPEX, Zain is also operating under significant disadvantages from economies

of scale. With only 17% market share, Zain’s fixed costs are distributed over a smaller number of users

compared to the other two players.

Since Zain operates with an underdeveloped infrastructure, it often has to pay additional network access

fees to its competitors in order to have a fully operational coverage. In total, Zain pays 32% of its

revenue for the network access, which is higher than the 20% and 17% that Mobily and STC pay for

network access.

Additionally, Zain operates in the mobile phone segment of the telecom industry only. It is at

disadvantage in economies of scope. STC has also a landline segment of the market, in addition to the

DSL and internet services. Mobily operates in WiMax/internet broadband segment. Both of the

competitors are diversified into less competitive segments, and have the ability to attract the customers

through promotions that package these services along with mobile services.

5.3. Marketing Efficiency

Another notable high expense is the marketing expense, which amounts to twice Mobily’s spending.

Although Zain has the most efficient marketing based on attracting new customers, Zain is much weaker

when the efficiency is based on revenue generated as was discussed earlier in this report.

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6. FUTURE OUTLOOK

The most imminent threat to Zain is the $2.6 billion loan that is due in about two months. It appears,

however, that the company will survive it and be able to refinance as it heads into the restructuring and

recapitalization. It was announced that the restructuring plan will consist of a $1.6 billion cash infusion

through a rights offering. This will help Zain to do both: pay a significant portion of the debt and to

expand the coverage network. With lower debt and better coverage, Zain is expected to have lower

interest expenses and lower access charges in its expected future cash flows.

Although we are expecting that Zain will be able to pay a portion of the debt and refinance the rest, the

debt to equity ratio remains relatively high and keeps the company under a notable default risk. So far,

Zain has been able to keep rolling over and refinancing the debt because of the lenders’ trust in the

rapidly growing telecom industry. With the high profits that STC and Mobily are generating, the banks

believe that Zain is more valuable as a going concern and that it will eventually be able to become

profitable and pay down its debt. However, Zain will have to maintain this trust by improving its

operation efficiency to ensure its long-term presence in the Saudi telecom market.

One way to do that is to improve its marketing efficiency. So far, Mobily has been the most efficient in

marketing, with STC and Zain trailing. With roughly 2 billion Saudi Riyals spent on distribution and

marketing, we think that there is a significant room for cost cutting before the company reaches

Mobily’s spending level of 1 billion Riyals. Although this can have negative effects on the market share

growth, it would improve the company’s ability to pay down its debt.

Besides marketing efficiency, Zain might consider diversifying its revenue stream by entering other less

competitive market segments, as Mobily did with the acquisition of Bayanat. This diversification would

reduce the risk of future cash flows, and might improve the profit margins due to the less competition in

the new segment. Moreover, Zain will have the ability to attract customers by combining the various

services into promotion packages.

One other action that Zain can take is to try and renegotiate the license fee, which is the prime cause

behind the consecutive losses that the company had. There might be some room for renegotiation as

the fee was almost twice what Mobily paid, even though the market was more saturated when Zain

entered. In addition to that, Zain should keep pushing the communication and information technology

commission to add more regulations and reduce the access charges that Zain has to incur as a new

entrant with significant disadvantage in infrastructure.

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Net Income 2011 2010 2009

Revenue 6,699,060 5,934,370 3,004,052

Cost of revenue (3,498,893) (3,403,922) (2,127,026)

Gross profit 3,200,167 2,530,448 877,026

Operating Expenses

Distribution and marketing (1,972,132) (1,848,666) (1,573,741)

SG&A (329,185) (351,143) (375,898)

Depreciation (1,710,328) (1,494,220) (1,394,310)

Operating Expenses (4,011,645) (3,694,029) (3,343,949)

Operating Profit (811,478) (1,163,581) (2,466,923)

Other income/(expenses

Financial Charges (1,113,856) (1,195,511) (633,742)

Commission income 138 665 1,316

Net Income (1,925,196) (2,358,427) (3,099,349)

Zain Income Statement

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2011 2010

Net loss (1,925,196) (2,358,437)

Adjustments

Provision for bad debt 76,461 159,889

Depreciation and amortization 1,710,328 1,494,220

Provision for slow moving inventory items 750 2,250

Finance Charges 1,113,856 1,195,511

Provision for employees end of service benefits 7,415 6,981

Operation income before changes in working capital 983,614 500,414

changes in working capital

accounts receivable 380,131 (623,808)

inventories (15,568) 8,373

prepaid expenses and other assets (193,179) (103,052)

accounts payable (344,621) 289,711

due to related parties 90,254 139,720

deferred revenue (16,950) 200,083

accrued expenses and other liabilities (786,365) 622,474

cash generated from operations 97,316 1,033,915

financial charges paid (183,530) (571,186)

provision for employees end of service benefits, net (1,310) (285)

Net cash (used in) from operating activities (87,524) 462,444

Investing Activities

Purchase PP&E (712,601) (284,633)

Additions to intangible assets (8,815) (24,234)

Sale of PP&E 1,727 1,217

Net cash used in investing acitivities (719,689) (307,650)

Financing Acitivities

Notes Payable 410,592 (2,152,219)

Shory-term borrowing facility (2,193,750) 2,193,750

Proceeds from long-term borrowing 2,223,529 0

Syndicated Murabaha Financing 91,945 0

Advances from shareholders 353,053 0

Net cash from financing activities 885,369 41,531

Net change in cash position 78,156 196,325

Beginning Cash 702,117 505,792

Ending Cash 780,273 702,117

Zain Statement of Cash Flow

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2011 2010 2009

Assets

Current assets

Cash 780,273 702,117 505,792

Accounts Receivable 1,006,574 1,463,166 1,007,247

Inventories 43,617 28,799 39,422

Prepaid expenses and other assets 601,706 408,527 297,475

Total Current Assets 2,432,170 2,602,609 1,849,936

Non-current Assets

PP&E 4,058,813 4,298,200 3,846,700

Intangible assets 20,252,778 21,154,628 22,133,477

Total non-current assets 24,311,591 25,452,828 25,980,177

Total assets 26,743,761 28,055,437 27,830,113

Liabilities

Current Liabilities

Notes payable 915,876 0 2,152,219

Short-term borrowing facility 0 2,193,750 0

Syndicated Murabaha Financing 9,747,638 0 0

Accounts payable 1,609,284 2,104,503 1,814,792

Due to related parties 26,673 117,294 51,365

Deferred revenue 434,392 451,342 251,259

Derivative financial instruments 45,781 0 0

Accrued expenses and other liabilities 2,731,184 2,587,223 1,964,749

Total Current Liabilities 15,510,828 7,454,112 6,234,384

Non-current liabilities

Notes payable 153,937 659,221 0

Long-term borrowing facility 2,223,529 0 0

Syndicated Murabaha financing 0 9,655,693 9,494,023

Advances from shareholders 4,018,550 3,665,497 3,468,827

Due to related parties 520,651 339,776 0

Derivative financial instruments 0 134,630 0

Provision for employee's end-of-service benefits 23,201 17,096 10,400

Total non-current liabilities 6,939,868 14,471,913 12,973,250

Total liabilities 22,450,696 21,926,025 19,207,634

Shareholders' equity

Share capital 14,000,000 14,000,000 14,000,000

Hedging reserve (45,781) (134,630) 0

Accumulated deficit (9,661,154) (7,735,958) (5,377,521)

Total shareholders' equity 4,293,065 6,129,412 8,622,479

Total liabilities and shareholders' equity 26,743,761 28,055,437 27,830,113

Zain Balance Sheet