Saudi Telecom's fourth quarter profit drops as expenses increase

Company expects to book profit from the Careem sale in its 2020 first quarter results

A Saudi Telecom Company (STC) telecommunications store is illuminated at night in Riyadh, Saudi Arabia, on April 22, 2016. Waseem Obaidi for The National *** Local Caption ***  002Riyadh assignment_.jpg
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Saudi Telecom Company (STC), the biggest telecommunications operator in the kingdom by market value, reported a 22 per cent drop in fourth-quarter net profit due to lower operating profits and a rise in expenses.

Net profit for the three months to December 31 fell to 2.41 billion Saudi riyals (Dh2.36bn), the company said in a statement to Saudi Arabia’s Tadawul stock exchange, where its shares trade. Operating profit for the period slid 31 per cent year-on-year to 2.4bn riyals. Revenue, on the other hand, remained flat at 13.27bn riyals during the quarter.

Profit was impacted as operating expenses rose 928 million riyals due to continued investments in 5G network infrastructure, its fibre optics network and large investments in software and systems related to cloud computing services, managed services and cyber security, the company said.

The company’s strategy "to invest in new and diversified domains along with the excellent performance from all STC’s subsidiaries and business units, supported by the increase in the number of mobile and fibre optics customers and data revenue" led to an increase of 4.6 per cent in the company’s annual revenue, the company's chief executive Nasser bin Sulaiman Al Nasser said in the statement.

For the full year, net profit slid 0.2 per cent year-on-year to 10.75bn riyals despite increases in revenue and operating profit. The 4.6 per cent annual increase brought revenue to 54.3bn riyals and operating profit climbed 1.9 per cent to 12.4b8n riyals.

Saudi Telecom is majority-owned by the kingdom's Public Investment Fund, which holds a 70 per cent stake in the firm, according to stock exchange data.

The company launched a new, unified brand identity in Saudi Arabia, Kuwait, Bahrain and its subsidiary companies in the last quarter of the year, which helped to boost the firm's brand valuation, it said in the statement, contributing to its climb of this week's annual Global 500 rankings by Brand Finance. It moved up to 242nd place, from 283rd a year earlier, with a brand value of 26.6 billion riyals ($7.1 billion), the report said.

Although a cost efficiency programme drove earnings before interest, taxes, zakat, depreciation and amortisation higher by 7.3 per cent, finance costs rose by 371m riyals on the back of its $1.25 billion (Dh4.59bn) sukuk issuance, it said.

The company also said results announced on Thursday did not include the profit STC would make from its 8.88 per cent stake in Careem, following the closure of Uber’s acquisition of the Dubai-based ride hailing firm earlier this month. The impact of this deal is expected to be booked during the first quarter of the 2020.

“STC’s fourth quarter headline numbers came in rather soft, missing our estimates at all levels and declining both year-on-year and quarter-on-quarter,” EFG Hermes said in a note.

“The weakness in the numbers was caused by both lower-than-expected revenue – the reason of which was not explained by the company – and margins; the latter was due to an increase in costs of customer acquisition and rebranding expenses," the Egyptian investment bank added.

In a separate statement, Saudi Telecom proposed a 10 per cent interim dividend for the fourth quarter.