Etisalat to take Dh616m hit from Mobily accounting troubles

Mobily said that accounting changes would increase its 2014 loss by about Dh813 million.

Mobily, also known as Etihad Etisalat, is Saudi Arabia’s second-biggest mobile operator. Courtesy Mobily

The telecoms operator Etisalat will take a hit of Dh616 million before federal royalty as accounting changes at Mobily, its Saudi unit, increase its losses for last year.

Etisalat said that its net profit this year would also be affected by about Dh204m, after Mobily increased its provisions on receivables due from another operator that will be registered in the second quarter.

“We are in discussions with our external auditors on this matter,” the company said.

Etisalat’s revenue for last year was Dh48.8 billion, up 26 per cent from a year earlier.

Etisalat, which last week announced that it would allow foreigners to invest in its shares, yesterday lost 0.71 per cent to Dh13.90.

“The restatements and provisioning in Mobily will affect Etisalat, which owns a 27.5 per cent stake in the entity [Mobily],” said Nishit Lakhotia, the head of research at Sico Investment Bank in Bahrain.

“Our estimate suggests an effect of about 7 per cent on Etisalat’s 2014 earnings and between 2 and 2.5 per cent on the 2015 financial results.”

In April, Etisalat posted a first-quarter net profit increase of 8 per cent year-on-year to Dh2.2bn. The Abu Dhabi company operates in 19 markets in the Middle East, Africa and Asia, including Egypt, Morocco, Sri Lanka and Afghanistan.

Mobily, also known as Etihad Etisalat, is Saudi Arabia’s second-biggest mobile operator. It has been under investigation by the Capital Market Authority (CMA) since late last year because of alleged accounting irregularities that led to the company restating 18 months of earnings. “The investigation is not over. The investigation is still continuing,” said Abdullah Kahtani, CMA’s spokesman.

“The team is investigating and inspecting Mobily’s documents, and in case of suspicion they would raise the issue to assess if there is a financial effect.”

Mobily’s shares have been suspended from trading since June 8, after the CMA team raised concerns over the accounting approach used in some of Mobily’s contracts.

In response, Mobily disclosed to the Saudi stock market yesterday that because of a change in its auditing practice its losses for last year would widen by 830m riyals (Dh813m) to 1.74bn riyals. The accounting change would also result in its first-quarter earnings for this year rising by 207m riyals, leading to a net profit of 8m riyals.

“The revised 2014 financial statements and first-quarter 2015 financial statements will be reissued before the announcement of the second-quarter 2015 financial statements,” Mobily said.

Mobily in November suspended its chief executive, Khalid Al Kaf, and said Serkan Okandan, the deputy chief executive, would be running the company’s operations.

“For Mobily, the company is under transition after recent management changes. It needs to rebuild investor confidence and improve profitability in the coming quarters,” said Mr Lakhotia.

“Investors will be closely watching Mobily’s financial results in the third and fourth quarters, which hopefully will have no more major one-offs and will provide an idea of its sustainable profitability levels.”

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